About a month ago I joined The Family Office Club, a community/company that is focused on helping high net worth and ultra high net worth families form their Family Offices, fostering a valuable peer network through some of the industry’s most relevant events, and serving as an educational resource to members of the community looking to take their capital raising skills to the next level.
Before I continue, I must say that I’m in no way associated with The Family Office Club other than being a new member looking to learn, network and build long-lasting relationships with families and companies playing the game I play, at the highest level. I am not promoting the memberships, nor am I receiving any type of compensation from talking and/or writing about it.
With that being said, I think it's relevant to first talk about what exactly is a family office?
A Family Office is basically a wealth management firm created with the sole purpose of serving the needs of one HNW or UHNW investor/family. Some family offices specialize in a particular asset class like real estate, or energy and there are also Multi-Family Offices, which just as the name describes, serves multiple wealthy families under one roof. While a family office is primarily focused in the wealth and investments management aspect, they also serve as a one-stop-shop for the ultra affluent families' needs in tax planning, insurance, philanthropy, and even lifestyle management.
Being able to learn how this “big players” look at the real estate game, and strategize for it, is the reason I joined the community and recently attended my first event. Not only did I came out of the event with a few golden nuggets of new knowledge and a few very promising connections, but most importantly I was able to reinforce something I already knew but that it can’t be said enough, Relationships Are Everything. If you stop reading this article right now, just leave knowing that if you are in this industry for the long term and not just looking to make a quick buck, then nothing matters more than focusing on building long-lasting genuine relationships based on trust.
In order to not make this a long boring read I just want to touch on two other points that were really relevant to my firm and that I’m sure are also relevant to everyone out there looking to find deals and structure successful partnerships.
Improving Deal Flow
Family Offices understand very well the importance of having a solid pipeline of deals and make it one their priorities to have all the structures in place to have quality deal flow. After all, sourcing capital is not really an issue for these investors.
It is not about re-inventing the wheel. It’s about putting all the tools available into use and do it consistently. Many of the following strategies we all know and use but it is the ability to do it consistently and using them all at once (which may call for more human and economic resources) that sets good deal flow apart from great deal flow.
Being Proactive: One would think that because of the nature of these investors in terms of the amount of capital they have available to deploy, they would just sit and wait for deals to come to them. That is exactly the opposite of what family offices do, they instead take a proactive approach to relationship building with brokers in the industry as well as with other investors that might represent partnership opportunities in great deals. Having a dedicated team of at least two people to actively source opportunities and coordinate events focused on fostering relationships is what some of them recommend.
Hyperfocusing: Family offices understand very well the power of leverage. Positioning your firm as one of the “big players" in a particular space, whether that is a specific asset class or geographic region, will allow you to leverage that “position of power” to get awarded the best deals. Brokers and other investors want to feel confident in your ability to perform, but most importantly they want to know that your experience in that niche makes you the better buyer or partner.
Owning a bottleneck: while this strategy might take time to accomplish in the right way, the big players are dedicated to becoming “owners” of as many bottlenecks or choke points as possible. When I talk about ownership, it can mean both literally owning some sort of platform through where the majority of the deals go through, like a brokerage company, or it could just mean becoming genuine best friends with the top 3 deal makers in the area. When thinking about this strategy, think monopolizing resources that everyone in the game needs in order to access the best deals. (Consult with your legal counsel about what is legal and what is not in your specific industry, city, etc)
Communities: family offices are ultimately backed and created by families. These organizations believe in providing value to their communities and make a conscious effort of not only becoming a part of as many groups in the industry as they can bring value to, but they spend the time to create their own communities specific to provide value to their deal sources. A consistent engagement with the members of those communities ultimately position the investors on the top of the lists at the time of sharing a good investment opportunity.
Everyone Should Win
As I mentioned before, relationships are everything. The majority of these families did not create their wealth overnight, so more so than anyone else they know that playing for the long term is the only way to play. I’ve heard many times a saying about negotiation that goes along the lines of “If at the end of the negotiation everyone is happy then you didn’t negotiate hard enough”, and while that may sound like it makes sense sometimes it is really not that wise, at least if you want to build a long-lasting partnership with the other party.
Everything starts with alignment of interest. How is everyone involved in the deal bringing value to the table and how much skin in the game do they have? This is one of the main questions that these ultra affluent families ask before anything else. In the case of investing with a fund or a specific syndication with a sponsor, they want to see that the person/group handling their investment not only has the experience but that they will only make money if they make money. Following that same train of thought is the why we are now seeing more and more of these families pushing for lower fees and higher upside potential tied to performance.
To finish off, I’d like to share a couple quotes from two panelists that are heads of two of the most important family offices in South Florida. These guys showed that at the end of the day we are in a business of everyday people that are looking to have fun and grow together while building relationships with people they enjoy being around.
“I’d rather lose money by investing with someone I like and have fun with, than with someone with a great sales pitch but I don’t really like to hang out with” - Peter Zuckerman from PMZ Real Estate Holdings
“I only like to invest with people that I can learn from” - Allen Morris from The Allen Morris Company.