Family Office

EXCLUSIVE: Family Offices' Contrasting Property Investment Stories

Alastair Graham 30 June 2020

EXCLUSIVE: Family Offices' Contrasting Property Investment Stories

Drawing on the data from Highworth Research, with which this publication is a media partner, we look at the different property market experiences of family offices in Europe and elsewhere.

Alistair Graham, founder of Highworth Research, whose database has details of what single family offices in Europe, the Middle East and elsewhere are up to, talks about some of the property investment behaviours coming to light amid the COVID-19 pandemic. WealthBriefing is exclusive media partner with Highworth. ((To receive information about accessing the Highworth Research database, click on this link.)

In June 2020 Pontegadea, the family office of Amancio Ortega, Chairman of fast-fashion multinational Inditex, took legal action against H&M, owned by the family of Stefan Persson, for non-payment of $1.3 million in rent on H&M’s 4,000 sq.m. store in Powell Street, San Francisco. 

For a family office to sue another billionaire family is a rare event but times in the retail property business are hard. Most retail businesses and owners of retail real estate have fared badly in the coronavirus crisis and family offices associated with either have seen significant impairment of AuM as a result. 

Real estate has always been a core asset class in family offices’ investment portfolios, but the virus has now introduced new challenges for asset allocation in this sector.

Commercial real estate market suffers major downturn
Private capital has increasingly supported investment in office buildings in recent years but now family offices are concerned about whether increases in unemployment, coupled with the growth in home-working and the use of video meetings, will reduce demand for office space. 

Equally, family offices with investments in retail real estate, or hospitality, are anxious about whether tenants will pay rent or whether they themselves will meet their debt covenants on a building. 

Only one or two family office owners of massive shopping mall interests, such as Australians Frank Lowy or Sam Alter, had the foresight to exit the mall business a couple of years before it turned sour from consumers’ shift to online shopping and the shut-down caused by COVID-19.

Residential property hit but family offices invest for the long term
According to the Single Family Offices Database published by Highworth Research in association with WealthBriefing, as much as 51 per cent of family offices in Europe allocate capital to residential real estate. Yet even this apparently safe segment of the property market is facing serious headwinds. 

Savills forecast in April 2020 that housing transactions in the UK this year will fall by 20 per cent to 40 per cent from the past five years’ average, and will recover to only 60 per cent to 80 per cent by January 2021. Similarly in Spain the Don Piso network of estate agents has forecasted that the Spanish housing market will contract by 20 to 25 per cent this year compared with 2019.

However, an advantage which family offices do have is that they can take a long view. In May 2020 at the height of the COVID-19 crisis, the billionaire brothers David and Simon Reuben, whose family office is Reuben Brothers in Geneva, purchased 250 hectares of land near the town of San Martin de Iglesias in the Madrid municipality, Spain and plan to build 650 homes there as well as a large hotel.

Family offices invested in logistics, farms and data centres are the winners.

But family offices which invested in real estate in sectors other than offices, retail, residential, and hospitality are facing a much more favourable future. 

Those which have investments in logistics and warehousing, agricultural land, and certain niche markets such as data centres will have reason to be positive in the midst of the COVID-19 year. 

Family offices investment in warehousing
In 2019 Aberdeen Standard Investments surveyed 123 supply chain executives on the trends shaping logistics property in 2019. Shortage of warehouse space was seen as a challenge for future expansion. International agency CBRE has commented, “Logistics is seen as one of the best asset classes to weather the current storm”.

According to the Single Family Offices Database from Highworth Research & WealthBriefing, 26 per cent of family offices in the EMEA region have investments in industrial real estate, or warehousing and logistics buildings. Examples from the Database include:

- Ferd A/S in Norway, whose diversified real estate portfolio, including warehousing in the Oslo region, was valued at $322 million in 2019; and 
- Delin Capital (UK) Ltd is the family office of former Georgian, now UK citizen Igor Linshits. The primary investment focus of his family office’s investment has for some years been logistics real estate. Delin is a sophisticated and experienced logistics investor with a portfolio of warehousing assets in the UK, Germany, Spain, Belgium and The Netherlands valued at about €400 million ($449.6 million).

Family office investment in data centres
“Demand for data centres continues unabated, driven by global cloud providers,” according to Bob Tan of international property agency JLL. Developments are expected to accelerate with the roll-out of 5G, with returns tending to be higher than traditional real estate sectors, according to the international property agency JLL. The coronavirus has multiplied demand for digital transactions, accelerating requirements for data centre expansion. “The data centre sector is one of the best protected in the current downturn…there is big demand from the hyper-scale companies” according to another international real estate agency CBRE.

Data centres comprise a micro-segment of the real estate market but the rapid growth it has shown in recent years has been unaffected by COVID-19. Examples of data centre investors from the Highworth Single Family Offices Database are, of course, less numerous that those in the currently vulnerable real estate sectors, but they will not have suffered impairment in the current climate. They include:

- Peterson Capital in Hong Kong, which invests in data centres as part of a diverse real estate portfolio; 
- Reuben Brothers SA in Switzerland (again) which includes data centres in its massive $15bn plus real estate investment portfolio; and  
- Orascom TMT Investments Sarl in Luxembourg, the family office of Naguib Sawiris, which is one of two limited partners in the ACDC Fund which itself is in partnership with Switch in the US in the ownership of Supernap International, a global developer of data centre facilities. 

Family office investments in agricultural land
National self-sufficiency in food has been one of the many questions raised as a result of the pandemic and, in Britain’s case, by the threat of a no-deal Brexit. A limited number of family offices have invested in agricultural land on a large scale and will be unaffected by COVID-19. Agricultural land values in England, currently averaging around £7,000 ($8,593) an acre according to property agent Knight Frank, are 50 per cent higher than 10 years ago but around 250 per cent higher than 20 years ago. 

The outstanding example of a UK family office investing on a very large scale in farmland is Weybourne, the family office of Sir James Dyson, which owns 35,000 acres of prime agricultural land in England. The latest filed accounts (2018) for Beeswax Dyson Farming show net assets of £527 million. 

Sir Michael Hintze’s family office has also allocated substantial capital to farmland. It holds, through MH Premium Farms, 6.074 acres in England and 177,800 acres in Australia. Sir Michael’s hedge fund CQS has reportedly lost $1.4 billion in the March to May pandemic period, according to the Financial Times. The stability of his agricultural land holdings will be providing him with a degree of comfort.

More family offices in future may be heading for the exit door in retail space and office buildings and starting to freshly appraise the opportunities for investment in farmland, logistics, and data centres.


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