Rob Haugen of Michels Family Office said rate uncertainty has made the firm more selective in the asset class.
Higher interest rates have made family offices more selective about investing in real estate, with many focusing on highly discounted properties and assets with strong pricing power, chief investment officers told CNBC.
Rob Haugen of Michels Family Office said uncertainty over where interest rates are headed has made the firm pickier about investing in the asset class. Haugen oversees private capital investments and mergers and acquisitions at the family office. He also serves as chief investment officer of its spinout firm River1 Asset Management.
The comments point to a broad reassessment of real estate allocations among family offices as borrowing costs remain elevated. Many principals are pulling back from opportunistic acquisitions that rely on near-term rate cuts and instead hunting for properties where either the seller is under distress or the asset itself can raise rents or prices without depending on falling debt service.
Family offices that historically competed for stabilized assets on thin spreads are now requiring wider underwriting margins. The strategy reflects a judgment that the Federal Reserve's path remains uncertain and that refinancing risk will persist longer than many sponsors expected a year ago.
Distressed purchases allow buyers to lock in equity at below-replacement cost. Assets with strong pricing power, such as well-located multifamily or self-storage, offer downside protection if rates stay high. Both routes require less leverage than deals structured on the assumption of near-term rate relief.
Haugen's remarks to CNBC highlight the role of interest-rate uncertainty in shaping family office deployment. Firms that once moved quickly on sponsor relationships are now applying tighter credit screens and insisting on equity cushions large enough to survive a financing environment in which debt remains expensive for several more years.
The Deployment Angle
Family Office Real Estate Daily Desk · our analysis, not the source's
The shift toward distressed opportunities and pricing-power assets argues for direct ownership or co-GP structures in which the family office controls asset selection and can impose stricter underwriting standards than a blind-pool fund would allow. Programmatic joint ventures with a small number of operating partners offer speed without sacrificing diligence, provided the partnership agreement permits the family office to decline individual deals that fail debt-service or refinancing stress tests.
LP commitments to opportunistic or value-add funds raised before the rate environment changed now carry higher risk. Many of those vehicles underwrote deals on the assumption of rate cuts that have not materialized. Families should press general partners for detailed exposure reports showing loan maturity schedules, extension terms and backup refinancing plans. Where a fund holds assets maturing in the next eighteen months and lacks committed extension capital, the prudent course is to reserve for potential capital calls tied to refinancing shortfalls rather than expect profitable exits.
For families entering the distressed space, the underwriting checklist must expand beyond purchase-price discount. Physical condition drives ultimate returns when the seller is motivated by a need to exit rather than by asset quality. Walk every property with a general contractor before binding, price deferred maintenance into the proforma, and require the sponsor to escrow the first twelve months of capital expenditures at closing. Mechanical, electrical and plumbing age often determines whether a discount buy remains profitable after the first lease renewal cycle.
Pricing power is not uniform across property types. Multifamily in supply-constrained markets and necessity retail with grocery anchors have demonstrated the ability to raise rents even as financing costs climb. Office conversions and suburban retail without walkable density do not. Families should define pricing power narrowly, require trailing three-year rent growth above inflation, and avoid properties where occupancy depends on tenant credit that itself relies on low rates.
