7 Principles for Building Relationships with Family Offices
What you need to know about this class of investors
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If you’re just starting out in real estate entrepreneurship, understanding how to capitalize deals is crucial. Not everyone has the benefit of an experienced mentor or a well-capitalized investor group ready to back their venture. One strong option to consider is family offices.
Real estate development is capital-intensive, and the family office investor class is a great option for emerging sponsors to explore for fundraising. In this post, we’ll discuss what family offices are and the key strategies for building strong relationships with these types of investors. If you’re an experienced development professional with a solid reputation, this can be an important financing approach to consider.
To get us started, below is the definition of a family office.
A family office is a private wealth management firm that serves the investment, financial, and personal needs of a wealthy individual or family. Family offices provide a wide range of services that go beyond traditional financial management, often including investment management, estate planning, tax and legal services, philanthropy coordination, and lifestyle management. Source: ChatGPT
Family offices can be structured as single-family, multi-family, or hybrid setups. They typically manage investable assets of $30 million or more. This type of balance sheet is particularly important when looking to capitalize real estate developments in the middle market ($20 million to $80 million) range.
Building relationships with family offices takes time and effort, requiring a focus on high-quality, long-term relationships. Below are the key principles to keep in mind.
Principle 1: Establish Credibility and a Track Record
When starting out in real estate investing, you will meet many high-net-worth investors. To successfully capitalize on real estate investment projects, it's essential to have a mix of investors—from family offices to high-net-worth friends and family. Most people begin by building a track record of success with friends and family investors. After establishing this foundation, they can approach family offices for larger opportunities.
Principle 2: Family Office Gatekeepers
Family offices often employ gatekeepers to manage investments and protect the family’s interests. These gatekeepers screen for credibility, trustworthiness, and long-term alignment of priorities. Developing relationships with gatekeepers requires patience, as their primary focus is protecting the capital and reputation of the family.
Principle 3: Focus on Alignment of Interests
Family offices take a long-term approach to investments, often thinking in terms of generational wealth. Sponsors need to understand and align with the family office’s priorities. If you're looking for a quick return, a family office may not be the right fit.
Family offices also ensure alignment of interests by requiring sponsors to have “skin in the game.” If a sponsor isn't investing their own capital, why would a family office risk theirs?
Principle 4: Personal Relationships and Trust
Building relationships with family offices requires patience and persistence. It's important to get to know the investment managers and the family on a personal level. Spending time together allows them to assess your character and integrity.
Principle 5: Expertise and Specialized Knowledge
Family offices value specialized knowledge and expertise. What unique insight or edge do you bring to the table? Do you have access to a market they want to invest in? Who and what do you know that can create asymmetric value for them?
Another important way to convey your expertise is through thought leadership. Sharing your unique perspective in your industry provides a clear signal that you know your field. Writing articles, hosting events, and offering valuable connections and ideas can position you as a key resource for family office investors.
Principle 6: Effective Communication
Be concise and direct in your communication. Don’t waste an investor's time with superficial updates. If you have news about a project they’ve invested in, get straight to the point. Share what matters most and be transparent about any unexpected developments. If challenges arise, be proactive in addressing them.
No one likes delivering bad news, but if it's important, don’t hide it. Treat your family office investors how you’d want to be treated—keep them informed and involved.
Principle 7: Trust in Operations and Management
A strong, experienced team is essential to attract and retain family office investors. Many family offices are headed by an older generation, so having a team that has successfully navigated multiple market cycles is a major asset. Operational excellence is also key. Family offices look for operators who demonstrate strong project management, risk mitigation, and cost control strategies.
Be prepared to answer tough questions about your operations. Family office investors are typically savvy and experienced businesspeople.
Building relationships with family offices isn't for everyone, but it has worked for me, and I encourage you to consider it for your own ventures. If you’d like to discuss this further, feel free to reach out.
Cheers,
John
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Poor Charlie’s Almanac - The Essential Whit & Wisdom of Charles T. Munger
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