Many family offices and established family businesses have a great deal invested in real estate. For some, these are active investments involving development, construction and sale. For others, these are either residential properties in use or commercial properties held for the long term. In any event, while the real estate markets have been strong in recent past, the horizon is not so clear. Family offices and real estate-holding family businesses should be paying close attention to the signs of change as we transition out of a booming 2016 and into the unknowns of 2017.
One theme that has surfaced around many of the changing aspects of a real estate market is the expected increase in rental properties as compared to single family homes.
This is predicted for a variety of reasons. For one, the generation coming of age now – the millennials – are exhibiting different attitudes towards home ownership. They also find themselves more constrained by student debt than any other rising generation. Beyond these demographic shifts, there is also the macro-economic trend of the shrinking middle class. More than any other commodity, the rising prices of residential real estate have highlighted the drastic gaps in wealth and income in much of America. At the high end, this is driving the housing market to towards size and luxury that is out of reach of the vast majority of earners. And the increase in real estate prices – and the push towards urbanization of living – is making it such that there is no real affordable low end. Based on this, developers are looking at new and creative ways to provide “starter” homes, but are also looking more and more at rental properties.
Because the real estate market is such an anchor for many family enterprises, this is becoming an issue the family business community is paying close attention to. Find time to connect with your real estate advisors to ensure you are prepared for the changes that may be coming to this market.
Drew Steen is a business transactions Partner at Davis Wright Tremaine, LLP. He represents both buy-side and sell-side clients in mergers and acquisitions, venture capital investments, joint ventures, equity co-investments and restructurings. He also serves as regular corporate counsel for several closely-held and family-owned companies. Drew can be reached via email at firstname.lastname@example.org or directly at 206.757.8081