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

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.

Canadian Home Prices Rise In February as Toronto Stays Strong

Canadian home prices continue to rise, despite new regulations on foreign buyers in some markets and concerns of a real estate bubble. Prices across Canada were up 13.4 percent compared to a year ago, the biggest 12-month increase since November 2006, indicating strong growth and recovery after the global financial crisis.

Image source HousePriceIndex.ca Teranet - National Bank House Price Index

The Toronto market continued to defy expectations, showing home prices rising for the 13th straight month, despite tighter mortgage lending rules. Reuters reports that some economists worry that the market could turn into a bubble if further regulations are not put in place to help control prices.

 

Read the full article written by Leah Schnurr (edited by Jonathan Oatis) on Reuters.com

See more details of the report on the Canadian Housing Marketing from Teranet - National Bank

 

U.S. Luxury Prices Flatlined in the Last Quarter of 2016

Santa Clarita, an affluent suburb outside of Los Angeles, saw the biggest price growth of the fourth quarter last year. Wish Sotheby's International Realty

The stock market rally has done little to move prices in the luxury real estate marketed consistently across the United States. In select cities, particularly Santa Clarita, California, average luxury home prices did rise more than 113%, however many cities saw a double-digit decrease in luxury home prices. The average luxury home price across the U.S. remained flat in the final quarter of 2016, rising a slight 0.7% year-over-year.

Read the full article at Mansion Global by Fang Block and see how your luxury market is performing this week with The Institute's Luxury Market Report.

Vancouver Rules The World (of Luxury Real Estate)

As the most populous city in British Columbia — and the most densely populated city in all of Canada — Vancouver clearly attracts a lot of people and attention.

And according to the 2015 Prime International Residential Index developed by U.K.-based property consultants Knight Frank, Vancouver ranks #1 in the global real estate market. In 2015, the city’s high-end market was up almost 25% from the previous year. (Actual percentage is 24.5%.)

On the Index, Vancouver’s closest competitor was Sydney, Australia — which grew at a rate of 14.8% in the same time period, nearly 10% less than that of Vancouver.

Vancouver was one of only four North American cities in the top 20 (others including San Francisco at #7, Toronto at #12, and Miami at #14), and one of only eleven North American cities in the top 100. The others included Los Angeles at #22, Boston at #27, The Hamptons at #30, Washington, D.C. at #33, New York City at #39, Aspen at #53, and Chicago at #64.

The main reason for the city’s surge is a lack of supply in the face of increased international demand — while the weakened Canadian dollar is also playing a role.

Interestingly, Vancouver is not considered to be one of the cities that matter most to the world’s wealthy. In fact, Knight Frank notes that it is more reflective of the fact that many ultra-high net worth individuals (UHNWIs) who are educating their children overseas while working and living in multiple locations around the world.

When asked about Vancouver’s luxury real estate market, ILHM expert and Vancouver REALTOR^® Alan Skinner noted that it "has been somewhat 'frantic' for an extended time, but we are feeling a ‘cooling-off’ approaching where rampant competition made (particularly investors) determined to "win" at all costs.

“Home seekers are being trumped by foreign investors and a levelling off of prices is likely,” Skinner continued. "Profit taking" (sale of residential property investments) may result in further price declines."

With regard to Vancouver’s appeal, Skinner opined that "desirability, livability and the spectacular natural beauty are clearly the reason demand for residential property is so high.”

Mr. Skinner continued: “Alas, the policies allowing for unrestrained investment prevalent over the past 10 years or so has encouraged not only immigrants, but substantial pure speculation by those intent on investing in a safe, appealing environment."

But this kind of phenomenon sometimes faces scrutiny and even a desire to control (or even slow down) the explosive growth. Some governments are trying to limit foreign buyers with new property taxes, as the negative effects on overall affordability can be worrisome for the average homebuyer.

Some relevant facts and figures about Vancouver:

• Ranked one of the most livable cities in the world for more than a decade.
• Ranked as having the 4th highest quality of living of any city on Earth.
• 9 years ago, Forbes ranked Vancouver as the 6th most overpriced real estate market in the world and was second-highest in North America after Los Angeles.
• Vancouver has also been ranked among Canada's most expensive cities in which to live. Sales in February 2016 were 56.3% higher than the 10 year average for the month.
• Forbes has also ranked Vancouver as the tenth cleanest city in the world.
• Vancouver is consistently named as one of the top five worldwide cities for livability and quality of life.
• The Economist Intelligence Unit acknowledged it as the first city to rank among the top-ten of the world's most liveable cities for five consecutive years.

So while many would surmise that major metropolitan cities like New York, London and Dubai would be leading the pack when it comes to growth in global luxury real estate, it’s interesting to note that #1 — by a wide margin — is beautiful Vancouver!

BY THE NUMBER: THE 2016 FORBES LIST OF WORLD'S BILLIONAIRES

Over the past five years, the Forbes magazine list of The World’s Billionaires has revealed — and continues to reveal — many interesting things about the wealthiest individuals around the globe:

HOW MANY BILLIONAIRES ARE THERE?

• In 2011, there were 1,210 billionaires (people with a net worth of $1 billion or more).
• In 2015, that number rose to 1,826.
• In 2016, the list actually shrank a bit to 1,810.

BIG NAMES

The top ten billionaires in 2016 (in order of wealth) are:

1. Bill Gates
2. Amancio Ortega
3. Warren Buffett
4. Carlos Slim Helu
5. Jeff Bezos
6. Mark Zuckerberg
7. Larry Ellison
8. Michael Bloomberg
9. Charles Koch
10. David Koch

INSIDE THE NUMBERS

A few interesting notes:

• Five of the top seven billionaires from the 2011 list are still in the top seven: Gates (#2 in 2011), Ortega (#7), Buffett (#3), Helu (#1) and Ellison (#5).
• We also see that the top three from 2011 (Helu, Gates, Buffett) are still in the top four.
• Facebook’s Mark Zuckerberg rose from #52 in 2011 all the way to #6 today.

WHERE THEY COME FROM

It should be no surprise that the tech sector continues to lead the way in creating billionaires. Also of note:

• In 2011, about 1 in 3 billionaires (413, or 34%) were from the United States.
• Today, 540 billionaires are from the U.S. — or 29.8% of the list.
• Today, eight of the top 10 billionaires on the list are from the United States.
• China has the second most at 251, and Germany is third with 120.
• The Asia-Pacific region has 590 total — making it the region with the most billionaires.

 

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.)

 

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.

 

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