Non-Traditional Capital Panel:

Family Office Investments in Real

Estate

February 26-27, 2015

Thomas J. Handler, J.D., P.C.

© 2015 Handler Thayer, LLP

2015 University of Florida Bergstrom Center

Real Estate Trends & Strategies Conference

Understanding Family Offices

What is a Family Office?

A family office is an entity that supports the complex financial needs of a specific family group and acts as their “chief advisor”

A family office integrates the execution of investment strategy, tax services, insurance planning, philanthropic advice, estate tax planning, asset protection planning, risk management, pre-marital planning and personal services

A family office provides ongoing, holistic advice, implementation and administration

A family office is the global best-in-class structure for long-term wealth management and preservation2

Types of Family Offices

Serves the needs of more than one family with similar values and investment philosophies

Combines resources for efficiency

Creates a single point of contact for planning and implementation

Shares family office functions

Multi-familyOffice

Created, managed and owned by an individual familySingle Family

Office

Implementing the fundamental legal and tax structure underlying a family office to achieve investment management synergies, asset protection attributes, and wealth transfer objectives.

The structure is utilized with both Multi-family Offices and Single Family Offices

VirtualFamily Office

3

Services Provided by Family Offices

Source: Family Office Exchange

Services Provided by the Office, 2006

4

Detailed Family Office Services

Comprehensive FamilyOffice Services

Wealth Transfer Planning

Develop objectives

Diagram current plan

Legal and tax strategies

Financial modeling

Action plan to implement changes

Liability Management Property & casualty insurance

assessment*

Specialty lines of insurance*

Personal security*

Collectibles inventory, appraisal & storage*

outsourced to third party providers.*

Family Philanthropy Multi-generational objectives

Personal giving programs

Private foundation management

Strategy analysis and implementation

Foundation and grant administration

Family Continuity/Education

Family governance

Family education plan

Family meeting coordination

Coaching and mentoring

Coordination of outside advisors

Integrated Financial Services

Balance sheet analysis

Retirement planning

Bank financing analysis & negotiation

Life insurance analysis

Private aircraft consulting

Tax Review & Compliance

Review of individual & entity tax returns

Estimated tax payments

Year-end tax planning

Tax legislation updates

Services are customized to address a wide spectrum of long-term financial needs.

Lifestyle Enhancements

Personal bill paying*

Domestic help and payroll*

Property management*

Concierge services*

Travel management*

outsourced to third party providers.*

Client Information Mgmt

Consolidated reporting

Quarterly performance reports

Online access to custom reports

Document management and retention

Record keeping for personal property

5

Investments by Family Offices Vary According to the Nature of the Office

Invest in both funds and specific projects

Invest via family holding companies that look like funds and via trusts

Invest in real estate / mortgage hybrid funds

Single FamilyOffice

6

Tend to invest in funds

When investing in specific projects, tends to invest as a fund

Multi-familyOffice

Investors / Decision-Makers

Understand who the decision-maker may be . . .

7

Investment Committee / Investment Officer / Fund Manager

Multi-familyOffice

CFO / CIO / Investment Committee / Fund Manager / Trustee / Trust Investment Advisor

Single FamilyOffice

CEO / CFO / Investment Committee / Trustee / Trust Investment Advisor / Family Member

VirtualFamily Office

7

ManagingMember

FLLC

PatriarchLiving Trust

MatriarchLivingTrust

Joint International

AssetProtection

Trust

Child’s Trust

Child’sTrust

Patriarch Matriarch Child #1 Child #2

VFO or SFO

G-1Parents

G-2 and G-3

Advanced FLLC/FLP Structure

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Rental Agrmts. Equip. Lease Mgmt. Agrmt. Mgmt. Agrmt.

Mgmt. Fees

Mgmt. Fees

Mgmt. Agrmt.

Mgmt. Agrmt.

Mgmt. Fees

1% GP Mgmt. Fees

FAMILY

FOUNDATION

EQUIPMENT

LEASING COMPANY

OPERATING COMPANY

REAL ESTATE

LLC

FAMILY OFFICE

DESCENDANT’S

TRUSTS

OFF-SHORE ASSET

PROTECTION TRUST

FAMILY LIMITED PARTNERSHIP #1

FAMILY L IMITED PARTNERSHIP #2

FAMILY LIMITED PARTNERSHIP #3

Mgmt. Agrmt.

DOMESTIC ASSET

PROTECTION TRUST

VFO and SFO

9

Critical Investment Criteria

Direct Investments:– Alignment of interests

– Minimum 3-5 year track record

– Long-term

– Equal-basis investment terms

10

Fund Investments:– Alignment of interests

– Back-end performance compensation

– Hurdle rate

– Return of capital on preferred basis

– No up-front commissions or general partner / manager fees

– Efficient syndication / fund fees

– Intermediate term liquidity

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Investment Decision Review Framework

Managing return expectations for accommodation of spending, inflation and increased purchasing power across generational needs

Determination of appropriate platform (in-house, consultants or partnerships)

Legal framework of underlying entities/beneficiaries require a high standard of care related to investment decisions

Family Offices face numerous objectives when establishing an investment policy

Coordinated global investment philosophy

Oversight of global and entity level asset allocation and performance metrics

Risk and reputational management

Establishing an investment policy requires considering these competing issues within a risk-controlled framework

If applicable, Philanthropic goals and Foundation management needs including required 5% spending rate and 2% excise tax on realized capital gains

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Role of the Investment Committee

Benefits of Investment Committee

Formalizes management process

Provides format for "inclusion" of family members

Outside members bring expertise - help "isolation" problem

Composition of Investment Committee

Family members

Outside advisors

Outside investment professionals

Investment

Written policy statement provides documents for family to "buy into" investment strategy

Investment Committee serves as extension of or alternative to a Chief Investment Officer

Education programs give family members the basics

Investment Committee vs. Investment Consultant

Consultants help to manage the process

Investment Committee has responsibility for Asset Allocation Manager Selection

The Investment Committee

Functional Investment Committees

Effective chairperson

Flexible model - consensus vs. directed

5-7 members

3-4 meetings a year

Actionable agendas

Support material provided well in advance of meetings

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Role of the Investment Committee

Formalize the investment process Enhance the portfolio strategies Provide a sounding board for internal professionals Involve and educate family members Formalize family review and approval of the strategic investment

process

Goals

Select experienced investment professionals for the committee Use generalists with broad experience and specialists for key areas Appoint a strong, intelligent, well-respected Chairperson Ensure no conflicts of interest

Strategies

Agree on a set of procedures and a decision-making process Develop a written Statement of Objectives and an Investment Policy Monitor the strategic allocation and asset classes Review the performance of managers Manage the strategy reassessment process Identify and investigate new investment alternatives

Responsibilities

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A Dynamic Investment Process

6. Sophisticated analytical reporting tools regardless of custodian; web access

5. Global investment perspectives

4. Jointly establish implementation strategy with client; considers existing holdings

3. Global sourcing network along with proprietary quantitative and qualitative analysis and rigorous due diligence

2. Modeling tools using global capital market assumptions and stress testing

1. Assist with policy development; determine goals, disbursement targets, diversification and volatility framework is essential

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Custom-TailoredPortfolios

Thomas J. Handler, J.D., P.C.Chairman, Advanced Planning & Family Office Practice GroupHandler Thayer, LLPthandler@handlerthayer.com

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