What Family Offices, HNW Individuals Want From Real Estate - A West Coast View

Tom Burroughes

23 August 2019

This publication continues to chart alternative investments and one of the core ones is real estate. We talk to StarPoint Properties’ head of investments and capital markets, Lonnie Vidaurri, who was appointed to his post more than a year ago. StarPoint is based in Beverly Hills, California. Vidaurri previously worked at Ladder Capital Corp, and has experience at Lehman Brothers, Barclays and OneWest Bank. In his present role, Vidaurri is charged with overseeing acquisitions and lining up debt and equity capitalization for its deals. StarPoint Properties focuses on the West Coast.

What sort of real estate does your organization invest in? Please elaborate on the structures it uses for property investments?
We invest in all properties except hotels. All our investments are structured as LLCs, and typically the equity is sourced through combinations of 1031 exchange funds and private capital.

What sort of clients does it have and do these include HNW individuals and family offices, private banks and trusts? If so, what sort of investments and returns are such clients looking for and why?
Our capital is typically high net worth private investors. Last year, we acquired three commercial assets in California: a 12-story office in Beverly Hills, high street retail in Santa Monica, and a research and development park in Los Angeles County. This year, we have acquired one multi-family investment in Texas and are under contract to acquire two development parcels in coastal California. Returns are commensurate with the risk profile. We tend to focus on value-add returns. We look at entitlement risk vs. development risk vs. lease-up risk vs. stabilized assets with cash flow with below-market rents.

Does tax play much of a role in determining investments that you like/avoid?
Yes. Historically, we use 1031 exchanges to defer capital gains exposure and protect equity. Currently, we are focusing on QOZ and will be closing our first investment at the end of July.

Real estate has often been important in family offices' portfolios because it is an asset family offices understand. Is that broadly still the case? Are you finding any changes in how investors think about real estate today in terms of what it can do in a portfolio?
I think family offices still like the tangible nature of real estate. Given the current late-cycle environment with abundant liquidity, attractive risk adjusted returns are scarce.

Are there risks in real estate investing that you think investors are often not fully aware of? How much of what you do involves trying to educate clients?
Since we have been actively investing for 25 years, the firm tends to have a loyal and steadfast investor base. We are constantly challenged to time capital markets and identify the appropriate timing to utilize fixed versus floating rate debt. Luckily today, we have many options.

Are there case studies that stand out as examples of investments that worked well?
Most are available on our website. Our firm’s goal is to deliver asymmetrical returns. Since inception, our track record speaks for itself. Our PR firm can provide you with links to our recent transactions.

How have developments such as changes to estate tax affected your market, if at all?
It’s unclear. The QOZ tax incentives have created a lot of buzz. We shall see if it results in achieving its intended purpose. To maximize the tax advantages, investments must be held for 10 years.

Do you think family offices are taking undue risks by direct investing ? What sort of challenges should FOs be aware of before going "direct"?
I do not have sufficient data to comment on your first question. However, most of the family offices I have worked with tend to be sophisticated and well informed. I think the main diligence item for going direct is to vet the sponsor’s track record and execution capabilities.

Are club deals and JVs also common in your experience as far as family offices and some individuals are concerned?
Yes.

Do you act for only US buyers/sellers or are you international?
We are currently only domestic.

Any other points you would like to make? Are there actual investors/commentators whom you look to for inspiration and who have provided great lessons?
There are a great many lessons. I am currently reading Principles by Ray Dalio.