Three CIOs said rate uncertainty is pushing screens to high-single-digit returns on cost and sub-65% loan-to-value ratios as offices trade at discounts.
Rate uncertainty is prompting some family-office investors to tighten screens on real estate deals, weighing discounted property prices and rent growth against debt levels and long capital commitments, three investment executives said.
Rob Haugen, who oversees private capital investments and mergers and acquisitions at Michels Family Office and serves as chief investment officer of River1 Asset Management, said he typically targets potential yield on cost in the high single digits or double digits. He pointed to discounted office properties with known tenants as one possible way to pursue those returns.
Joel Houck, chief investment officer at HB Wealth, said he has seen increased interest among large family offices in real estate and other real assets, including industrial warehouses, farmland and timberland. He said a property's potential to hedge inflation depends in part on whether rents can rise as leases reset.
"Not all rents are reset at the same rate," Houck said. Industrial properties and housing can offer more regular rent-increase opportunities and may also benefit from supply constraints, he said.
Houck said HB Wealth generally advises clients to avoid funds whose leverage exceeds 65% at either the property or fund level. The 65% threshold reflects HB Wealth's approach.
On Sept. 16, the Federal Reserve announced a 0.25 percentage point increase in its federal funds target range, setting it at 3.75% to 4% effective Sept. 17.
Haugen said he was wary of data-center investments with lockups lasting 10 to 15 years. Mike Silverman, chief investment officer at Cresset, said his firm had not pursued such investments, citing the risk that technology changes could reduce a facility's value despite a 15-year lease.
The Deployment Angle
Family Office Real Estate Daily Desk · our analysis, not the source's
The high-single-digit yield-on-cost floor that Haugen cited translates to roughly 8% to 9.5% unlevered returns at stabilization, a materially higher bar than the 6% to 7% pro formas that dominated core-plus pitches two years ago. If that is the new clearing price among direct allocators, co-GP platforms offering sub-8% projected yields will struggle to place equity unless they can document a path to ratcheting rents or capturing embedded vacancy upside within 18 months.
Houck's 65% leverage ceiling is a useful stress-test benchmark. A family office considering a separate-account industrial acquisition priced at a 5.5% cap rate can back into the implied equity multiple: at 65% loan-to-value and a 6% all-in debt cost, the levered return on a static NOI is roughly 4.3% on equity, well short of the Haugen threshold. That pencils only if underwritten rent growth exceeds 3% annually and the sponsor can prove lease rollovers will capture that growth without material downtime or capital expenditure.
The caution on data centers with decade-plus lockups is worth heeding in any long-lease net-lease structure. A 15-year triple-net lease to a single technology tenant at a fixed rental escalator creates re-tenanting risk at expiry and eliminates the optionality to capture rent inflection if the submarket tightens earlier. The offset—contractual income with minimal landlord obligations—may appeal to a yield-chasing LP fund, but a principal investing directly should price in a meaningful discount for that terminal illiquidity and technology obsolescence, particularly if the facility's power infrastructure or cooling capacity could be stranded by shifts in server architecture.
For families evaluating opportunities today, the threshold question is whether the sponsor's return assumption aligns with these tightened screens or still reflects 2021 cost-of-capital assumptions. If a pitch deck shows a levered equity IRR above 12% but relies on 70% leverage and a sub-7% yield on cost, the gap between that model and the Haugen-Houck framework is a negotiating wedge—or a reason to pass.
