Rich Families Hunt for Real Estate Bargains Beyond the Big City

Beacon House isn’t everyone’s idea of prime office space. But the four-story, red-brick building an hour’s drive from the City of London’s glass-paneled towers is a discrete example of how wealthy families are looking further afield for returns in a crowded real estate market.

The southwest London property is among eight on the website of Riverton Capital Holding, the U.K. investment arm of a Bahrain family who made their fortune in the auto industry.

Beacon House Family Real Estate

Beacon House

Photographer: Simon Dawson/Bloomberg

Their portfolio’s growing focus outside of London’s core commercial property market typifies how private wealth is far from just rich families investing in low-yield, value-holding real estate in the priciest parts of major cities. Beacon House, bought for 5.8 million pounds ($7.5 million) in late 2017, is located in the Wimbledon district, where prime rents have grown faster over the past five years than the City’s office market.

“There are some regional estate agents that don’t reach any institutional investors,” said Tobias Poensgen, chief executive officer of Momentum Capital Ltd., a London-based direct investment vehicle for a single-family office. “And you can make some really great trades there.”

Even with the British pound bruised by Brexit, high prices are pushing property investors beyond big cities’ core markets. But opportunities are often too small for pension funds and other institutional investors. Wealthy families and private investors such as Riverton and Momentum, though, have been increasingly taking advantage.

Dallas, Philadelphia

In the past two years, assets outside central London account for the highest share of private investors’ property spending in the city this decade, according to data compiled by broker Knight Frank. Elsewhere, CBRE Group Inc. cites Dallas and Philadelphia within a cluster of second-tier U.S. cities that have seen demand spike from bigger overseas buyers. Investors in Australia’s office market similarly moved beyond city centers last year, according to rival firm Savills.

“There tends to be a misunderstanding that ultra-high-net worth investors focus on trophy assets,” said Alex James, a London-based associate partner on Knight Frank’s private-client team. “Family offices don’t mind going up the risk scale where they see rental growth and assets to reposition.”

Momentum and Riverton both aim to boost their properties’ values through refurbishment or development. Examples include a central London office that Riverton bought for 4.2 million pounds in 2015 and sold for 55 percent more two years later, according to the U.K. Land Registry and online database Momentum’s site, meanwhile, highlights a “step further on the risk spectrum” for assets that may need significant redevelopment.

Growth potential is Riverton’s priority, according to asset and development manager Rupert Dehaene-Gold. Infrastructure projects like Crossrail, a railway under construction to link towns more than 30 miles (48 kilometers) from London’s Square Mile “are very important to us,” he said. Property prices along the train line are rising faster than in other parts of the U.K., according to CBRE.

Poensgen and Dehaene-Gold made their comments in a panel discussion hosted by Family Office Real Estate Advisers, a London-based network for property professionals and ultra-high-net worth investors. Direct real estate investments account for 17 percent of family offices’ portfolios on average, according to Campden Wealth and UBS Group AG. That’s more than the 10 percent for institutional investors cited in research last year from Cornell University and Hodes Weill & Associates LP.

Norway’s sovereign-wealth fund has an even smaller percentage of its portfolio invested in unlisted real estate — yet it still plunked down more than $1 billion on buildings in central Paris last year. For now, that concentration of institutional capital in city centers will keep pushing investors like Momentum beyond core markets in the months ahead, especially as foreign investors exploit the drop in the British pound since the U.K.’s 2016 vote to leave the European Union.