Single-family homes in a residential neighborhood in Miramar, Florida, October 27, 2022.
Joe Raedle | Getty Images News | fake images
A version of this article first appeared in CNBC's Inside Wealth newsletter with Robert Frank, a weekly guide for high-net-worth investors and consumers. Register to receive future issues, directly to your inbox.
Private investment firms owned by ultra-wealthy families could inadvertently find themselves caught in the crosshairs of President Donald Trump's proposal to ban “large institutional investors” from purchasing more single-family homes. While Trump's announcement took aim at Wall Street owners, and particularly private equity giants like Blackstone, Vicki Odette, a partner at Haynes Boone, told Inside Wealth that family offices are not necessarily out of the woods.
Three-quarters of family offices in North America invest in real estate, with an average allocation of 18%, according to a survey published by Campden Wealth and RBC Wealth Management last year. Residential properties accounted for just under a third of a family office's average real estate holdings, according to the same report.
The consequences of Trump's proposal depend on how he would define a large institutional investor, something that has not yet been revealed. According to Odette, in recent years, Congress and government agencies have focused on the number of homes owned rather than the investor's total assets or investment strategy.
A 2024 Government Accountability Office report on institutional investors focused on those who own more than 1,000 properties of four units or less. The threshold is even lower in the Stop Predatory Investments Act introduced in March, which names “disqualified single-family property owners,” defined as taxpayers who directly or indirectly own 50 or more single-family residential rental properties.
“There are a lot of wealthy families who would fall into that category without realizing it because they are real estate developers and made money in real estate,” said Odette, a partner at Haynes Boone who advises family offices, funds and institutional investors.
Family offices generally prefer multifamily housing and commercial developments, he said. However, there are some family offices, especially in the South, that have significant portfolios of single-family homes in suburban or rural areas, he said.
Michael Cole, managing partner of R360, an investment community for centimillionaires, said it's too early to know whether the ban will affect family offices. What muddies the issue is the fact that family offices are structured in a wide variety of ways, he said.
“There is no legal entity called a family office. It is not a corporation, it is not an LLC, it is not an FLP,” he said, referring to family limited partnerships. “Those are organizations that are governed by the single-family office concept, but a single-family office is not a legal structure.”
Arielle Frost, a partner in Withers' real estate practice, said family offices likely wouldn't be affected immediately, as Wall Street landlords are the primary target. What's not clear, he said, is whether politicians and lawmakers will continue to target other types of investors.
“The first attack is probably the most important, because you need to get the support and momentum behind it,” he said. “So the question is: Will it burn out? 'Okay, we made our base happy and now we move on to other things,' or is this really something that the administration cares about and will continue to focus on?”
