Ellie Perlman, CEO of Blue Lake Capital LLC – Growing & Preserving Intergenerational Wealth With Multifamily Investments.
When family wealth transitions to the next generation, it’s not just assets that change hands—it’s leadership, vision and responsibility. This is especially true for family offices, which often face growing pains when adapting to second-generation leadership. As an owner of a private equity group and part of a family office, I’ve seen how my network of family offices go through the same issues when the next generation takes over.
These transitions are rarely seamless. Governance structures are often tested, alignment can falter and the stakes for preserving wealth couldn’t be higher. Yet, exploring new investment options, such as real estate, could help family offices safeguard wealth and engage the next generation.
Challenges Of Second-Generation Family Offices
Succession Planning And Governance
Leadership transitions often bring uncertainty not only for family members but also for their employees. Many wonder if things will dramatically change or if the new heir plans on a massive restructuring. In addition, without clear governance structures, families may face internal conflict that can erode both wealth and relationships. Undefined roles or processes can leave the next generation ill-prepared to make cohesive decisions.
Engaging The Next Generation
Younger generations can hold different perspectives on wealth management and risk tolerance. For instance, second-generation members of the family office might focus on philanthropy and investments that stand hand in hand with their values (e.g., supporting artists or young entrepreneurs) and not solely on maximizing profits. They also may not be interested in working the same hours as the first generation, given that members of younger generations often prioritize hobbies, travel, etc. It’s part of a different worldview that emphasizes wellness.
If the young generation was not actively involved with the family office, they may also feel disconnected from the business and view it as outdated, which can lead to disengagement and potential mismanagement.
Adapting Investment Strategies
Investment preferences often shift across generations. The founding generation may favor conservative strategies, while the next might lean toward dynamic or impact-driven investments. Balancing these priorities while preserving wealth is challenging.
Real Estate As A Bridge
Real estate has long been a favored asset class for investors and family offices. Its ability to generate income, preserve capital and engage family members can make it a helpful tool for generational transitions. Here’s why:
A Foundation For Governance
Real estate requires structured decision-making. From acquisition to management and eventual disposition, each stage demands collaboration and accountability. Family offices can leverage real estate investments to establish governance frameworks, including:
• Investment committees involving multiple generations;
• Defined roles and responsibilities for overseeing assets, such as property improvements;
• Protocols for income distribution, reinvestment and portfolio review.
These processes can help align family members while minimizing conflicts.
Engaging The New Gen Through Active Participation
Unlike passive investments, hands-on real estate investments, such as multifamily, can offer tangible opportunities for involvement. Second-generation members can participate in asset visits to evaluate the attractiveness of the opportunity; engage in property management to gain insight into tenant needs and market dynamics; and collaborate on development projects to learn budgeting and execution.
This hands-on approach fosters financial literacy and a sense of ownership, which can align the younger generation with the family’s vision. I was once approached by the head of a family office who asked me to include their son in the asset management weekly calls with our property managers. This way, their son could get exposure to how our multifamily business is run and additional insight into investments aside from the family office’s typical investments.
A Vehicle For Diversification And Risk Mitigation
Real estate investments can also offer diversification by targeting different markets, asset classes and strategies—such as core assets, value add and distressed properties—which can reduce exposure to market volatility. Incorporating real estate assets can help the second generation lead an office that is diversified and mitigates risk for the family members.
Practical Steps For Leveraging Real Estate
For family offices considering real estate, there are a few steps I recommend taking:
1. Educate the next generation.
Provide training or mentorship in real estate markets, financial modeling and property management. Education builds confidence and ensures informed decisions.
2. Define clear investment criteria.
Set parameters for acquisitions, including geography, asset class and risk tolerance. This clarity streamlines decision-making and aligns investments with family goals.
3. Partner with experienced sponsors.
Collaborate with sponsors who can identify, acquire and manage assets. Be sure to discuss decision-making processes and reporting expectations.
4. Establish a long-term vision.
Align real estate investments with family goals—whether for wealth preservation, income generation or legacy building. Communicate this vision clearly to maintain alignment.
Transitioning family wealth is complex but offers opportunities. For family offices facing the uncertainties of succession, real estate is one option that can help address governance challenges, engage the next generation and preserve wealth for the long term. When done right, real estate can help build bridges by connecting generations and aligning visions.
The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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