Herrick’s Belinda Schwartz on why family offices are outpacing institutional capital in commercial real estate

Belinda Schwartz is the executive chair of Herrick and co-chair of the Real Estate Department, where she advises family offices and high-net-worth investors on complex CRE transactions. She spoke with Crain Currency about family offices’ growing role in commercial real estate, the ways their deals differ from institutional transactions and how longer investment horizons are shaping the market.

Crain Currency: Why are family offices outpacing institutional capital in CRE right now?

Belinda Schwartz: I would attribute it to a few things. First, family offices typically have a much flatter decision-making process. I’m not saying they don’t have governance. They do, and they have a decision-making structure. But it is often easier to get a deal approved in a family office than in an institutional organization. Family offices are also careful about how they allocate capital to different asset classes and investment types, but they can change their minds if they see a great deal. At some institutional organizations, there may be a set amount allocated for one area or another, and that can make it harder to move as quickly.

What types of deals or situations give family offices an edge over institutional investors?

Some family offices only invest at the asset level. They do not want to find themselves somewhere up the capital stack, and they do not want someone else telling them when they have to sell an asset, for example. That’s one edge: total control over the asset and timeline, which institutional investors with fund-level mandates often don’t have.

Then there are other family offices that are very comfortable saying, "I can be preferred equity, I can be mezzanine debt, I can be whatever I want to be." But that means you have partners, rights, remedies and obligations, and that is a different space where they can also find a lot of opportunity. That flexibility can be a major advantage for family offices.

A lot of debt funds are owned by ultra-high-net-worth or high-net-worth founders, and there is still opportunity there. We have read a lot about some debt funds facing distress, but at the real estate level, there are still new debt funds coming into the market, and many of them are founded by high-net-worth families.

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