Direct real estate versus property funds for billionaire families
Built on Chapter 13 of The Single Family Office by Richard C. Wilson. Full chapter text: FamilyOffices.com.
Choose a property investment route the office can supervise. Direct ownership can give a billionaire family control over important decisions, but it also creates operating responsibilities. A fund hands much of that work to a manager under a set of terms the family may have little power to change.
Chapter 13 discusses the ability to begin with experienced partners before taking on complicated direct investments. I would use that principle to compare the work required under each route. The cheapest-looking structure can become costly if the family lacks the people to run it.
Start with the decision rights
List the decisions the family wants to retain. These might concern borrowing, major capital work, replacement of the operator, or timing of a sale. Then examine what the proposed structure actually allows.
Direct ownership does not automatically give every family member control. The ownership entity may delegate authority to a manager or require agreement with partners. A fund may also provide negotiated rights. Have counsel explain the actual documents instead of relying on the label attached to the investment.
Price the work inside the office
For a direct property, identify who receives the operator's report and who can assess it. Someone needs enough knowledge to question a proposed budget and understand whether a variance needs action. That responsibility should appear in the staffing plan.
Include outside specialists and the internal coordination they require. A family can hire a property manager and still need an employee who directs the relationship. If the founder expects to handle everything personally, ask what happens when the founder is unavailable.
Compare complete costs
Fund expenses are visible in the documents, though they may take work to understand. Direct ownership has its own expense burden. Legal work, accounting, oversight, and replacement of a weak operator all require resources.
Ask staff to compare the routes on a consistent basis. Do not compare a fund's full fee schedule with a direct property's purchase price alone. The office needs to understand what each cost buys and which obligations remain outside the estimate.
Examine the holding period
A family may want to own a property well beyond a fund's planned investment period. Direct ownership can fit that preference if the financing and operating arrangements support it. A fund's realization timetable may create a different set of incentives.
The family should know how extensions, sales, and distributions are decided. A direct property with short debt can have less practical flexibility than a well-capitalized fund. The financing schedule belongs next to the stated investment horizon in the comparison.
Use partners to build knowledge deliberately
The book cautions against taking on more property complexity than the family can manage. An experienced partner can help the office learn the asset class while sharing the work. That arrangement still needs diligence on the partner and a clear division of responsibility.
I would ask what the office expects to learn during ownership. Assign an employee to participate in operating discussions and keep the underlying records accessible. If every answer remains with the partner, the family may own the asset without building the capability it hoped to acquire.
Direct ownership should provide access to relevant property records. A fund provides information under its reporting arrangements. Ask whether those arrangements meet the family's needs before the commitment.
If the family requires entity-level cash planning or detailed concentration reporting, have the team test whether the manager can supply the information. A proposed fund may be a sound investment and still be a poor operational fit for an office that cannot reconcile its reports.
Give the committee an executable choice
The recommendation should name the people required under each route and the work still to be done. Explain whether the family is buying exposure, building a capability, or combining the two. Avoid treating those as identical objectives.
If direct ownership is recommended, attach the oversight plan. If a fund is recommended, identify the manager's authority and the family's remaining obligations. The final choice should leave the office able to operate the relationship it has approved.
What to take from this
- Compare actual control rights and operating responsibilities.
- Include internal oversight in the cost comparison.
This page is general information, not legal advice. Family governance documents and dispute processes should be reviewed by a qualified attorney.
Questions and answers
Is direct ownership always cheaper? The comparison needs all costs, including supervision and specialist work.
Can a family learn through a partnership? Yes, if the office receives information and participates in the operating work.