Risk Management With Real Estate Portfolios

Real Estate Risk Managment

Risk Managment For family Office With Real Estate Portfolios

By Debbie Dorsch / Eileen Hartzell – Parallel Risk Advisors

Publisher’s Insight: A lot of families’ overlook making sure that their wealth is preserved and that their reputation is protected should something happen to the Patriarch. This article touches on some important aspects of risk management that should not be overlooked. What I find to be so ironic about this article is this topic was brought up in the legal article as well.

Winvestments of a family office are run independently and separate from the other operations of a family office, the fundamentals of strong risk management are the same and are critical to ensuring wealth preservation/enhancement and protection of reputation – two goals common to family offices.

As with any ongoing business and vision of the family office is imperative to defining an appropriate risk management strategy. Additionally, ensuring that all divisions of the family office are aligned is important as the execution of the goals and vision will likely be carried out by the various members of the office. Therefore, creating the risk management plan at the top of the hierarchy is recommended.

Risk Management Assessment And Strategy

An evaluation of overall risk should be done regularly to aid in the governance of the family office and alignment of decision making and execution. The family should rely on their risk management/insurance advisor to aid in this process, in conjunction with their other advisers. This will ensure a holistic understanding of the family office.

The purpose of the risk management assessment is to gain an understanding of exposures and then create a plan to either 1) Insure 2) Transfer 3) Mitigate 4) Avoid. Creating the plan with these 4 categories as a guide will allow for a logical and thorough discussion of risk tolerance and will automatically create alignment with the family goals and vision.

Common Exposures In Commercial Real Estate Portfolios

Part of the risk management assessment should include diving into the risks associated with the commercial real estate holdings. In our experience with both family office and non-family office clients alike, we find the real estate related exposures to be constant (e.g. property risks of loss due to fire, wind, water and in cases pollution and liability exposure due to slips and falls). Both types of clients desire good coverage, service and pricing. Where we do see a notable difference is in the drivers behind the choice to apply the four risk management strategies mentioned above; insure, transfer, mitigate, avoid. In non-family office portfolios, there is often an outside party requiring insurance (lenders, joint venture partners). For our family office clients, many times there is no outside requirement as the family is not relying on debt or equity to acquire the real estate assets. This puts the onus of protecting the asset on the family office and again ties back to the need to create a risk management plan for the real estate portfolio that aligns with the family office’s overall goals.

Common Exposures At The Family Office Level (Executive Level)

Corporate level insurances are largely misunderstood but claims arising in these areas have the potential for significant balance sheet impact. Again, if no outside parties require these insurances, the family office must create its own standards for managing these risks (e.g. discrimination suits, breach of data, allegations of wrongful acts, EPA mandates)

Protection of the balance sheet (wealth preservation) should be of top priority. As part of the risk assessment for corporate (executive) type risks, the family and its risk management advisor should review and analyze corporate structure/family office organization chart; contract obligations with third parties and among the family members, long term debt/equity decisions and overall risk appetite.

It is important that these types of insurances are reviewed, discussed and understood by the family office at the top level and that the decisions made at this level are pushed throughout the entire organization and operating businesses.


Fundamentally, strong risk management should be at the core of a family’s planning and strategy sessions. It should be tied into the overall family office plan and each operating business or division within the family office should have a risk management plan that is specific to it but aligned with the goals of the family. Implementing the strategy using the four techniques of insuring, transferring, mitigating and avoiding will create a logical, holistic approach that can be clearly understood and communicated throughout the family and its advisors.

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