The Need for a Family Office
Wealthy family-owned real estate enterprises enjoy prosperity gained through business and market acumen and smart investment strategies. In order to preserve the family’s legacy and ensure continued wealth and success, many recognize the need to create family offices. These formal organizational structures are designed to manage the diverse desires of the family members into the future. They vary based upon each unique family situation but they all have three main functions: to manage investments, develop and maintain administrative practices, and create governance/human resource policies.
Considerations for Family Office Formation
First is actual wealth. In general, a totally independent single family office is cost justified when overall wealth exceeds $100 million.
Then there are the many potential trigger points that may inform the need, from interpersonal issues to life cycle changes to considerations regarding real estate assets. These include:
- Family member/stakeholder transitions – changes in marital status, death;
- Retirement and estate planning;
- Partnership discord or dissolution, divergent objectives;
- Changes in tax or in external economic, real estate market or regulatory conditions;
- Opportunities to sell or merge proposed by third parties;
- Diversification and/or pursuit of new opportunities for value accretion;
- Management succession;
- Dilution of distributions to family members due to multi-generational growth;
- The complexity of real estate in estate tax planning;
- Variability of cash requirements for leasing, property improvements, etc.;
- Opportunities for value enhancement through repositioning or redevelopment of existing properties or through trading activity.