From exclusive data provided by Highworth Research, this news service examines real estate investment activity of single family offices. The data brings some possibly surprising facts to light.
Investment in retail
Retail real estate, already under threat from online shopping before the virus hit, now has to cope with the double whammy of the lockdown keeping consumers away from many types of store. Again, Land Securities wrote down the value of its estate by £1.2 billion in May 2020, of which £800 million was due to “the structural shift from retail” according to CEO Mark Allan, who claimed: “The virus is expected to accelerate the decline of high street retail and shopping centres.”
Over the past 20 years single family offices have been big investors in shopping malls in certain countries. In Dubai Majid Al Futtaim is the largest developer and operator of malls across the Gulf and North Africa, running 21 malls. Al Ghurair Investments follows close behind. If tourist and expat flows to the Mideast diminish over the next few years, that concentration of family capital in retail real estate will become a major issue.
In Australia, family capital has long been invested in shopping malls but there’s an interesting difference. LFG Holdings, also known as the Lowy Family Group, is the family office of Frank Lowy. The core of the family’s wealth lay in Westfield Corp, developing malls internationally, and Scentre Group, developing malls in Australia and New Zealand. In 2017 the Lowy family sold out their 4.07 per cent stake in the listed Scentre Group, and again in December 2017, sold Westfield to Unibail-Rodamco for $24.7 billion, retaining a 2.5 per cent stake in the enlarged group but taking the bulk of their sale proceeds in cash. Similarly, Australian Sam Alter, whose family office is Albany Capital Investors, sold a 50 per cent stake in two of his largest malls in July 2018 for $692 million.
Foresight? Lucky timing? Whichever it was, two of the biggest mall owners in Australia will be largely unharmed by the impact of either COVID-19 or online shopping on retail malls.
Hotels and hospitality
Hotel ownership has always been a favorite real estate sector for some family offices. There are 121 family offices, or 13 per cent of the current total of SFOs on the Highworth Single Family Offices Database, which have investments in hotels. Having to shutter those assets at the present time is painful.
But one or two avoided the problem, among them a family trust associated with Ellerman Investments, the family office of the Barclay brothers. In 1995 the Barclay family purchased the London Ritz for £75 million. In March 2020, a few days before the virus lockdown began, the family, despite internal dissension, sold the Ritz to an unidentified Qatari investor for a price reported to be in the range of £700 million - £900 million.
Family office resilience to real estate impairment
There are two main reasons why those family offices which are exposed to what are currently the weakest segments of the global real estate market, will not suffer lasting financial damage.
The first is that despite being the third most popular asset class among family office investors, real estate in most cases is part of a diversified portfolio of assets. True, a few SFOs are overly dependent on the most vulnerable types of property which will take longer to recover from the impact of COVID-19. However, they comprise less than 3 per cent of the total of 930 single family offices on the Highworth Database.
The second reason is that most single family offices invest for the long term. Two or three years of severe downturn is tolerable when seen in the context of a family investment plan designed for several generations.
In a second article to follow, we will deal with single family office investment in those sectors of the real estate market which are proving resilient to the virus' impact.