Family Offices Build Direct Real Estate Portfolios as Middle-Market Deals Trade Below Replacement Cost

Private capital targets sub-$50 million properties with operational challenges, avoiding institutional fund structures for tax-advantaged direct ownership.

By the Family Office Real Estate Daily Desk·Monday, October 19, 2026·2 min read

Editorial summary of reporting byWorld Finance Our editorial standards →

The answer · checked against World Finance

Why are family offices buying middle-market real estate directly instead of through funds in 2026?

Travis King, Founder & CEO of REALM, argues that the most compelling real estate opportunities in 2026 lie in middle-market deals under $50 million, where pricing dislocations are more pronounced and assets trade below replacement cost. Family offices are accelerating a structural shift away from indirect fund structures toward direct real estate ownership for income stability, depreciation benefits, and tax efficiency. Office assets in primary hubs including New York, Northern California, Houston, and San Diego are trading near land value.

Key facts

Travis King, Founder & CEO of REALM, said the firm's strategy focuses intentionally on deals under $50 million, a segment where access to capital is more limited and pricing dislocations tend to be more pronounced.
According to Travis King of REALM, high-quality middle-market assets can be acquired well below replacement cost by addressing specific operational issues such as capital stack challenges, leasing gaps, and management fatigue.
Morgan Stanley's latest market outlook, as cited by Travis King of REALM, identifies 2026 as a long-awaited inflection point at which institutional players and private capital are returning to the global real estate market.
The US Real Estate Market Outlook 2026 report by CBRE forecasts that commercial real estate investment activity will rise significantly in 2026, according to the article by Travis King of REALM.
Travis King of REALM said that in primary hubs like New York, Northern California, Houston, and San Diego, high-quality office assets are trading at steep discounts, sometimes near land value.
Travis King of REALM said a 30 to 50 percent discount is often insufficient to offset functional or locational obsolescence, making underwriting more nuanced than in prior cycles.

Family Offices Build Direct Real Estate Portfolios as Middle-Market Deals Trade Below Replacement Cost — Image: editorial illustration · Story sourced from World Finance

Family offices are moving away from traditional stock-and-bond allocations to increase exposure to real assets, seeking income stability, inflation protection and tax efficiency, according to Travis King, founder and chief executive of REALM. Many families are abandoning fragmented, indirect fund structures to build direct, intentional real estate portfolios.

The shift comes as commercial real estate investment activity is forecast to rise significantly in 2026, with institutional players and private capital returning to the field after a period of stagnation. Morgan Stanley's latest market outlook signals a new cycle of valuation and growth, while CBRE's US Real Estate Market Outlook 2026 notes that investors are rethinking how they deploy capital in an environment still marked by dislocation and selectivity.

The middle market remains the largest segment of the investment landscape, structurally resembling a pyramid in which the vast majority of opportunities lie at the smaller end. REALM focuses on deals under $50 million, a segment where access to capital is more limited and pricing dislocations tend to be more pronounced. In this space, the firm often finds properties with complicated histories, capital stack challenges, leasing gaps or management fatigue.

Unlike large institutions that must wait out long market cycles, many sellers in the middle market are driven by urgent liquidity needs or personal circumstances rather than strategic timing. They typically cannot wait out market cycles, which contributes to attractive entry points. This creates opportunities to acquire high-quality assets well below replacement cost, allowing investors to address specific operational issues and create substantial value independent of broader macro conditions.

Middle-market activity is increasingly led by well-capitalized local operators who have a deep understanding of their submarkets. That local expertise, combined with disciplined capital, is a powerful advantage in identifying and executing opportunities others may overlook. Historically, access to real estate has been constrained by institutional fund structures or by fragmented direct investment opportunities that were difficult to scale.

Compelling value is emerging in overlooked or dislocated asset classes. Significant opportunities are appearing in the office sector, an area many investors have prematurely written off. In primary hubs like New York, Northern California, Houston and San Diego, high-quality assets are trading at steep discounts, sometimes near land value.

Today's market is a feast-or-famine environment. Assets that align with modern tenant demand continue to perform, while those that do not struggle regardless of price. This makes underwriting more nuanced than ever. A 30 to 50 percent discount is often insufficient to offset functional or locational obsolescence. When that distinction is made correctly, the current environment offers a rare opportunity to acquire quality assets at historically attractive bases.

The Deployment Angle

Family Office Real Estate Daily Desk · our analysis, not the source's

The middle-market thesis argues for direct ownership over LP commitments. A $40 million property trading at 50 percent of replacement cost delivers a basis institutional funds cannot match after their fee loads. If replacement cost is $80 million, the equity check on a 60 percent loan-to-value basis is $16 million. That scale fits a single-family office separate account or a two-family co-GP structure, avoiding the carried interest and management fees that erode net returns in commingled vehicles.

Underwrite the operational lift, not the market bounce. Properties with leasing gaps or capital stack challenges require asset management bandwidth that institutional capital cannot deploy at this ticket size. A direct owner can reposition a building over 18 to 24 months and capture the full spread between distressed and stabilized value. Price in six to nine months of negative carry and budget for tenant improvements, but do not rely on cap-rate compression to make the deal work.

Office exposure requires submarket-level underwriting. New York, Northern California, Houston and San Diego assets trading near land value embed optionality, but functional obsolescence is real. A building with poor floor plates or outdated systems will not lease regardless of basis. Focus on assets where the discount reflects seller urgency rather than structural deficiency. Conversion and repositioning strategies work best in dense markets with higher land values and stronger tenant demand, both of which support redevelopment economics.

Avoid the feast-or-famine trap by underwriting tenant demand before pricing. A 40 percent discount on a property that does not align with modern tenant requirements is a value trap. Direct ownership allows for asset-level control, but only if the capital partner has the local market knowledge to distinguish between mispricing and obsolescence. This is where relationship-first investing matters: the sponsor's track record in the specific submarket is more predictive than their overall portfolio scale.

Questions this story answers

01Why are family offices moving toward direct real estate ownership instead of fund structures?

Travis King of REALM said families are moving beyond fragmented, indirect fund structures to build direct, intentional real estate portfolios driven by the need for income stability, inflation protection, and tax efficiency. The appeal includes durable income streams, depreciation benefits, and greater control over outcomes, with capital aligned to each family's specific tax, income, and legacy-building objectives.

02What deal size does REALM target and why?

Travis King, Founder & CEO of REALM, said the firm targets deals under $50 million because access to capital in that segment is more limited, causing pricing dislocations to be more pronounced. Sellers in this range are often driven by urgent liquidity needs or personal circumstances rather than strategic timing, which contributes to attractive entry points.

03Is office real estate still a viable investment in 2026?

Travis King of REALM said many investors have prematurely written off the office sector. In primary hubs like New York, Northern California, Houston, and San Diego, high-quality office assets are trading at steep discounts, sometimes near land value, creating mispricing opportunities for investors with local expertise and operational discipline.

04What makes middle-market real estate more attractive than large institutional deals right now?

Travis King of REALM said the middle market is where inefficiency persists and opportunity follows, with properties frequently carrying complicated histories, capital stack challenges, or management fatigue. Unlike large institutions that can wait out long market cycles, many middle-market sellers face urgent liquidity needs, further contributing to attractive entry points and assets priced below replacement cost.

05Is a 30 to 50 percent discount enough to make a distressed property worth buying?

Travis King of REALM said a 30 to 50 percent discount is often insufficient to offset functional or locational obsolescence, making underwriting more nuanced than ever. He said that when the distinction between functional and merely dislocated assets is made correctly, today's environment offers a rare opportunity to acquire quality assets at historically attractive bases.

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Original reporting

World Finance

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