Derek Evans, chief financial officer of Realberry, and Stephen Dennis, the firm’s vice president of tax and equity, discussed these issues in the August 20, 2026 FO Pro webinar, “Real Estate Investing as a Family Office Strategy,” sponsored by Realberry. Watch the replay.
Most families come to commercial real estate the same way. They owned the building the business operated out of, they sold the business and they kept the building — or bought others. What began as an operating necessity becomes an allocation, and the questions change from managing a property to evaluating a sponsor’s deal.
The mechanics that matter at that point are not the ones most investors focus on. Property type is the headline, but the wrapper around the property — the vehicle through which a family office actually holds it — does more to determine liquidity, tax reporting and control than the asset itself does.
The timing question is live. After four bumpy years, the sense among practitioners is that a new cycle is beginning. “It does feel like we are starting to see the green shoots, and that real estate recovery is either starting to happen or is coming pretty quickly,” says Derek Evans, chief financial officer of Realberry, a diversified real estate investment company in Denver with a $3.4 billion AUM whose principal source of limited partner capital across 35 years has been family offices.
A market of haves and have-nots
The traditional food groups are not moving together. Office remains out of favor across most of the country, in Evans’ assessment, with the possible exception of New York. Retail has completed a full reversal — written off during COVID, and now, in his word, a darling.
Industrial and residential are currently out of favor for new development, largely on supply concerns, though multifamily acquisitions are seeing considerable activity and the 55-plus segment is drawing capital. Luxury hospitality has thrived on what Evans calls the K-shaped economy and the wealth generation that followed the pandemic. Land development remains attractive in parts of Texas and unattractive in slower-growth markets.
Among alternatives, data centers dominate the coverage, and Evans flags a risk that does not show up in the pro forma: community and political backlash is now a live entitlement issue in many markets. Healthcare is the quieter story. Senior housing and skilled nursing have moved from alternative to nearly mainstream on demographics alone, and capital is flowing into the sector at a level, he says, without historical precedent.
Seven doors into the same room
The more consequential decision is how a family office gets access. Public REITs sit at one end: traded daily, fully transparent, the only genuinely liquid form of real estate ownership. Private, non-traded REITs — Blackstone’s BREIT, Starwood’s SREIT, similar vehicles from Ares — opened accredited-investor access to institutional sponsors over the past two decades.
They come with a caveat worth internalizing before signing. “These vehicles are often sold as being liquid, but the reality is they don’t trade like a public company and they are subject to redemption queues,” Evans says. The queue binds hardest at precisely the moment investors most want out.
Private equity and hedge fund vehicles are closed-end, typically with 10-year lives. Capital is committed, drawn over time and not returned until wind-down. ODCE funds — the large core open-end funds tracked by the NCREIF index — have historically been open only to large institutions, though interval funds have emerged over the past decade to give smaller investors indirect access, usually paired with a public REIT sleeve for liquidity. At the far end sits direct investment with a sponsor, deal by deal, and beyond that, doing it yourself.
Each door leads to a different tax outcome. REIT income arrives on a Form 1099-DIV in three forms, says Stephen Dennis, Realberry’s vice president of tax and equity: ordinary dividends, which are taxed at ordinary rates but may be eligible for the 20% Section 199A deduction; capital gain distributions when the REIT sells an underlying property; and non-dividend distributions, which are a non-taxable return of capital.
Partnership interests arrive instead on a Schedule K-1, where income and deductions (including depreciation) flow through to the investor and keep their character.
“Distributions from partnerships are non-taxable to the extent that you have basis in the partnership,” Dennis says. “It’s really the items of income and deduction that are reported to you on the K-1 that become taxable.”
Because the operating agreement governs how those items get allocated, he urges investors to actually read it. The allocation mechanics, not the marketing deck, determine what shows up on the K-1.
Where the deal sits on the spectrum
Deals sort into five familiar buckets — core, core-plus, value-add, opportunistic and distressed — running from a stabilized trophy asset with low leverage to a loan bought out of a lender’s hands. The risk-return relationship is the expected one. Less obvious, and more relevant to a family with income needs, is the distribution profile.
Core and core-plus assets generally pay from the outset. Value-add, opportunistic and distressed generally pay nothing until sale. A family drawing on the portfolio to fund distributions cannot treat those as interchangeable, however similar the projected returns look.
Asked how one assembles a portfolio spanning all five, Evans reframes the question. Almost no sponsor operates across the whole spectrum, so the mix is a byproduct of sponsor selection rather than a separate decision. Core funds are core. Private equity vehicles and individual sponsors cluster in value-add and opportunistic. Hedge funds skew distressed. Realberry, he notes, is a value-add and opportunistic shop.
Within any bucket, only three things can be done with capital: buy, build or lend. Development is the strategy most likely to require going direct, since REITs do little of it and private equity funds are typically capped at 25% to 30% of committed equity for ground-up work.
Lending is where Evans is most cautious. Pre-crisis, a handful of names invested in real estate debt; today there are hundreds. Capital raised on the appeal of current yield and a secured position now has to be deployed, and the pressure runs one direction.
“The reality of having to go down market and take more risk is very real,” he says. He expects visible distress in real estate debt vehicles over the next 12 to 24 months, with cracks already appearing in private credit.
Depreciation, and the fine print on it
The tax case for direct real estate ownership rests substantially on depreciation — a non-cash deduction against income, taken over 39 years for non-residential property and 27.5 for residential rental, on a straight-line basis. In an acquisition, the benefit begins immediately. In a construction deal with a three- to five-year build, nothing flows until the asset is placed in service.
Two accelerants matter. Bonus depreciation, which the One Big Beautiful Bill made permanent at 100% in 2025, allows a full first-year deduction on most tangible business assets with a MACRS recovery period of 20 years or less — the furniture, fixtures and equipment in an apartment complex, a hotel renovation, a large tenant improvement. Cost segregation studies, conducted by engineering firms working from building plans and site visits, reclassify as much building basis as possible into those shorter recovery periods.
A detail worth knowing: the study does not have to happen at acquisition. “You can do a cost seg 10 years after you acquire the asset and kind of go back in time and still get the benefit of some of those depreciation deductions that might have been missed,” Dennis says.
The payoff is rate arbitrage: deductions taken against ordinary rates as high as 37%, gain realized later at capital gains rates of 20%, with depreciation recaptured at 25%.
But the benefit is bounded, and this is where families with active-income owners get surprised. Real estate is passive by default under IRS regulations, and passive losses are deductible only against passive income. A pro forma or K-1 showing losses is not the same as a deduction available this year; absent passive income, those losses suspend until there is income to absorb them or the project sells.
Three other constraints deserve attention. The business interest limitation caps deductible interest, and while an election exists to escape it entirely, that election is one-time and irrevocable and costs the taxpayer bonus depreciation — making the year in which it is made a genuine calculation rather than a formality. Pass-through entity tax elections, now available in most states, let the partnership pay state tax at the entity level and pass a credit through OR use another method to help reduce the state tax burden, sidestepping the federal cap on state and local deductions, which currently stands at $40,000. And 1031 exchanges defer both gain and recaptured depreciation, with 45 days to identify a replacement property and 180 days to close, clocks that start together and run concurrently, proceeds that must pass through a qualified intermediary, and no eligibility for dealer or flip property.
Deferral, done repeatedly, approaches something durable. “You can defer taxes in perpetuity, which is a really powerful wealth-building tool,” Dennis says.
The five risks, and the one decision
Underwriting a private real estate deal means underwriting five things at once, in Evans’ framing. Illiquidity, which varies by vehicle and bites hardest when redemption queues back up. Market conditions, both macro — rates, capital availability, construction costs — and micro, including submarket supply and, increasingly, wildfire and convective storm exposure. Product-type sensitivity, since hotels reprice nightly and office leases run five to 10 years. Capital intensity, because an asset requiring ongoing capital to hold produces less distributable cash. And sponsor dependence.
That last one is the through-line. On return metrics, Evans notes that family offices in his experience underwrite on equity multiple and cash-on-cash yield rather than IRR, being longer-term holders focused on current income — and cash-on-cash has the practical advantage of comparing directly against a 10-year Treasury or a REIT dividend.
Once the check clears, the family controls neither the asset nor the timing. Sponsor selection is the only decision it fully owns — which makes diligence on the sponsor, rather than on the property, the work that actually matters.
Realberry’s list of what to ask runs to seven items: experience measured in cycles rather than years; a track record that includes the deals that did not work and what happened to investors in them; how much is handled in house versus farmed out; depth of the organization below the top; total fee load, including fees paid to affiliates; alignment, meaning co-investment and a promote structure that tracks investor outcomes; and transparency, meaning reporting cadence and what an investor can actually see.
It runs in both directions. Asked what a sponsor looks for in a family office, Evans answers in the same terms. “Our business is a relationship business,” he says. “We want to do business with people who understand real estate and the risks related to real estate, and who have the ability to do more than one transaction.”