COMMERCIAL REAL ESTATE PORTFOLIOS: STRATEGIES FOR FAMILY OFFICES & INVESTORS

Trinity’s Managing Partner, Pete Stone, had the honor to teach a session at the Family Office Real Estate Institute executive program in December 2024. He joined a distinguished group of experienced commercial real estate leaders, investors and teachers such as Peter Linneman (Wharton School of Business), Carol Pepper (Pepper International) and Chuck Schilke (John Hopkins University).  The class focused on not only why family offices and investors should consider investing in real estate, but also different ways to invest, considerations in building a portfolio and the importance of effective asset management.

Strategic Role of Real Estate in Portfolios

Commercial real estate investments play a vital role in wealth creation, preservation and effective portfolio diversification. 

Key benefits include:

• Inflation Hedge: Protects purchasing power.
• Tax Advantages: Enables depreciation and capital gains tax deferral
• Predictable Income Streams: Ensures consistent cash flow.
• Risk Mitigation: Balances risk across the various investment categories.

Pete underscored the importance of aligning commercial real estate direct ownership investments with family office goals, such as funding distributions, reinvestment, and total returns for future generations.

Types of Commercial Real Estate Investments

The session detailed various investment methods:

• Public Markets: Including REITs and real estate funds, offering ease of execution and liquidity but subject to market volatility.
• Private Markets: Options like private real estate funds, syndications, joint ventures, direct ownership, providing tax benefits and operational control.

Property types explored:

• Traditional property types: Office, Multifamily, Industrial, Hospitality and Retail.
• Emerging special purpose types: Data Centers, Biotechnology, Senior Housing, and Mobile Home Parks.

Portfolio Construction Strategy

Developing a commercial real estate strategy requires a clear understanding of investment goals, risk and return tolerances, as well as sector allocation plans.

Key components include:

• Allocation: Institutional allocations typically hover around 10.5%, with family offices often exceeding this.
• Diversification: Consideration of geography, property types, and tenant mix.
• Asset Selection: Focus on market research and properties with growth potential. Avoid functional obsolescence and align with strategic goals.

Pete provided examples, emphasizing the importance of disciplined underwriting and geographic selection based on economic drivers.

Importance of Effective Asset Management

Effective asset management is pivotal for maximizing commercial real estate investment performance. The role of Asset Manager as the "CEO of the asset," responsible for:

• Leasing Strategies: Engaging actively with brokers and understanding market rents.
• Debt Management: Balancing debt for optimal returns while minimizing risks.
• Performance Measurement: Utilizing key performance metrics like IRR, cash on cash returns, equity multiples and benching them against industry results to measure success.
• Managing Property Managers: Optimizing property management outcome by actively supervising.

Key Takeaways for Commercial Real Estate Investors

• Strategic Integration: Commercial real estate should complement the broader portfolio strategy, focusing on long-term wealth creation and preservation.
• Informed Decision-Making: Utilize market research from credible sources like CBRE, JLL, and Co-Star in addition to leveraging team experience to identify high-potential markets.
• Operational Excellence: A disciplined approach to asset and property management drives superior results.

About Trinity Real Estate

Trinity Real Estate, founded in 2001, is a full-service real estate wealth management and investment firm with a reputation for excellence in acquisitions, dispositions, asset management, and strategic commercial real estate planning. The firm serves as a trusted partner to family offices, institutional investors, and private clients, offering tailored solutions that align with each client’s financial goals. Trinity's seasoned team brings decades of experience and a results-driven approach to optimizing portfolio performance and unlocking new investment opportunities.

About Pete Stone

Pete Stone brings over three decades of commercial real estate expertise to the table, complemented by 11 years as a respected instructor at the University of Washington. His career includes key roles at ING Clarion, Sumitomo Life, and Trinity Real Estate, where he has honed his skills in acquisitions, asset management, and strategic commercial real estate planning.