How Do Family Offices Invest in Real Estate Funds Versus Direct Deals?
Short answer. Family offices use real estate funds to gain exposure through a manager, while direct deals give them more control over property selection and management. The choice depends on the family's skills, available time, liquidity needs, and investment goals. Some families combine both approaches as part of a broader portfolio.
Family offices use funds to invest in real estate without building a team to select and manage each property. Direct deals suit families with the expertise, time, and staff to take an active role. Many families combine the two with other assets to match their goals and resources.
What Funds Offer
A family can invest through a publicly traded real estate investment trust, a real estate investment firm, or a private real estate fund. A REIT trades on an exchange and offers a more accessible, liquid way to invest in real estate without managing property directly. Private funds pool investor capital to acquire properties or securities. In either case, a manager makes investment and operating decisions within the investment structure.
This arrangement can suit a family without enough in-house capacity to find and evaluate properties or oversee them. The tradeoff is less direct control. Before committing capital, understand the manager's strategy, fees, reporting practices, and decision rights. My guidance on evaluating fund managers can help frame that review.
What Direct Deals Require
Direct ownership puts the family closer to the asset. A family might acquire an apartment building, office property, hotel, or other real estate and take responsibility for its day-to-day operations, financing needs, upgrades, and eventual sale. This can appeal to families with relevant property or operating experience, especially when they believe they can improve the asset themselves.
Control comes with work. The family needs people who can find opportunities, examine properties and finances, oversee operations, report on results, and handle other ongoing tasks. The investment also ties up capital in one asset, which can make it harder to adjust the portfolio quickly. If the family lacks property expertise or staff capacity, direct ownership can bring duties that a fund manager would otherwise handle.
Choose a Structure That Fits the Family
There is no single model that fits every family office. Some focus on real estate, while others combine property with operating businesses or a diversified portfolio. A family can also use a fund for one part of its real estate exposure and direct deals for assets where it has a distinct advantage.
Before choosing, write down what the family wants from real estate, how involved it expects to be, what resources it can commit, and how much liquidity it needs. These decisions should fit the broader portfolio model and asset allocation as part of the same plan. A clear investment policy can help keep fund commitments and direct acquisitions aligned with the family's priorities.
For a fund, assess the manager and terms. For a direct deal, assess the property, operating plan, team's capacity, and its ability to carry out the work. In both cases, use a consistent process to screen opportunities, review risks, and monitor performance after investing.
Many families do not invest broadly in the stock market or through investment funds but instead have a mix of a real estate and private equity strategy.
Sources: How to Start a Family Office, The Single Family Office. Informational only, not financial, legal or tax advice.