Luxury Insights

Family Matters: Why Family Offices Matter for Real Estate Professionals

Family offices are not just for billionaires anymore. As investments and fund management impact the portfolios of people in nearly all economic classes, it is important that real estate professionals in the luxury market take note of the ways individuals and families manage their assets. For the enterprising, the family office is the next frontier.

The new headquarters of the Perot Family Office in Dallas, Texas provides space for 250 staff dedicated to management of the family's wealth. Image source Mithun, Inc.

What is a family office?

As The Wall Street Journal notes, family offices began in the 19th century to manage the fortunes of the tycoons of the day (think Rockefeller) and offer similar services as private banks and wealth managers but are devoted to a single family. Nowadays, the affluent millionaires, of which there are more than 100,000 families in the U.S. alone, are teaming together to share the expenses of a devoted staff in a multi-family office.

The concept of the family office is expanding rapidly. UBS, one of the largest wealth management firms in the world, recently announced a new division dedicated to guiding families in creating offices of their own. This announcement comes at a time when high net worth families are becoming increasingly worried about the future of their wealth. The UBS Family Office Compass expects that 70 per cent of family offices will experience generational transition within the next 15 years.

John Matthews with UBS Wealth Management Americas notes that, "It is crucial for families wanting to create lasting financial success to identify their driving purpose and to formulate an overall family strategy. Clarity of purpose for the family, and in turn, the family office leads to improved performance of the family office over time."

How can this impact real estate professionals?

Family offices are seeking the expertise of advisers to guide their investments in areas with the greatest return such as natural resources, domestic equities, and real estate.

“The one place family offices think they can still generate double-digit returns is in operating businesses and real estate,” says Kristi Kuechler, president of the Family Office Exchange private investor center.

As family offices shift their wealth in anticipation of generational changes and increase their direct investments into real estate, professionals in the industry must use their training and resources to provide hyper-local data in a high-touch way that the staff of these offices expect from any adviser. Savvy professionals in the luxury real estate market can advise a family office on how best to develop a portfolio of investments in markets around the country with the most potential for return.

The Institute for Luxury Home Marketing produces the Luxury Market Report and more than 30 local market reports for its members to use as a tool to develop an effective real estate investment strategy for their clients. 

To learn more, visit the articles used for reference this post:

• Family Office Compass, UBS
• Financial Advice, Served Rare by Julie Steinberg and Kelly Greene, The Wall Street Journal
• Perots' new Dallas campus... by Steve Brown, The Dallas Morning News
• Rich Families Go Solo on Deals... by Margaret Collins and Simone Foxman, Bloomberg News
• UBS Urges Ultra High Net Worth Families... from Business Wire

From Carbon Footprints to Your Client's Blueprints

Luxury home buyers have become increasingly sensitive to their carbon footprint, allowing architects and engineers to use innovative processes and materials in creating and renovating high-end homes. Staying on top of these trends and technological advances will help luxury real estate professionals know what to look for and what questions to ask when assisting affluent clients who are seeking ways to recycle, reuse, and reduce.

As Earth Day approaches (Saturday, April 22), we are taking a look at some of the latest trends in design and construction that minimize environmental impact while maximizing functional design and well-being for homeowners.

Recycled Construction

“Renovation and reuse projects typically save between 50 and 75 percent of the embodied carbon emissions compared to constructing a new building.” The American Institute for Architects (AIA) notes that reusing and recycling materials, reduces carbon emissions and saves on construction and design costs. In renovating a Cambridge, Massachusetts home, Wolf Architects, Inc. utilized reclaimed lumber originally harvested in the 19th century that proved to be a higher quality than equivalent wood species today.

Wolf Architects, Inc. milled reclaimed lumber for the exterior cladding on this Cambridge home that proved stronger than today's wood. Photo by Eric Roth

Sustainable Materials

Thanks in part to the success of IKEA’s Sinnerlig collection, sustainable cork products have trickled up into the luxury design world. The cork used in products from wine stops to insulation comes from the just the bark of the cork oak tree, allowing the tree to continue to grow. Aesthetically pleasing, tactile, and warm, cork is also a very functional material that is resistant to mold, mildew, water, termites, fire, cracking, and abrasions.

Renewable Energy

Tesla unveiled its design for solar roof tiles. Photo Tesla.com

One of the most talked about materials in design and construction this year is the solar roof tiles developed by Tesla, known for its electric cars. While traditional solar panels come at a high cost, when not factoring government rebates and tax credits, Tesla claims that its solar roof tiles will cost less than an equivalent roof, opening the possibility for more than just luxury homes to produce and conserve renewable energy.

Learn More

See Dwell Magazine’s latest list of LEED-certified residences that use the latest technology and renewable resources to minimize environmental impact.

AIA's Ten Steps to Reducing Carbon Embodied Emissions during the construction and renovation process.

Check out the REALTOR® Magazine 2017 Home Design Trends featuring several environmentally friendly ideas.

The San Pellegrino Effect: Wealth, Cuisine and Travel

The list is here! For many, the announcement of the Top 50 Restaurants in the World is a harbinger of vacations to come, and entire trips are planned around a twelve course tasting menu. Snagging a reservation at any of the restaurants on the 2017 list is hard enough, but a new trend has emerged making just getting to some of these gastronomic paradises even more difficult.

A tasting plate at Eleven Madison Park, named the best restaurant in the world for 2017. Image source theworlds50best.com

In past decades, a majority of the restaurants honored on the San Pellegrino Top 50 Restaurants list were (and still are) in the expected culinary destinations of the world: London, New York, and, of course, Paris. Each of these cities is also an economic capital of the world, so it comes as no surprise that where the wealthy live and work is where they eat. The restaurants that emerge in these cities rely on their affluent citizens to sustain them year after year. In line with that expectation, Tokyo's notoriety for fine dining came only after years of sustain economic growth throughout the 1990s.

However, recent years have seen restaurants added to this list from unexpected places without the support of sustained economic growth or a concentration of high net worth individuals. Wealth-X, a leader in global wealth research, explains that social media has "super-charged" word of mouth, meaning that the sharing of reviews and the awareness of awards makes the remote locations of some of the newest top restaurants a destination for the jetsetting crowd. As Winston Chesterfield, custom research director for Wealth-X, notes:

An entry in the list acts as a siren call to luxury concierges, jetsetters, and the world’s elite – and as such, almost guarantees full tables for the next 12 months.

The native, resident populations are, most often, not the focus for these modern marvels of food. Though they are, no doubt, a discerning group whose palates often inspire the innovative menus, the close presence of internationally renowned, multi-starred, celebrity-visited establishments is largely inexplicable and as remote from their existence as the cities from which these international individuals visit.

These individuals are the intended, the chosen ones. The premium-cabin-flying, luxury experience nomads, whose moving meccas are the next travel experience, the next luxury hotel concept, the next cuisine. These experiences have become as much a currency as the designer wallets which they plonk on the tables, and perhaps even more so than the motor cars they arrive in.

Read more about the changing trends in fine dining and where your clients may be eating next at LuxurySociety.com.

Seeking the Amenities Advantage in a Competitive Real Estate Market

In an increasingly competitive market, owners, developers and builders are having to “keep up with the Joneses” — especially if the Joneses have a car-sharing service, a personal shopper and pet grooming.

Because the vast majority of multifamily units that have been recently constructed in the United States are rental apartments, investors are flocking to this sector seeking healthy returns. And with more and more people turning to apartment living, demand is high — and property owners and managers are competing with each other by offering amenities that are usually found in the most luxurious of residences.

So what are these amenities being offered?

“Urban Living” lifestyles. Many renters want to be close to everything — work, home, shopping, restaurants, etc. — whether they’re in a major city or the suburbs. Many new apartment and condominium communities are designed to be walkable, while providing amenities and technology to enable this “live-work-play” lifestyle.

Luxury and high-end features. Previously limited to luxury developments, many more affordable communities are offering infinity pools, upgraded design options, and other attractive features to bring in renters.

Energy savings. From more efficient HVAC systems, central solar hot water systems, LED lighting, rainwater collection, and wind or natural gas turbines, there are numerous ways to provide renters with more affordable and environmentally-friendly living.

More useful common areas. While apartment sizes are generally shrinking, common areas are growing — and providing renters with features they crave. USB ports, WiFi, and other Web-access features are everywhere, as well as more durable furniture and carpeting — enabling both social and work functions. Some of these common areas are on rooftop decks and terraces, and even include big-screen TVs, kitchens with BBQ grilles and pizza ovens, and even cabanas.

Fitness centers with more muscle. While the fitness center has become a place where tenants gather, socialize AND work out, the options available have expanded greatly. With classes for yoga and Pilates, aerobics, spin classes and more, renters have more exercise choices than ever.

The latest technology. With more people “cutting the cord” from cable TV and leaving satellite TV, builders need to ensure that their projects are friendly for these tenants — installing cloud-connected devices and enabling the fastest Internet access available. In addition, more buildings are giving their renters more control over their environments thanks to technology — from their entry doors to lighting and HVAC systems.

There are many other amenities, features and options being made available to today’s renters. Here are some of the more popular ones that haven’t been mentioned above:

• Bike storage and repair
• Car-sharing service
• Child-care service
• Concierge
• Cooking classes
• Dry cleaning/laundry service
• iCafe
• Package delivery management
• Personal shopper
• Pet grooming
• Rock-climbing wall
• Spa/massage center
• Tech/business center
• Wine cellar

So whether you’re a renter or home buyer, a real estate professional or a building owner, it’s good to know the amenities that are now available — and which of them you might be looking for!

TOP 7 HOTTEST PLACES IN THE U.S. TO MOVE TO - AND BUY A HOME

Forbes magazine recently answered two important real estate questions:

Where are people moving to?

And where are people investing in homes?

At the end of this article, we’ll answer our own question: What are the most attractive cities for movers and for homebuyers?

To determine where people are moving to, Forbes examined the population growth (or decrease) in major cities throughout the U.S. They focused on a variety of factors — specifically, economic opportunities, affordable housing, and cost of living.

The cities that the most people are moving to are:

1. Austin
2. Raleigh
3. San Antonio
4. Denver
5. Nashville
6. Charlotte
7. Orlando
8. Houston
9. Oklahoma City
10. Dallas-Fort Worth

 

Austin and the other Texas cities owe much of their success to the state’s excellence in job creation and overall business growth — thanks in part to corporate-friendly laws and taxes that have supported new companies and attracted existing companies looking to relocate.

Elsewhere in the southern states, Raleigh and Nashville continue to grow thanks to the technology, manufacturing and business services strengthening their respective economies. And many movers are also heading to the Mountain States and the Pacific Northwest, taking advantage of the mostly strong economic growth and affordable housing costs.

It’s one thing to move, but it’s another thing to get a mortgage and purchase a home. The top 20 cities where people are buying homes are:

1. Grand Rapids
2. Orlando
3. San Antonio
4. Charlotte
5. Salt Lake City
6. Dallas
7. Austin
8. Fort Lauderdale
9. Seattle
10. Cape Coral/Fort Myers
11. Indianapolis
12. North Port/Bradenton/Sarasota
13. Nashville
14. Tampa
15. Charleston
16. Denver
17. Madison
18. Jacksonville
19. West Palm Beach
20. Boise

 

This list considered factors including job growth, population increases and expected home price appreciation. Although nationwide housing prices are on the rise, overall wages are unchanging — so many 2016 homebuyers are finding it difficult to afford a new residence. For investors buying rental properties, these conditions can be beneficial for their strategies.

Geographically, more than half the list includes cities located in Southern states — a good thing for the movers in the first list above. These cities include seven Florida locations and three Texas markets — indicating that movers and investors alike are finding these states to be appealing places.

Florida can attribute its success to lower housing prices, thanks to the recession which had retirees and vacationers staying at home — driving down demand. And Texas, shielded from much of the economic downturn, features affordable housing and a diverse economy that make its major cities a strong choice for investors.

By cross-referencing the 1st and 3rd lists in this article, we can identify the seven cities that are most attractive to movers and homebuyers (by appearing in the top 20 on both lists):

• Austin
• #1 on the movers list, #7 on the homebuyers list

• San Antonio
• #3 on the movers list, #3 on the homebuyers list

• Denver
• #4 on the movers list, #16 on the homebuyers list

• Nashville
• #5 on the movers list, #13 on the homebuyers list

• Charlotte
• #6 on the movers list, #4 on the homebuyers list

• Orlando
• #7 on the movers list, #2 on the homebuyers list

• Dallas
• #10 on the movers list, #6 on the homebuyers list

 

So, the answer to our question above — “What are the most attractive cities for movers and for home-buyers?” — appears to be a simple one: Cities in the South! (And Colorado, too.)

 

Trendingwatch: High-Fashion with Designer Names

Today’s luxury homes feature dozens of amenities never seen before, or even dreamed of. One of the fastest-growing concepts in the luxury residential market is the “branded property” — a residence associated with luxury brands and high-end designers.

Among the big names working to develop these beautiful properties are Armani, Versace and Bottega Veneta, among others. These designers are each bringing their own unique styles and sensibilities to projects around the world.

Armani’s upcoming projects include the Smart Hero-Central Park Plaza complex in Beijing — the renowned designer will be creating the residential units, shared areas and various amenities, to be completed by the end of 2017 — as well as the Century Spire residential tower in one of the Philippines’ top luxury districts, due to be completed by the end of 2018.  

In addition, Versace has begun work on its AYKON Nine Elms project in London (scheduled to be completed in 2020), and is nearly done with projects in Beirut and Jeddah. Bottega Veneta recently started developing its initial residential design work. And Eisenzahn 1 — a major property in Berlin — will feature design work by creative director Tomas Maier and furnishings from the luxury brand’s home collections.

While a famous name on the side of the building is a major selling point, this trend is more about what each designer/fashion brand brings to the actual properties. Homebuyers and investors alike are looking for aesthetics, comfort, amenities and lifestyle when it comes to a luxury residence — and a world-famous designer’s creativity can give a property a decided advantage over other luxury homes.

There are varying levels of brand association per property — some projects and brands are limited to the design of the common spaces and individual units in a building or complex. Others have brand associations incorporated into the amenities and additional features of the property.

But some owners may pay for the privilege of having the brand’s interior design team on the project give them personal consultations to add an even higher level of customization to the residence — or a complete branded design with furniture at an exclusive price.

Overall, these branded residences are often priced 30% to 50% more than unbranded properties. Not that a larger price point deters luxury homebuyers; many of these projects sell out quickly.

This is likely due to one of the basic tenets of the fashion industry — reinvention can revitalize an entire product line. In this case, the reinvention is the concept of residential development, which is now incorporating a new level of branding and design into these projects to attract luxury homebuyers.

Because these branded residences are currently located around the world, they may be some investors’ first experience with an international purchase. This means dealing with a different country’s real estate laws, as well as the unique issues of owning a property halfway around the world. But having a world-famous brand associated with the home can boost an investor’s confidence and provide a sense of security.

While this trend has already taken hold in hospitality — many hotels have established associations with luxury brands — the enjoyment of high-end accommodations, amenities and conversation-starters is taken to a new, longer-lasting level with branded residences.

And while this trend creates substantial opportunities for investors, it’s also an appealing option for home-buyers to have a unique property created by world-class designers.

 

Millennials: The Next Generation of Luxury Spenders

You’ve heard all the complaints about Millennials. Spoiled, lazy, entitled kids who think the world revolves around them.

But stereotypes are just that — stereotypes. And it’s foolish to think that this generation — which will be larger than the huge “Baby Boomers” demographic — is nothing but overindulged, smartphone-addicted brats.

In actuality, there are plenty of hard-working, successful young professionals among Millennials, who are emerging as “the next big market.” Just like every generation, they include ultra-high-net-worth individuals (UHNWIs) whom real estate professionals should work to understand — since they’re your potential clients.

According to MarketWatch.com, a UBS study shows that Millennials have unique spending habits. They usually prefer travel and entertainment over material goods, and they exhibit more brand loyalty than previous generations.

However, the Millennial UHNWIs do appreciate high-end accessories and upscale fashion brands, especially European luxury brands. And probably because they feel optimistic about their personal financial futures, many spend more money on luxury items than consumers over 35.

Because of their large numbers, the Millennials are already affecting the real estate markets. According to a study on LuxuryDaily.com, this generation actually has more UHNWIs among them for two main reasons: inheritances (as with most generations), and early professional successes in the technology industry.

That’s one reason that, on average, Millennial UHNWIs who recently purchased a home spent about $5 million — which was triple the amount of the Baby Boomers, and almost as much as “Generation Xers.”

This Millennial influence is evident in the changing home search requirements. About 33% of UHNWIs want a home gym (this percentage was lower just three years ago), and they also want a “green” or LEED-certified property.

And as for “location, location, location,” Millennials aren’t as limited. Because they can work remotely or their business is location-agnostic, tech-driven cities (Bellevue, WA; Bend, OR; Boulder, CO) are appealing to younger UHNWIs.

6 Things to Know from the 2016 Wealth Report

There are a variety of challenges facing today’s ultra-high-net-worth-individuals (UHNWIs), according to the 10th edition of “The Wealth Report” — published by global real estate consulting company Knight Frank.

The 2016 Attitudes Survey is based on responses from approximately 400 of the world’s leading private bankers and wealth advisors who were surveyed in the 4th quarter of 2015. Their answers — concerning the UHNWIs in their client base — tell a story of growth slowdown, changes in family and succession dynamics, increased scrutiny and economic pressures.

Here are six of the most interesting findings from the report (in our opinion):

1. Two-thirds of respondents believe that their clients’ wealth will increase at a slower rate over the next 10 years than it did over the previous decade.
   While a positive trend has lasted nearly a decade, the forecast for the next decade is slightly bearish, with growth expected to slow down. The main issues creating a challenge for wealth creation then — and now — include succession and inheritance considerations, increasing taxes, and the worldwide economy. Other important concerns include the fact that more families have members spreading out around the world, personal security and safety, and personal and family health.

2. Threat to future growth #1: Succession and inheritance issues.
   More than 85% of respondents agree that their clients are more active in managing their wealth — so 92% believe that they need to work harder to earn their clients’ trust. These advisors also have to take a look at how they engage with clients, since nearly 80% of them see women taking a more prominent role in managing their family’s wealth — and UHNWIs are getting their children more involved in the family business at an earlier age.
   
   Also, UHNWIs traditionally have been concerned that future generations would not be successful in maintaining the family’s wealth — almost expecting the third generation to waste much of it. Recently, however, the attitude has been that the second generation is more likely to fail at growing the family’s fortunes. When asked, 62% worried that their children would be encouraged to earn their own wealth, and nearly 50% felt that they wouldn’t know how to handle the family’s investments.

3. Threat to future growth #2: Wealth taxes.
   Nearly 70% of respondents agreed that their clients feel that they are under increased scrutiny by the public and authorities, so they are more aware of displaying their wealth publicly. One example of this increased attention is in the U.S., where “the 1%” are being criticized for currently favorable tax rates, as well as corporate tax benefits.

4. Threat to future growth #3: The global economy.
   Many respondents felt that UHNWIs are being scapegoated by governments who are failing to address wealth-inequality issues.

5. The majority of respondents said that their clients will be increasing their philanthropic activities.
   As always, philanthropy is an important part of the UHNWI agenda — perhaps more so than ever before. According to the survey respondents, most of them noted indicated that their clients would be expanding their philanthropic activities, which continues the trend over the past decade.
   
   Approximately 67% of UHNWIs had already been growing their philanthropic efforts over the past 10 years, while nearly 80% noted that they would continue that growth over the next 10. The main reason cited was “a sense of personal fulfillment,” although religious beliefs were also mentioned as an important reason (specifically in the Middle East).

6. 30% of UHNWIs are considering a residential purchase in 2016.
   Another important part of the Wealth Report is the coverage of the current attitudes of wealthy individuals with regard to property — whether as a place to live and/or as an investment.
   
   Over the past decade, more than half of respondents noted that their clients were allocating more of their investable wealth to residential property, while more than 40% expected that to increase over the next decade — with 30% of them being likely to think about a residential purchase this year.
   
   According to the report, UHNWIs have designated about a quarter of their investable wealth for residential properties, and another 11% on commercial real estate. The major motivators for this expected growth in residential real estate purchases? The most popular reason (55%) was as a re-sellable investment, while other key factors include as a safe haven for funds (47%) and investment diversification (46%).
   
   In addition, commercial real estate interest is growing. Nearly half of wealth advisors foresee increases in their clients’ portfolio allocations in the next 10 years. Their most likely targets include offices and hotels (the standard investments of choice), although warehousing and logistics are increasingly popular.

While new challenges are out there, 2016 should be a year of opportunity. Even with a variety of issues facing UHNWIs and the professionals who work with them — from slowing growth and changes in family/succession planning to increased public and media scrutiny and economic pressures — these challenges should be viewed as opportunities for advisors to develop creative solutions and prove their value.

 

Luxury Garages Become A Swanky Social Space

Along with clothes, watches, and wine, high-end and vintage cars are a favorite collector’s item for high-net-worth individuals. And—just as many luxury homes have custom wine cellars and walk-in closets—luxury homeowners with treasured car collections are likely to want a special space for their high-end vehicles.

Top end luxury garages have little in common with the dusty cement rooms that immediately come to mind and they’re about much more than car storage. For individuals with prized vehicles—whether 1 or 100—the ideal luxury garage might be used for:

• Entertaining. A high-end car enthusiast wants to be able to spend time socializing amidst their car collection, so luxury garages can boast an entertainment system, seating area, wet bar, and card table or billiard table to widen the space’s utility.
• Showcasing. For car collectors, each vehicle is a work of art, and so a luxury garage acts as the gallery. Custom lighting and rotating turntable displays can enhance the presentation of a homeowner’s favorite vehicles.
• Maintenance. Many car collectors like to get under the hood of their cars and a well-equipped maintenance bay is the perfect space to tinker.
• Preservation. Finally, a collector will want their high-end vehicles to be cared for and protected from the elements, so climate control is a must in humid climates where weather can speed deterioration and encourage rusting.

If the luxury home is in an area without space restrictions, then an added garage can span thousands of square feet and accommodate dozens of vehicles without issue. For city dwellers, however, a car storage space can prove more elusive. One popular solution for wealthy collectors is a car elevator such as the PhantomPark, which starts at about $40,000, is custom built to fit the homeowner’s needs, and stores cars below ground. It is important to note, however, that while a lack of garage may diminish a home’s value and desirability, luxury garage renovations see a mere 52% return on investment in resale.

Global Wealth Forecast: New Money, Same Tastes

The next decade and beyond will see many changes in who holds the world’s wealth, how they acquire it, and what they do with it.

Old Money

Individuals who have inherited their wealth favor investing their money in luxury residential real estate. According to the recent Decades of Wealth report by Wealth-X, ultra-high-net-worth individuals with inherited wealth hold 17% of their wealth in high-end residential real estate. This figure is only 9% for self-made UHNWIs. This trend is likely to continue as Baby Boomers age and pass their wealth on to younger generations. In the next decade alone, global UHNW individuals will bequeath $4.1 trillion in wealth to the next generation. An estimated 30% of this projected wealth transfer will be in liquid assets.

The number and nationality of individuals with inherited wealth is shifting. In North America and Western Europe, for example, the past decade has seen a decline in the number of wealthy individuals with “old money.” The opposite trend can be observed in developing nations where most of the wealth is brand new: the first big wave of new wealth is being passed down to the next generation.

New Money

According to the World Wealth Report, the global HNWI population grew by 6.7% in 2014 and the group’s total wealth grew by 7.2%, resulting in an estimated HNWI population of 14.6 million.

• The HNWI population in China grew by 17% in 2014. China continues to experience economic prosperity and a growing upper economic class, the older generation of which is now passing its wealth on to the next generation and investing in foreign economies.
• Over the past year, the number of millionaires in India grew by 27% and their HNWI population grew by 26% in 2014. According to Wealth-X, “Aligned to this wealth growth is an equally substantial increase in luxury consumption.”
• African nations. As entrepreneurial and tech-centric countries such as South Africa, Kenya, Nigeria, and Uganda continue to experience increased economic prosperity and innovation, they are catching the attention of foreign investors—particularly wealthy Chinese nationals. Wealth-X projects that Africa’s UHNW population will quadruple by 2040.

Globalized Taste

In their Decades of Wealth report, Wealth-X wrote, “China is often cited as a market that has surprised observers with the speed of its move from conspicuous consumption to careful, tasteful purchasing.” With the globalization of media and entertainment—and, as a result, trends and lifestyles—the world’s new wealthy are expected to follow in China’s footsteps by becoming discerning consumers with refined tastes—including a taste for luxury residential real estate. Roughly 80% of the world’s UHNW population own 2 or more residences, and it is becoming increasingly popular for UHNW individuals to invest in unique and exotic luxury homes outside of their home country. The United States remains the most popular destination for wealthy individuals seeking a place to invest in real estate