With owners of private capital, such as HNW and UHNW families, increasingly involved in commercial real estate, they also have to be mindful of risks that they can be exposed to, such as triggering property taxes. We talk to a Bay Area legal expert about the sort of considerations that apply.

With private investors increasingly plugging gaps in institutional money when it comes to commercial real estate, wealthy families must navigate the tax, legal and investment challenges to make the most of this asset class.

Private wealth investors put more than $600 billion into the commercial real estate market in the US from 2013 to 2024, according to figures from JLL. In 2024, that study also said that private capital had begun filling the void of institutional capital flow in commercial real estate (CRE) investing.

What’s drawing people to the area?

“A lot of high net worth people have had liquidity events and they are looking to diversify portfolios,” Jennifer Johnson (main picture), partner at Lathrop GPM LLP, based in California’s Silicon Valley, told Family Wealth Report in a recent call. “There remains a great deal of accumulation of wealth in the Bay Area.”

“In my practice, I am seeing an increase of interest in the commercial real estate sector. It [real estate] is part of the American Dream and a pillar of investment,” she said. 

Across real estate more generally, this publication has reported that brick-and-mortar investment is a major focus for family offices, for example, with 44 per cent of global family offices questioned by Knight Frank saying they intend to hike allocations. 

Worldwide, private wealth contributed a “formidable” $1.5 trillion in private deals into the world’s commercial property market between 2013 and 2024, with the Americas taking the single largest chunk, JLL said in its early-May report. Between 2013 and 2024, the Americas attracted $643 billion in capital. During the same period, Europe, Middle East and Africa commercial real estate received private wealth investments of $566 billion, while Asia-Pacific saw direct deals worth $318 billion.

The US proved to be the most popular investment destination over the decade drawing 40 per cent of all private wealth investment volumes in commercial real estate, ahead of the UK (10 per cent), Germany (7 per cent), Australia (6 per cent) and Hong Kong (4 per cent). Japan, France, the Netherlands, Canada and Sweden rounded out the top 10 recipients between 2013 and 2024.

Extensive portfolios
Johnson works with high net worth clients who often have extensive commercial real estate portfolios that are either inherited or strategically built. Johnson has more than two decades of experience negotiating some of the country's most significant real estate transactions, including serving as primary real estate counsel to Fortune 500 companies in multi-hundred-million-dollar Class A office leases. She said that LGPM is one of few AM Law 200 firms with a national real estate practice with such a breadth and depth: it supports clients with acquisition, disposition, leasing, tax planning and incentives, land use and development, environmental issues, and construction. 

One area where legal expertise comes in is tax. And tax is right up the agenda with The One Big Beautiful Bill Act, as advocated by the Trump administration. Among the features most likely to interest wealth advisors is that the estate, gift and generation-skipping transfer tax exemption amounts will be $15 million per person beginning in the 2026 tax year, up from the $13.99 million exemption amount in effect for 2025. Another aspect is that it increases the individual deduction cap for specified taxes including state and local sales, income – and property taxes. (The bill has been criticized on various grounds, for example, for making public sector debt even more of a problem, and disproportionately helping HNW individuals over the wider public.)

Whatever the pros and cons of this or that piece of tax law, Johnson and colleagues remind clients that they must be mindful of changes to the way CRE assets are held to avoid triggering certain types of tax. For example, if families go their own way to own a set of properties or, in some cases, sell them off as separate parcels, this can make them susceptible to tax liabilities.

Effective tax planning is key in these cases. 

Exposure control
A big concern for real estate holders and investors is how to manage and limit exposures to problems. An amount of planning and legal work is carried out with respect to ownership structures and to change these structures; there is also the limitation of liabilities and exposure, and there is tax planning. Changes can, in a state such as California set off property tax increases and, in some cases, transfer taxes. However, California is not the highest state for property taxes. The Golden State has an effective rate of 0.76 per cent (source: belonghome.com), with Hawaii at the bottom (0.27 per cent) and New Jersey at the top, at 2.23 per cent.

On a related point, an area of advice that Johnson gets involved in is the use of a 1031 exchange, or “like-kind” exchange. This is a tax-deferred strategy. Property investors can defer capital gains taxes when they sell a property and put the money into a new, similar property. There are strict rules that must be followed to consummate an exchange, such as what “like-kind” means, staying within required deadlines and satisfying the “same taxpayer” rule.