UBS: RE a bright spot for family offices

Real estate buoyed disappointing returns for family offices last year, according to a report from UBS.

Real estate and private equity were two bright spots in an overall challenging market for family offices, said a report from UBS and family office advisor Campden Wealth.

In the Global Family Office Report 2016, released last week, the firms noted that family offices saw only a 0.3 percent return in 2015, compared with 6.1 percent in 2014 and 8.5 percent in 2013. But, investments in real estate investment trusts in Europe and the US performed much better, but the report did not break out individual returns for direct real estate.

“As long-term investors, family offices continue to see real estate as the bedrock of their portfolios,” said Philip Higson, vice chairman of UBS’ global family office group, in a statement last week. “There is a distinction between real estate as an 'asset class' managed by a dedicated team in the family office, typically 'develop to hold’ or buy and hold, with cash yield as a key consideration, and those families where real estate is the core business activity and development is more important to the strategy.”

In the annual report, UBS and Campden Wealth surveyed principals and executives in 242 family offices with an average size of $759 million assets under management, including an average of $114 million invested in real estate. Similar to last year’s findings, local holdings comprised about half of family offices’ portfolios, as investment managers tend to favor familiar markets. The report found that 42 percent of family offices plan to increase their allocations to real estate, while 42 percent will keep investments at their current levels.

Allocations within family offices’ real estate portfolios were almost evenly split between commercial and residential, with 56 percent of the portfolio invested in the former and 44 percent in the latter. In a change from last year, survey respondents now expect residential real estate to perform better than its commercial counterpart, in part due to the UK’s vote to leave the European Union.

“We suspect that Brexit has played a part in shifting return expectations for commercial property in Europe,” said Stuart Rutherford, Campden Wealth’s director of research, in a statement last week. “That said, the drop-off has not been dramatic and family offices are generally expecting returns at or approaching double digits across both commercial and residential.”

In 2016 predictions, family offices reported that they expect a 12.2 percent rate of return for international residential, and 10.6 percent for international commercial real estate investments.