Banks like JPMorgan Chase, Citigroup and HSBC now offer holdings—once kept for big institutional investors—to wealthy families. The projects are mainly in major cities, and include Manhattan's 1,396-foot tower 432 Park Ave and Las Vegas' Hooters hotel.
The trend caught on when the real estate market rebounded from the financial crisis, giving wealthy clients access to high-profile investments, says Paul Forshaw, London-based head of real estate fund management for HSBC Alternative Investments, which requires clients to put in at least $5M for "club" deals.
With these exclusive deals, the banks are catering to a growing class of ultra-rich investors looking for alternatives to stocks and bonds. According to Boston Consulting Group, there are more than 17,160 families with at least $100M in investable assets globally, up 27% since 2009.
These direct investments are more transparent and have lower fees and shorter terms on how long the money is locked up. For Citigroup, the minimum investment for real estate transactions is a little less, usually at least $250k, Daniel O’Donnell, global head of private equity and real estate says.
Citigroup also offers club deals at $1M minimum thresholds, which typically go to billionaire clients in the market for prime assets, such as 432 Park Ave. Participants usually have 30 days to opt in to a specific investment, Daniel says.
The bank raised more than $400M from clients for the building, which has one unit under contract for $95M. It's also raised $200M to build a 60-story hotel and condo Boston tower.
Glamour of trophy assets aside, the high-profile investments do carry risk and could take a while to pay off. Price tags in major US cities are 30% above their 2007 peak, making these investments less attractive as yields drop.
"Entering a market today brings a different bundle of risk and return than in 2010 or 2012," says Jacques Gordon, global strategist for LaSalle Investment Management, which oversees real estate around the globe. "You should be able to get more rent growth, but you are running closer and closer to the wind on pricing relative to bonds." [Bloomberg]
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