Family office investment has long been shrouded in mystery, keeping their activities and investment cards close to the chest. In recent years however, family offices (FOs) have been emerging quietly as social investors, feeling more and more comfortable in taking clean and green deals away from the private sector.
For many of them, it hasn’t been a conscious decision but interest was increasing even before Environmental, Social and Governance (ESG) investment was considered a ‘thing’. The heightened interest over recent times has been driven by the desires of the next generations of FOs to invest in those things that will improve the world for all and mitigate the more frequent catastrophic events which present a danger to everyone’s future.
Socially Conscious Real Estate Investments
Social investment in real estate means investing in those opportunities that not only provide a financial return but have a positive impact on the community and, or, the environment. The properties invested in would be environmentally friendly, sustainable and provide a benefit for some underserved sector of the population.
There are many ways investors can be socially responsible in their investment choices. Some of the projects attracting increasing levels of investor interest and funding are;
Affordable housing
Rent prices in Toronto rose 20% between May 2021 - 2022 year-on-year and as the province more than doubled the maximum rent increase allowable for 2023, there is no respite in sight for low-mid-wage families struggling with a cost of living crisis. In addition to that, the province is welcoming more skilled immigrants than ever in the next few years with no plan on where to house them. The Smart Prosperity Institute suggests that 1.5 million homes are needed in Ontario alone, an average of 150,000, a year to keep up with population growth and demographic change. On the back of the Federal budget last month, it was clear that the number of housing starts to meet these needs was already falling short…
Senior living facilities
Just as affordable homes are in short-supply for those who have no choice but to rent, so are spaces in long-term seniors’ housing. Canada has an aging population, with those over 85 the fastest growing age group in the country and as demand has outpaced supply, the cost of assisted living has skyrocketed. The government has little strategy to deal with this burgeoning problem and with wait lists for dedicated facilities, both public and private, sometimes running into years, pressure is on families to care for their elders for longer at home or rely on already stretched hospital resources.
Investors have an opportunity to alleviate the senior living impasse by increasing the supply of sustainable senior homes, homes where our seniors and ourselves will one day want to live and bringing down the cost of these facilities so that the average Canadian family can afford them.
Clean energy infrastructure
Investment into clean and renewable energy infrastructure is growing. Canada is well-placed to take a global lead in decarbonization with an abundance of natural resources and family offices may choose to invest directly into cleantech startups or established companies, own their own renewables companies or provide the finance for clean energy businesses to enable their growth and expansion. From solar to wind and marine, assets that may once have been determined too high risk are now relatively low risk, high return and with a lack of traditional bank funding available, present a huge opportunity for FOs wanting to diversify.
Healthcare buildings
Through investments into healthcare properties, family offices have the chance to significantly improve the quality of human life. There are many strategies they can employ to enter this space, however it’s important to seek professional real estate advice, particularly as the regulatory environment can be more complex.
Direct ownership - Family offices can purchase medical office buildings, hospitals and specialty medical facilities directly and either manage these properties themselves or hire a management company to help.
Private equity - FOs can invest into private equity funds that specialize in healthcare real estate. These funds typically acquire and manage properties, seeking to increase their value through renovation, leasing or development, however if the FO is looking to reduce cost and assert more control over assets, direct ownership may be preferable.
Joint ventures - Family offices may partner with healthcare operators or developers to create joint ventures that invest in healthcare real estate. With this option, the FO can access expertise in the sector and it allows for joint risk and reward.
Debt financing - Family offices could opt to provide debt financing to healthcare real estate projects. This option can provide steady income through interest payments and can be less risky than equity investments.
What makes a healthcare investment socially conscious is that the property will go beyond a mere financial investment but is able to provide services to underserved communities or those with low incomes and in rural locations.
Clean manufacturing sites
Clean manufacturing industries are defined by Science Direct as “…industries that use clean technologies, clean energy and improved resource efficiency.” Consumers are increasingly on the lookout for products that do no harm to the environment but equally as important, they want to know that the production processes to make those products hasn’t negatively impacted the environment either.
Aside from the clean energy opportunity, there are ways for family offices to work with developers and manufacturers on innovative properties that are green-built and incorporate smart equipment and technologies that help businesses to preserve natural resources, recycle and reuse, use less raw materials and reduce waste.
Manufacturing businesses will be pursuing clean manufacturing real estate as a matter of urgency as they strive to maintain regulatory compliance, reduce costs and gain competitive advantages; although the investment into a clean plant will be bigger, the return is far greater. For eligible businesses, a share of the $83 billion in total set aside by the federal government last month to incentivize investment in cleantech and manufacturing should help in some way to offset capital investments.
Budget 2023 - Government Strategy and Tools to Achieve a Clean Economy
Do Good, Get Rewarded
We’re really just at the beginning of what family offices can do for social investment and vice versa. In 2020, the Global Impact Investment Network reported that family offices account for just 4% of the impact investing universe - this is an exciting time for direct investment into the causes that matter. Family offices will continue to take a greater share of sustainable social investments and are better placed than any other private investor to do so. Their flexibility and long-term outlook can be used to their advantage to tie up green deals that meet both their financial and legacy planning needs. Direct investment and co-investment in socially-focused real estate can help family offices to gain more control over their investments, mitigate their risks at a time of extreme financial volatility and achieve superior returns while also making a difference.
The family office will be one and the same as social investors in many cases because; and we’ve said this before, there is no point in protecting one’s legacy for an unsustainable world.
Private Capital Group is perfectly placed to advise on your social investments in the Greater Toronto Area - reach out today to find out how we can help you reach your real estate investment goals.