When the pandemic struck last year, (those who could) moved into their summer homes or took long rentals outside of whatever city they lived in. Since that time, there has been a reshuffling of thinking about what it means to be employed full-time and if employers will maintain offices, move to a hybrid office/work from home (WFH) situation, or just close their offices permanently.
That means that in vacation areas especially the real estate market is booming. Houses are selling within hours, some sight-unseen, for cash – and well above asking price. It’s a good time to be a real estate agent, especially if you like working 20/7. It’s also a great time to be a seller (as long as you have somewhere else to live lined up). It’s not great to be someone who is looking for a primary – or first-rung-on-the-ladder home.
Pension and private equity firms are changing the market
Institutional money pockets are as deep as the Mariana Trench right now, and those investors have to diversify their portfolios. Real estate is a great way for them to do that. What that means is that they are becoming some of the largest real estate owners in the country and are driving up prices up so that the average home seeker is getting shut out of the process.
With medium-sized investors refurbishing medium-sized homes to flip to institutional investors, it means that monthly rental fees are going up, too, for those homes that are left.
According to real estate research and investment firm John Burns Real Estate Consulting, one in five homes in the US is owned by someone who will never live in it. In Houston, investors currently account for nearly a quarter of all recent home sales. Investors aren’t just buying houses and apartment buildings, either – they’re buying whole neighborhoods.
Moving down the food chain ever so slightly, what about ultra-high net worth individuals (UHNWIs) – those with a mere $30 million and more? What does real estate look like for them? How did the pandemic change their attitudes toward where they want to live?
Respected real estate firm Knight Frank publishes their Wealth Report annually, and this year’s version had fascinating insights. Just over a quarter of UHNWIs expect to buy a new primary residence this year in a coastal or rural location. Their primary goal is to have access to open spaces near their main dwelling, and their plan is to have this upgraded residence also serve as their office (or be very close to their work-place).
90% of those surveyed said that international travel would be significantly curtailed due to ongoing concerns about COVID-19, so that makes the home-as-getaway even more important.
In terms of holdings, primary and secondary homes make up about a quarter of UHNWIs investment portfolios. Their interest in investing in commercial property is way down (imagine that!) but – just like pension and private equity firms – their interest is way up for owning rental properties.
So what does this mean for prospect research and fundraising?
Well, a lot. This real estate financing situation is a whole separate world that is important for those of us in fundraising to read about to understand what’s going on with money moving around. Here are 3 specific things to consider:
- Your nonprofit’s UHNW donors may be on the move, so keeping in touch will be even more important this year.
- While it’s true that a donor will never* give an organization their residence(s), real estate can be an important indicator of wealth. Use the ratios and percentages in reports like the Knight Frank Wealth Report and the Capgemini World Wealth Report to help you get a sense of your prospect’s capacity when you are creating ratings.
- This is a real estate bubble. Bubbles always burst, and we won’t know the size of it until it happens. Historically, people and institutions that are heavily invested in certain types of real estate (commercial real estate, for example) may struggle if they put too many eggs in that basket. If the top of your donor pyramid has a lot of people in this category, now would be a good time to make some asks and to think about diversifying your prospect portfolios soon.
What else? If you share this on your social channels, I’d be interested to hear your thoughts about this. I’m at @AskHelenBrown on Twitter.
*this is not actually a true statement. See planned giving.