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Family Office Debt Structure for Real Estate Deals: An Alabama Case Study

Family Office Debt Structure for Real Estate Deals: An Alabama Case Study

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Family offices often engage in real estate investments to diversify their portfolios and generate stable, long-term returns. These ventures frequently require external financing to optimize capital efficiency and manage risk exposure. This case study examines the debt structure employed by Hillcrest Acquisitions, a New York-based family office, in a recent multifamily development project in Alabama.

Case Study Overview: The Gabriel in Huntsville, Alabama

Hillcrest Acquisitions secured a $49.5 million loan from 3650 REIT (a leading US real estate investor) to finance the construction of The Gabriel, a 288-unit residential community in Madison, Alabama, a submarket of Huntsville. Marc Tropp, senior managing director at Eastern Union Funding, facilitated this three-year loan, arranged through 3650 REIT’s Bridge and Event Driven investment platform.

Construction of The Gabriel began in the third quarter of 2022 and is expected to be completed by July 2024. The gated community will feature 10 three-story, garden-style apartment buildings, enhanced amenities such as a swimming pool, playground, and electric vehicle charging stations, as well as 520 parking spaces.

Why Family Offices Use Debt for Real Estate

Family offices often seek loans for real estate development to achieve several objectives:

  • Capital Preservation: Leveraging debt allows family offices to preserve their equity while still participating in lucrative opportunities.
  • Risk Mitigation: Sharing project costs with lenders helps mitigate financial risks, especially in large-scale developments.
  • Project Viability: Access to reliable financing ensures the uninterrupted progress of projects, even during challenging market conditions.

3650 REIT’s Role in the Financing

Hillcrest Acquisitions selected 3650 REIT for its ability to provide a fully capitalized debt structure and expertise in servicing mid-construction loans. This collaboration reflects the adaptability of 3650 REIT, which continues to provide funding solutions despite broader market slowdowns. According to Jonathan Roth, co-founder and managing partner of 3650 REIT, the Huntsville area’s growing defense and STEM employment sectors make it a promising location for multifamily investments.

3650 REIT’s Bridge and Event Driven platform has facilitated several similar loans. In the first quarter alone, the platform closed seven loans totaling $240 million across various asset classes. This robust activity demonstrates its role as a dependable financing partner for real estate developers.

The Mitchell Family Office: A Success Story from Michigan

The Mitchell Family Office: A Success Story from Michigan

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The Mitchell Family Office (MFO) was established in 2015 by Mark Mitchell, an entrepreneur with decades of experience in founding and managing businesses across various industries. Based in Michigan, MFO has grown into a platform focused on investments, business building, and creating opportunities for future generations.

The MFO Story

Mark Mitchell began his entrepreneurial journey in 1979 at the age of 15, starting a lawn service business that generated more than $50,000 annually. This early experience provided a foundation for his future endeavors. Over the next several decades, he founded multiple businesses and invested in numerous industries.

In 1993, Mark established Visiting Physicians Association (VPA), a physician house call practice inspired by his efforts to help his grandmother access better healthcare. VPA grew into a leading house call practice in the United States, operating in over 40 locations across 14 states. Alongside VPA, he founded U.S. Medical Management (USMM), Grace Hospice, Pinnacle Senior Care, and The Home DME, creating an integrated system of home-based care services for over 50,000 patients annually.

In 2014, Mark sold his interest in USMM to Centene Corporation while remaining involved in operations until his departure in 2015. Following this, he founded the Mitchell Family Office as a platform to manage investments and provide opportunities for future generations. Since its inception, MFO has invested in over 20 companies across a range of industries.

In 2018, Mark co-founded Lorient Capital, a private equity firm focused on lower-middle-market healthcare investments. He remained the largest investor until 2022, when he sold his interests. Other notable milestones for MFO include the 2020 opening of The Daxton Hotel, a luxury hotel in Birmingham, Michigan, and the growth of the family office to over 20 employees by 2022.

Timeline

  • 1979: Mark starts his first business at the age of 15, earning over $50,000 annually from his lawn service company.
  • 1987: Mark makes his first real estate investment.
  • 1993: Founding of Visiting Physicians Association (VPA) and U.S. Medical Management (USMM).
  • 2005: Creation of Pinnacle Senior Care, a home health agency providing nursing and therapy services.
  • 2006: Establishment of Grace Hospice, focusing on patient-centered end-of-life care.
  • 2014: Sale of a controlling interest in USMM to Centene Corporation.
  • 2015: Launch of the Mitchell Family Office.
  • 2018: Co-founding of Lorient Capital.
  • 2020: Opening of The Daxton Hotel in Birmingham, Michigan.
  • 2022: MFO expands to over 20 employees and diversifies its investment strategies.

Strategies

MFO focuses on long-term investment strategies across multiple industries, emphasizing sustainable growth and value creation. The office leverages its founder’s experience in healthcare, real estate, and private equity to guide its activities.

Team

The Mitchell Family Office team comprises experienced professionals specializing in investment management, business operations, and strategic planning. The team works collaboratively to identify opportunities and manage the office’s diverse portfolio. The family office is located in Birmingham, which is close to Detroit, which is also a family office hotspot.

What are 5 ways to get a family office invest in your startup?
What are 5 ways to get a family office invest in your startup?

What are 5 ways to get a family office invest in your startup?

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Securing investment from a family office can be a significant milestone for any startup. Family offices offer not just capital, but also valuable expertise and networks. Here are five strategies to attract investment from a family office for your startup.

1. Align with the Family Office’s Values and Interests

Overview: Family offices often have specific investment themes or values that guide their investment decisions. You can look at th Munich-based Reimann Investors family office, to get an impression of viable family office investment verticals.

Strategy: Research the family office’s investment philosophy and tailor your pitch to align with their interests and values, such as sustainability, technological innovation, or social impact.

2. Demonstrate a Strong Business Model

Overview: A well-thought-out and viable business model is crucial to gain the confidence of family office investors.

Strategy: Clearly articulate your business model, revenue streams, and market potential. Show how your startup stands out in the market and its scalability.

3. Build a Solid Management Team

Overview: Family offices invest in people as much as they invest in ideas. A strong, experienced management team can be a key factor in securing investment.

Strategy: Assemble a team with a track record of success, relevant industry experience, and complementary skills. Highlight the strengths and expertise of your team members in your pitch.

4. Network and Build Relationships

Overview: Networking is essential in the world of family offices. Building relationships can lead to investment opportunities.

Strategy: Attend industry events, join relevant forums, and seek introductions to family office networks. Focus on building genuine relationships rather than making a direct sales pitch.

5. Showcase a Clear Path to Returns

Overview: Like all investors, family offices want to understand the return potential on their investment.

Strategy: Present a realistic and well-supported projection of financial returns. Include exit strategies and risk management plans to demonstrate a comprehensive understanding of the investment landscape.

Conclusion

Attracting investment from a family office requires a startup to align with the office’s values, demonstrate a strong business model and management team, engage in effective networking, and provide a clear path to financial returns. By focusing on these areas, startups can significantly increase their chances of securing a family office investment.

Picture Source: Christopher Gower

Definition: What is a Cyber Security Threat Assessment for Family Offices?
Definition: What is a Cyber Security Threat Assessment for Family Offices?

Definition: What is a Cyber Security Threat Assessment for Family Offices?

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Cybersecurity is becoming an increasingly essential topic for family offices. For this, Deloitte has published its own family office cybersecurity report. Focusing on IT security makes sense since family offices are becoming more and more often subject to cyberattacks. This also plays an important role in the IT management of the largest US family offices.

Definition of Cyber Security Threat Assessment

A cyber security threat assessment is a systematic evaluation of potential vulnerabilities, risks, and threats to a family office’s digital infrastructure,
assets, and sensitive information. For family offices, this is particularly crucial given the wealth and private data they manage, which makes them prime targets
for cyberattacks.

Why is Cyber Security Critical for Family Offices?

Family offices often handle sensitive data, such as personal financial details, investment portfolios, and confidential communications. A breach can lead to
financial losses, reputational damage, and privacy violations. A cyber security threat assessment helps identify weak points and implement measures to
mitigate risks, ensuring the safety of family assets and information.

For example, phishing attacks or ransomware targeting a family office’s email system could compromise highly sensitive information.

Key Elements of a Cyber Security Threat Assessment

A comprehensive cyber security threat assessment for a family office typically includes the following steps:

  • Identifying Digital Assets: Cataloging all IT systems, networks, applications, and sensitive data to understand what needs protection.
  • Analyzing Potential Threats: Evaluating risks such as phishing, malware, ransomware, insider threats, and external attacks.
  • Assessing Vulnerabilities: Examining weak points in the IT infrastructure, such as outdated software, unsecured devices, or poor password practices.
  • Simulating Attacks: Conducting penetration tests to simulate cyberattacks and evaluate the system’s resilience.
  • Providing Recommendations: Offering actionable insights to enhance security, such as implementing multi-factor authentication or network monitoring tools.

Imaginary Example: The Stevenson Family Office

The Stevenson family office manages $800 million in assets, including investments in tech startups. Following an attempted phishing attack targeting the CEO,
the family office conducts a cyber security threat assessment. The evaluation reveals:

  • Weak password policies, with multiple shared accounts among staff.
  • Lack of encryption for sensitive financial documents shared via email.
  • Unsecured IoT devices on the office’s Wi-Fi network.

As a result, the family office implements stronger password protocols, encrypts all sensitive data, and segregates IoT devices on a separate network.
These actions reduce the likelihood of future breaches.

Proactive Cyber Security Measures

Beyond threat assessments, family offices should adopt proactive measures such as:

  • Employee Training: Educating staff about phishing, social engineering, and secure data practices.
  • Regular Audits: Conducting periodic security reviews to address new vulnerabilities.
  • Advanced Tools: Utilizing firewalls, endpoint protection, and intrusion detection systems.
  • Incident Response Plan: Establishing a clear protocol for responding to cyberattacks to minimize damage.

Picture source: Getty Images

Five Steps to Organize a Good Family Office Board Meeting
Five Steps to Organize a Good Family Office Board Meeting

Five Steps to Organize a Good Family Office Board Meeting

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In this article, we describe how to structure good family office board meetings – from the initial design of objectives to a follow-up after the meeting.

Step 1: Define the Meeting Purpose and Objectives

Begin by clearly defining the purpose of the meeting. Is it a regular review of investments, a discussion on governance policies, or a deep dive into
specific challenges? Establish clear objectives to ensure the meeting stays focused and productive.

For example, if the meeting focuses on succession planning, outline topics like mentoring programs, leadership transitions, and role assignments for family members.

Step 2: Create a Detailed Agenda

A well-structured agenda is critical for a successful meeting. Include key topics, allocate time for each item, and prioritize discussions that require immediate attention.
Share the agenda with participants ahead of time so they can prepare.

Example agenda items might include financial performance reviews, strategic decisions, updates from external advisors, and open discussions for family input.

Step 3: Involve the Right Participants

Ensure the meeting includes all necessary stakeholders. This typically involves family members, board members, and external advisors such as financial, legal, or
tax experts. Tailor the participant list to the meeting’s objectives to avoid overcrowding while ensuring relevant perspectives are represented.

For instance, a meeting to discuss investment strategies might require the presence of the family office’s portfolio manager alongside the family’s financial advisor.

Step 4: Prepare and Distribute Pre-Meeting Materials

Provide participants with pre-meeting materials, including financial reports, performance summaries, and other relevant documents. This ensures everyone
arrives prepared and reduces the need for lengthy presentations during the meeting.

For example, a quarterly investment review might include portfolio performance summaries, market analysis, and proposed investment opportunities.

Step 5: Facilitate and Follow Up Effectively

Designate a skilled facilitator during the meeting to ensure discussions stay on track and time is managed effectively. Encourage open dialogue while maintaining
professionalism and respect. After the meeting, circulate detailed minutes, highlight key decisions, and outline the next steps.

For example, after approving a new family governance policy, follow up with an implementation plan and assign responsibilities to ensure progress.

Picture Source: Getty Images

Definition: Family Office Board Meetings
Definition: Family Office Board Meetings

Definition: Family Office Board Meetings

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In this article, we describe the important structure of family office board meetings. Many family offices, like Bessemer Trust, offer this service for their clients.

What Are Family Office Board Meetings?

Family office board meetings are structured gatherings of key stakeholders within a family office to discuss strategy, governance, and the management of
family assets. These meetings typically include family members, board members, and external advisors, ensuring that decisions align with the family’s
vision and long-term objectives.

The Purpose of Family Office Board Meetings

The primary purpose of these meetings is to facilitate transparent communication, make informed decisions about investments, succession planning, and risk
management, and maintain alignment with the family’s mission. Board meetings also serve as a forum for addressing emerging challenges and ensuring the
continued professionalism of the family office.

Imaginary Example: The Braun Family Board Meeting

The Braun family runs a multi-generational family office overseeing assets worth $500 million, including real estate, investments, and a private equity fund.
During their quarterly board meeting, key topics discussed include:

  • Performance updates on the real estate portfolio, including a potential acquisition of a commercial property.
  • Review of next-generation education programs, ensuring younger family members are prepared to take active roles.
  • Approval of a sustainability initiative aligning the family’s investments with their environmental values.

Decisions from this meeting set the foundation for both immediate actions and long-term strategies for the family office.

Key Components of a Family Office Board Meeting

Effective family office board meetings typically include the following components:

  • Agenda Setting: A well-prepared agenda ensures that discussions are focused and productive.
  • Performance Reviews: Regular updates on financial and operational performance provide insights for informed decision-making.
  • Governance Updates: Discussions about succession planning, risk management, and governance policies maintain alignment with family goals.
  • Education and Training: Sessions to involve and prepare younger generations for future responsibilities.
  • Expert Input: External advisors often provide specialized knowledge on tax, legal, or market-related matters.

Imaginary Example: The Chen Family Annual Governance Review

The Chen family, with diverse global investments, holds an annual governance-focused board meeting. This year, their agenda includes:

  • Reviewing the family constitution and making updates to reflect changes in family dynamics.
  • Electing a next-generation family member to the board as part of a mentorship program.
  • Hearing from a legal expert on changes in international tax laws affecting the family’s investments.

These discussions strengthen the family office’s governance framework and ensure continued alignment with the family’s shared vision.

Picture source: Dane Deaner

Definition: Wealth Transfer Planning in the Scope of Family Office Services
Definition: Wealth Transfer Planning in the Scope of Family Office Services

Definition: Wealth Transfer Planning in the Scope of Family Office Services

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In this article series, we define key concepts of family office services. Wealth transfer planning is offered by many US multi family offices, such as Alpha Capital.

What is Wealth Transfer Planning?

Wealth transfer planning involves the strategic distribution of assets from one generation to the next. Within the realm of family office services,
it includes legal, financial, and emotional preparations to ensure that wealth is preserved, grown, and handed down effectively. This process often requires
collaboration among tax experts, estate planners, investment advisors, and legal professionals.

The Role of Family Offices in Wealth Transfer

Family offices are uniquely positioned to provide holistic wealth transfer solutions. They go beyond simple asset management by offering tailored strategies
for maintaining family unity, minimizing tax burdens, and ensuring the longevity of wealth. A family office may also include educational programs to prepare
the next generation for their responsibilities as stewards of the family fortune.

Imaginary Example: The Meyers Family

The Meyers family owns a successful manufacturing business valued at $50 million. With three adult children, the patriarch, Thomas Meyers, wants to
ensure the business remains a family asset while supporting his children’s individual ambitions.

Working with their family office, the Meyers establish a trust structure where ownership of the business is transferred to a trust managed by
professional advisors. The children receive annual distributions, but the trust retains control to prevent mismanagement. In addition, the family
office coordinates tax strategies to reduce inheritance taxes, ensuring the business’s value is preserved.

Imaginary Example: The Rodriguez Legacy Fund

After decades of successful investments, Maria Rodriguez has accumulated significant wealth. She wants to leave a legacy that supports her grandchildren’s
education while funding social initiatives in her hometown. Maria’s family office designs a wealth transfer plan that incorporates a charitable foundation.

The Rodriguez Legacy Fund is established to provide scholarships for her grandchildren and annual grants to local non-profits. Her family office also
implements a gifting program that takes advantage of annual tax exemptions, transferring assets to her grandchildren in a tax-efficient manner.

Key Strategies in Wealth Transfer Planning

Effective wealth transfer planning often employs strategies such as:

  • Trusts: Structures like family trusts or charitable trusts can safeguard assets while providing flexibility and tax benefits.
  • Gifting Programs: Annual gifting programs can transfer wealth tax-free up to the allowable limits.
  • Succession Planning: For family businesses, clear succession plans ensure continuity and reduce conflicts.
  • Educational Programs: Preparing heirs for wealth stewardship can mitigate risks of mismanagement.

Picture source: Morgan Housel

What is a "lifestyle concierge" service of family offices?
What is a “lifestyle concierge” service of family offices?

What is a “lifestyle concierge” service of family offices?

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A “lifestyle concierge” service, as offered by family offices, refers to providing personalised assistance and managing non-financial aspects of a family’s daily life. The objective of this service is to enhance convenience, save time, and support a luxurious and well-organised lifestyle. This service is designed for high-net-worth (HNW) and ultra-high-net-worth (UHNW) families, with the objective of fulfilling their personal, travel, and household needs with the same level of precision and care that is applied to their financial affairs.

The scope of lifestyle concierge services is extensive and can be tailored to the specific needs and preferences of each family member. Such tasks may include the arrangement of luxury travel itineraries, the securing of reservations at exclusive restaurants or events, the management of household staff, and the oversight of the maintenance of multiple residences. The service is intentionally comprehensive in scope and designed to meet the diverse and evolving needs of affluent families.

One of the fundamental advantages of lifestyle concierge services is the consolidation of personal management tasks. For families responsible for managing multiple properties, yachts, private jets, or extensive art collections, the concierge service provides a comprehensive solution that eliminates the stress of logistics and operational details. By delegating these responsibilities to the family office, families can concentrate on their personal and professional endeavours without distraction.

Furthermore, lifestyle concierge services frequently extend into domains of personal growth and well-being. Family offices may coordinate wellness programmes, secure private tutors, or facilitate distinctive experiences such as exclusive art tours, bespoke shopping events, or private cultural performances. The objective is to create value beyond wealth by enhancing the overall quality of life for family members.
Additionally, discretion and confidentiality are of paramount importance. Family offices are uniquely positioned to handle sensitive personal arrangements while maintaining privacy.

Picture source: Unsplash+

What Are Multi-Generational Families – and why does it matter for family offices?

What Are Multi-Generational Families – and why does it matter for family offices?

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In the context of family offices, the term ‘multi-generational family’ describes a household or extended family group spanning two or more generations. These families are often unified by shared wealth, businesses, or other significant financial assets. Such families often comprise grandparents, parents, children, and occasionally even great-grandchildren, all of whom may have an interest in the family’s collective wealth or enterprises. The multi-generational nature of such families introduces a number of complexities in managing their collective wealth, the governance of their affairs, and the planning of their legacy. In order to address these challenges, family offices have become an essential tool.

A defining characteristic of multi-generational families is their long-term approach to wealth management. The focus is frequently extended beyond the immediate generation to encompass the preservation and growth of assets for future descendants. This perspective necessitates implementing strategic planning in domains such as estate management, establishing trusts, and creating governance structures that ensure clarity and harmony among family members. It is challenging to balance the interests and priorities of different generations, but it is crucial for maintaining unity and stability within the family.

Family offices are of pivotal importance in supporting multi-generational families. They provide bespoke solutions for the administration of shared assets, the supervision of investments and the implementation of tax-efficient strategies that are aligned with the family’s objectives. Furthermore, family offices frequently assist in designing and enforcing governance frameworks, such as family constitutions or councils, to facilitate decision-making and resolve conflicts. These frameworks are especially crucial for managing disagreements arising from differing priorities or values between older and younger generations.
Philanthropy is another domain where multi-generational families frequently engage deeply. Family offices often coordinate charitable activities, ensuring that giving aligns with the family’s shared values while involving members of all generations. This approach not only strengthens the family’s cohesion but also

What Is a UHNW (Ultra-High-Net-Worth)? Our definition

What Is a UHNW (Ultra-High-Net-Worth)? Our definition

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The term UHNW, or Ultra-High-Net-Worth, is used to describe individuals or families with investable assets exceeding $30 million. This classification is employed within the financial and wealth management industries to differentiate the wealthiest clients from other categories, such as High-Net-Worth (HNW) individuals, whose assets commence at $1 million. The UHNW designation serves to highlight the distinctive financial circumstances and requirements of these individuals, who typically possess substantial and diversified portfolios. Many UHNW’s can be found on the Forbes list.

It is not uncommon for UHNW individuals to hold their wealth in forms that extend beyond cash or liquid assets. Such individuals may also possess a variety of assets, including ownership of private companies, significant real estate holdings, art collections, hedge fund investments, private equity stakes, and even assets in emerging technologies or cryptocurrencies. The management of such a diverse array of holdings necessitates the input of specialised expertise, sophisticated financial planning and, in many cases, the input of a dedicated team to oversee the various aspects of wealth management.

This level of wealth presents a duality of opportunity and challenge. For instance, UHNW individuals often engage in global operations, with assets and business interests dispersed across multiple jurisdictions. Consequently, the optimisation of taxation becomes a significant issue, necessitating a comprehensive grasp of international tax legislation and agreements. Succession planning is another crucial area of concern for many UHNW families, as they seek to preserve their wealth across generations. This necessitates the implementation of detailed estate planning, the establishment of appropriate trust structures, and the creation of effective governance frameworks to ensure long-term stability.

Family offices are particularly relevant to UHNW individuals and families. These private entities provide a centralized approach to wealth management, offering services such as investment oversight, tax coordination, philanthropic planning, and lifestyle management. In contrast to standard financial advisors, family offices are able to tailor every aspect of their service to the specific needs and values of the family, creating bespoke strategies that reflect the unique circumstances and objectives of the family in question.