Family Offices: The Trillion-Pound Engine Behind London Real Estate
When Archegos Capital went up in smoke it inflicted $10B losses on its bankers and in the process drew attention to one of the most discrete, and best-resourced, players in global property markets: the family office.
The Archegos’ supernova event illuminated a corner of the property market that does not usually welcome light. But that is changing. Once a handful of family names hovered, silent and largely invisible, in the margins of the real estate sector. Today many thousands of these super-private family businesses are proud buyers of trophy assets. Many of those assets are in London.
That is because the world’s family offices are converging on the UK capital, searching for opportunities to place more than $1 trillion of real estate wealth.
Entrepreneurial, often self-made only a generation or two before, and with a deeply personal tie to the deals that they undertake, these super-wealthy families are a growing force in commercial real estate.
So who is spending, what do they want to buy, and how much will they pay?
What They Are Worth
No question about family offices is easy to answer: Each office is as different as each family on whose behalf it invests, and all of them guard their privacy. But this is what we think we know.
There are between 6,500 and 10,500 family offices in operation, according to Credit Suisse. The scale of the wealth under management is more or less anyone’s guess, and there have been plenty of guesses. Recent analysis suggests family offices have something like $4 trillion under management, but that could be miles off the mark. In 2019 the figure was said to be $5.9 trillion, backed by $9.4 trillion of wealth (which is not exactly the same as the capital available for investment). Things will have improved since then, thanks to a global economy that super-rewards the super-rich. Thanks to a decade of quantitative easing and loose monetary policy, there are more UHNW individuals than ever. There are now 2,500 billionaires, Forbes estimated, more than double the total in 2011.
But this is conjecture. What we can say with more certainty is that however much money family offices have, a greater proportion of it is going into real estate, and an overwhelmingly large amount of that is landing in London.
Bisnow has spoken to several key intermediaries and the consensus is that the proportion of family office wealth going into real estate has risen from perhaps one-sixth (in 2018, according to UBS/Campden) to one-fifth. But that may be an understatement because funds will be siphoned into REITs and other funds in ways that are largely out of sight.
What we can also say with confidence is that their idea of lot size has inflated considerably.
“The scale of their investment has increased dramatically," Deloitte Real Estate Senior Advisor Tony McCurley told Bisnow. "They were always in the market for £10M-£20M office buildings, but we now see them buying into skyscrapers — the Walkie Talkie tower at 20 Fenchurch Street [bought for £1.3B] is owned by a family office. Ten years ago their lot size would have been smaller, today most want to spend north of £100M on a single asset.”
If answering the “how much” question is difficult, the “what to buy” question is easier. It boils down to direct investment in prime London offices, the same for logistics if the price is right, platforms as much as (or more than) properties, and above all else, they want to buy income. On the way-out fringes they like medicinal cannabis in the U.S. and, not unrelated, science parks in the UK.
Family offices are a peculiar combination: They are risk-taking, but also patient, capital. Or, rather, they are the ultimate in safe-play buyers who, once they know a market well, will begin to act opportunistically. Sean Gaskell is director of RE Capital (formerly GMG Real Estate) and has deployed more than $500M of family office monies over a career that began with a multi-family office in Geneva.
“Family offices have more opportunities to be opportunistic, and so there is potential for higher return profiles than you would get elsewhere," he said. "They might buy into a new asset class like co-living, driving high yields, then lower the assets back into the institutional market later, which is often their endgame. So they are more flexible than much patient capital.”
Gaskell said that family offices are currently acting as a market stabiliser in central London.
“Their behaviour offers a kind of downside protection, because they are often buyers not sellers in an economic downturn. They act as a kind of market stabiliser, limiting volatility in the submarkets they like to play in. Even in the midst of a pandemic they were prepared to pay top rates.”
Alex James, Knight Frank’s head of private office, agreed. “The family offices are happy to buy in places they know, even if they can’t visit. They are buying remotely thinking they are getting some first-mover advantage, getting into the London market before international travel reopens,” he said.
“They take a longer-term view than local buyers or developers. The family offices do not take the domestic agenda, they aren’t looking for a three-to-five-year turnaround. They want very good locations in a very good city, believing that somebody will always want to occupy it.
“There is strong interest in London offices, with lot sizes up to £100-£200M, and we hear a lot about interest in supermarkets, which is red-hot. At the moment we hear a lot about beds, shed, meds and feds. So buying into residential, logistics, bioscience and anywhere that sells food.”
Regulation Is Not A Worry
RE Capital's Gaskell said calls for tighter regulation of family offices, in the wake of events like the demise of Archegos, miss the point. That is because family offices are already regulated (as limited companies or partnerships) and are in any case required to comply with money-laundering and transparency rules.
“I don’t think there is much motivation for financial authorities to regulate further, because I don't know what contagious effect [family office failure] could have on the wider market,” he said. In essence, if a family office makes a bad buy it is nobody’s problem but their own: They can’t, Archegos aside, pull the house down.
“More broadly, every lender or intermediary is familiar with the rules on transparency — know your client — so indirectly family offices are pushed into regulated spaces anyway because it is too complex for intermediaries to deal with them otherwise.”
Deloitte’s McCurley agreed. “All of the family offices are used to KYC [know your client] requirements, and for them it is a matter of course. They are quite used to UK regulation, they understand it, it doesn’t deter them.”
McCurley points to the March 2021 purchase of Athene Place, a 153K SF office block at 66 Shoe Lane, London EC4. The £255M purchase from Henderson Park was by a consortium of Hong Kong-based businesses including Wing Tai Properties, Top Paramount, Champion SPV and Sparkle Delight.
“They have all had to disclose their identities and their proportion of ownership. Ten years ago that might have made family offices feel uncomfortable, but now everyone is used to it,” McCurley said.
What binds all this together, McCurley said, is the sense that their property portfolio is personal. Personal in the sense that it is family wealth, not corporate or institutional: Each buy or sell is deeply connected to the future of kith and kin.
It is also personal in the more obvious sense that the family member in charge of the office likes to know, personally, what they are talking about. The main investment targets are places they have personally walked past, or visited, been educated in or near, or seen.
The most elusive element is the sense of personal entrepreneurship. Many family offices are deploying wealth accumulated by trading families who have only recently risen up the wealth ladder. They are (mostly) not languid aristocrats, rather they are just a generation or two from the shop or factory where the parents or grandparents made the family fortune.
“These families are often entrepreneurs, who made their money somewhere else and are now putting it into real estate. And they think entrepreneurially,” McCurley said. “That means if they decide to do something, they do it at speed, and are happy to invest opportunistically particularly when they feel there is less competition. So look at the lockdown deals in London, which have been dominated by family offices.
“This is why international travel restrictions are holding the market back because for them this isn’t just a question of mathematics, it is about investing in things they have seen and would be proud to own.
“When travel becomes easier we’ll see even more family office activity in central London. There is huge interest in places like Farringdon and Clerkenwell, they want to come over and walk around those areas before investing, and be under no doubt there are billions of pounds waiting for that moment.”
Once the flights resume, family offices will be back in London. And when they arrive, they will spend.