Unseen Wealth Pivot Underpins New Home Market Momentum

Michael Berke -

The seldom talked about but unprecedented generational wealth transfer is poised to provide an influx of capital to real estate and the homebuilding industry.

From flourishing family offices to lifting their children into homeownership, baby boomers are flexing their wealth. The effects will elevate both housing supply and demand. According to Knight Frank's 2024 Wealth Report, the wealth transfer is poised to make millennials the “richest generation in history. "

The timing is perfect to supplement their household formations and growing housing needs, and how they manage and allocate these funds will shape the investment landscape for years to come.

Enhancing Demand and Boosting Supply

Doug Yearley, CEO of Toll Brothers, mentioned in a September CNBC interview the “huge impact” the generational wealth transfer is having on first-time home buyers. He noted that parents want to help their kids with a down payment and ease the mortgage they must take to buy a home.

Baby boomers are beginning to orchestrate their wealth transfer so they can see and enjoy how their hard-earned assets can help their kids. This is creating buyers who would have been renters and helping housing be more resilient to higher interest rates and affordability issues. Homebuilders are seeing its significance, and it is just getting started.

According to John Burns Research & Consulting, 52% of boomers born in the 1960s believe it’s crucial to live close to their adult kids.

The very affluent group born in the 1960s is going to help their kids buy homes close to them because, in their view, that is a great use of their wealth,” founder John Burns recently posted on LinkedIn.

Wealth transfer can also help the industry deal with housing shortages and affordability issues. As high-net-worth families transfer wealth, more are creating family offices where the younger generation plans to adopt more growth-oriented investment strategies, signaling a shift toward higher risk but potentially higher rewards, per Campden Wealth.

Family Offices

Family offices are not new, but their size, reach, and influence are on the rise. Their surge in growth and popularity is driven by a combination of factors, including successful transfers of generational wealth, the large-scale sale of family-owned business, and increased wealth concentrations.

Currently, family offices manage $10 trillion, while hedge funds oversee $6.5 trillion. With this ongoing wealth transfer, capital being managed by family offices is projected to have more funds and make a bigger impact than private equity, venture capital, and hedge funds combined. Where and how they deploy capital matters.

Family offices offer many benefits: They can be more flexible in making decisions. They can hold assets for longer and don’t have to deliver short-term returns to investors. They also don’t have the constraints of fund structures and can be more patient capital.

Family Offices and Real Estate

After public equities and fixed income, real estate is the next largest family office investment, and the largest private investment with 16% allocated in North America. Private market investments such as real estate, private equity, and venture capital have potential to perform better than the equity markets, and family offices can get involved directly, which is attractive to them, per Citi Private Bank’s Global Family Office 2024 Survey. According to the report, residential real estate in the U.S. is a sweet spot right now.

Raising equity can always be challenging for private builders, and family offices can help. As public builders continue to expand while benefiting from access to inexpensive capital, a newly fueled capital source is more than welcome for private companies.

Builders Offer Excellent Investment Options for Family Offices

Homebuilders and residential land developers present a variety of investment vehicles, each with unique time horizons and risk/return profile. For example:

  1. Land developers with contracts with regional or national builders for finished lot purchases offer shorter-term projects depending on lot quantities. With upsized returns, investors can be in and out of deals in one to two years.
  2. Builders and developers who build and sell to consumers typically have projects in the two—to four-year range. These builders are setting sales records today due to the need for more supply, even with the higher interest rates. Investors are seeing excellent returns in moderate timeframes.
  3. Opportunities exist in the build-to-rent sector for longer-term investments with builders. After stabilization, investors can hold the asset long-term like a multifamily asset, or sell to private equity firms or BTR operators.

I’ve seen family offices supply capital for all of the above, as well as create land partnerships. These direct investments provide them the opportunity to create lasting relationships and positively shape the housing market.

How To Access Family Offices

Here are some thoughts that can help forge relationships and unlock capital with family offices:

  • There is no magic formula, just know they are looking for sound investments with experienced partners.
  • Some family offices are known more than others to focus on real estate and new-home development.
  • People and relationships come first. Warm introductions are the best.
  • Many are more comfortable making direct investments locally or regionally.
  • The use of specialists connected to family offices can be helpful.
  • Attend family office conferences and join clubs.
  • When approaching family offices, understand their purpose and identity. Work with those you align with, and do your research.