Family Offices Narrow Real Estate Bets as Rate Outlook Clouds Pricing

Investors are targeting distressed office buildings and big-box retail while avoiding long-term data center commitments and funds with leverage above 65%.

By the Family Office Real Estate Daily Desk·Sunday, October 25, 2026·2 min read

Editorial summary of reporting byCNBC Our editorial standards →

The answer · checked against CNBC

What real estate investments are family offices targeting or avoiding given high interest rates?

High interest rates have made family offices more selective about real estate, with chief investment officers telling CNBC they are concentrating on heavily discounted properties and assets with strong pricing power. Rob Haugen of Michels Family Office targets yields on cost in the high single digits or double digits, while HB Wealth steers clients away from funds with leverage above 65%. Data center investments are drawing curiosity but also caution over long lock-up periods and technology obsolescence risk.

Key facts

Rob Haugen, chief investment officer of Michels Family Office's spinout firm River1 Asset Management, said uncertainty over interest rates has made the family office focus only on 'the really special project,' according to CNBC.
Haugen said he typically targets opportunities with potential yields on cost in the high single-digit or double-digits, achievable by buying an office building at a heavy discount with a known tenant, according to CNBC.
Michels Family Office bought a Kohl's near Milwaukee with an investor consortium approximately a year and a half ago, according to Rob Haugen.
HB Wealth chief investment officer Joel Houck said HB Wealth generally steers clients away from funds with leverage above 65%, whether at the operating property or fund level.
Mike Silverman, chief investment officer at Cresset, said the wealth advisory firm has not pursued data center opportunities due to risk, describing data centers as 'more of a technology investment than a real estate investment,' according to CNBC.
Silverman said a 15-year data center lease with a major company becomes problematic if the data center is not valuable at lease end due to technology change, according to CNBC.

Family Offices Narrow Real Estate Bets as Rate Outlook Clouds Pricing — Image: editorial illustration · Story sourced from CNBC

Higher interest rates have pushed family offices to narrow their real estate deployment to distressed opportunities and assets that can raise rents on short notice, chief investment officers told CNBC. The shift reflects uncertainty over where borrowing costs will settle and a reluctance to commit capital at current valuations.

Rob Haugen, who oversees private capital investments at Michels Family Office and serves as chief investment officer of spinout firm River1 Asset Management, said the firm has become more selective. "Honestly, until we have really strong conviction that rates are headed back down, it's difficult for us to want to do anything except the really special project," Haugen said.

Haugen said he targets opportunities with potential yields on cost in the high single-digit or double-digit range. One route is buying an office building at a heavy discount with a known tenant that will occupy a lot of the real estate, he said. Another is big-box retail. About a year and a half ago, the family office bought a Kohl's near Milwaukee with an investor consortium, Haugen said.

Joel Houck, chief investment officer of HB Wealth, said he has seen an uptick in interest from large family offices in real estate and real assets more broadly, such as industrial warehouses, farmland and timberland. Certain types of real estate and real assets offer protection against inflation, a top concern for many family offices, he said.

Investors can also use these assets for tax efficiency, Houck said. It is possible to use a depreciation shield to defer paying taxes on distributions until the asset is sold, he said. But real estate's ability to hedge inflation depends on its pricing power and structure. "With real estate, your inflation protection comes from the ability of the underlying property manager to reset rental rates," Houck said. "With different asset subclasses like multifamily, industrial, retail, not all rents are reset at the same rate."

Industrial real estate and housing both offer the ability to raise rents on a regular basis, he said. Both asset classes can benefit from supply constraints, Houck said. Higher rates can create opportunities to buy assets at a discount, but investors also need to watch how much debt a fund uses, he said. HB Wealth generally steers clients away from funds with leverage above 65 percent, whether at the operating property or fund level.

Family investors are curious about investing in real estate and real assets around data centers, but many are wary of the commitment it requires. Haugen said he is wary of entering a 10-to-15-year lock up at high interest rates. Mike Silverman, chief investment officer at Cresset, said clients ask about data centers frequently, but the wealth advisory firm has not pursued those opportunities due to the risk. "I would tend to think of data centers as being a more of a technology investment than a real estate investment," Silverman said. "You're investing in a 15-year lease with a major company. That sounds really attractive, unless at the end of the 15 years, the data center is not valuable because of technology change, and so that has caused me to be cautious around data centers."

The Deployment Angle

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

The deployment decision turns on whether the family office can source deals at yields that clear the new cost of capital. Haugen's high-single-digit to double-digit yield target implies a base case of at least 8 to 10 percent unlevered returns — achievable only through meaningful basis discounts or exceptional tenant credit. Offices can meet that bar if bought at a 40 to 50 percent haircut to replacement cost with investment-grade anchor tenants in place, but that narrows the opportunity set to distressed sellers and lender workouts.

For co-GP or platform commitments, the 65 percent leverage ceiling matters. A fund running 70 percent loan-to-value at the property level and an additional turn at the fund level effectively doubles equity volatility. In a rising-rate environment, that volatility cuts both ways — but the asymmetry favours the lender. Family offices writing LP cheques should pressure GPs to covenant maximum leverage at both tiers and require annual stress tests showing coverage at 200 basis points above current swap rates.

The industrial and multifamily preference reflects rent-reset frequency. Industrial leases on average turn every three to five years, and multifamily leases turn annually. That gives landlords the ability to capture inflation within the hold period. Retail and office leases with 10-year terms and fixed escalators will lag. The implication for direct ownership is to model rent growth conservatively — assume half the headline CPI figure unless the lease has true pass-throughs for operating expenses and taxes.

Data centers present a different risk profile. The 15-year lease duration locks in cash flow but introduces technology obsolescence as a terminal-value risk. The correct deployment route is a programmatic joint venture with an operating partner who has re-leasing relationships and can repurpose the shell if the anchor tenant does not renew. Avoid blind-pool funds with no asset-level governance rights and no expertise in hyperscale tenant credit. The risk is not real estate risk — it is counterparty and re-tenanting risk, and the family office needs control or co-control to manage it.

Questions this story answers

01Why are family offices being more selective about real estate right now?

Chief investment officers told CNBC that high interest rates have raised the bar for deals. Rob Haugen of Michels Family Office said uncertainty over where interest rates are headed has made the firm pickier, adding that without strong conviction rates are headed back down, the family office wants to pursue only the really special project.

02What types of real estate are family offices targeting in this rate environment?

Family offices are focusing on heavily discounted properties with strong pricing power, according to CNBC. Rob Haugen of Michels Family Office cited office buildings bought at heavy discounts with known tenants and big-box retail spaces as opportunistic avenues. Joel Houck of HB Wealth noted increased family office interest in industrial warehouses, farmland and timberland.

03How much leverage should family offices accept in a real estate fund?

HB Wealth chief investment officer Joel Houck said HB Wealth generally steers clients away from funds with leverage above 65%, whether at the operating property or fund level. Houck noted that while higher rates can create opportunities to buy assets at a discount, investors also need to watch how much debt a fund uses.

04Should family offices invest in data center real estate?

Family investors are curious about data center real estate but many are wary of the commitment it requires, according to CNBC. Rob Haugen of Michels Family Office is wary of entering a 10- to 15-year lock-up at high interest rates. Mike Silverman of Cresset said Cresset has not pursued data center opportunities, cautioning that technology change could render a data center not valuable at the end of a 15-year lease.

05Which real estate asset classes offer the best inflation protection for family offices?

HB Wealth chief investment officer Joel Houck said inflation protection in real estate comes from the ability of the underlying property manager to reset rental rates, and that not all subclasses reset rents at the same rate. Houck said industrial real estate and housing both offer the ability to raise rents on a regular basis and can both benefit from supply constraints.

Browse every question the desk has answered →

Original reporting

CNBC

Read the original at CNBC →

interest-ratesdistressed-real-estateinflation-hedgingleverage-limitsdata-centers

Peer Network · By Invitation

The Thesis Exchange

Share an investment thesis in confidence. We pair you anonymously with up to two other family offices running adjacent strategies. Reviewed by Gallium's editorial team. No vendor pitch.