As private wealth continues to reshape the commercial real estate (CRE) landscape, high-net-worth (HNW) individuals and family offices are adopting increasingly sophisticated strategies to manage and grow their real estate portfolios. Jennifer Johnson, head of the national real estate practice at Lathrop GPM, has a front-row seat to these evolving dynamics.  

With decades of experience advising Fortune 500 companies and private clients on high-stakes transactions, Johnson shares her insights—from the growing appeal of passive investment vehicles like NNN leases and Delaware Statutory Trusts to the enduring relevance of office space in a hybrid work world. She also discusses how legal advisors are collaborating more closely with wealth managers, estate planners, and tax professionals to create integrated, multigenerational strategies for real estate investment and preservation. 

CM: How do you help HNW clients with inherited CRE portfolios transition from passive ownership to active investment strategies?  

JJ: Actually, what I am seeing more of is the other way around: that is, helping our clients transition from an active to passive investment strategy. One way we are helping our clients transition is by selling their existing property and replacing it in a 1031 tax-deferred exchange with a property that is more passive, such as a property with a NNN lease or leases and in some cases we see more clients asking us about exchanging into Delaware Statutory Trusts. There are strict timeframes and legal/tax rules to comply with in a 1031 exchange, but if consummated, a 1031 exchange is a way to replace a real estate investment (in this case that is a more active investment) with another that is like-kind (and more passive) while deferring capital gains. 

CM: Why do you think office properties remain so appealing despite hybrid work trends?  

JJ: I am not sure whether I would say that all office properties are “so appealing.”  Many are appealing, however – namely, those class A office spaces and those in certain locations. Hybrid work has not rendered office space obsolete; instead, it has made the market think about how it uses office space. For example, can we use less office space, share office space, have more community areas (such as cafes) in office space and/or make conference centers in office space more flexible?  The bottom line is that we still need office space and employers seem to agree with that: to work, to collaborate, to create and maintain business culture, and simply to come together. We may just need office space in a different way and at a different frequency, making office still very relevant in the market. 

CM: Are there certain property types—beyond office—that are drawing more interest from HNW individuals and family offices?  

JJ: There are a variety of types of property or property-based investments that have been drawing interest. I am seeing more investors interested in investing in real estate more passively, either through NNN leased properties or property investment funds. Office is actually one of the asset types I see less and less private clients interested in given the high-level of management required in owning office. 

CM: How do you see the legal advisory role evolving as more private clients enter complex real estate transactions?  

JJ: I see real estate lawyers working with more of our private clients’ other professionals, such as estate planning lawyers and tax lawyers, accountants, insurance brokers and private wealth advisors. This means real estate lawyers are and will be working hand-in-hand, day-to-day with strategic advisors that are working on planning, investing and risk mitigation strategies for our private clients that not only apply to the here and now, but will last throughout generations of wealth transfer.  

For example, real estate lawyers will be working more with estate planning, tax lawyers and accountants to ensure that real estate investments are optimized (perhaps, through vehicles such as 1031 exchanges) and the real estate is transferred in the most efficient way to the next generation(s). Additionally, real estate lawyers will be working with insurance professionals to make sure the clients’ risk portfolio (real estate and otherwise) is fully assessed and mitigated with the purchase of coverage and aligned as much as possible in the risk provisions in the real estate contracts, such as in the insurance and indemnity provisions.  

This “team-approach” maximizes real estate investments and serves to preserve those investments and the wealth generated from them for generations to come.  This approach is already here, but I think it will become more commonplace and frequent in the future.  

CM: What makes off-market transactions appealing to private wealth investors? 

JJ: For a buyer, the idea of not having to compete in the open market for property is appealing. Though these transactions can occur quickly, since they are off market, they are not being done in the context of having to compete with other buyers. Now, the buyer will have to come to the table with a compelling offer to get into contract, but that is the expected trade-off for doing an off-market deal.  On the seller-side, an off-market deal usually can attract a strong offer from a strong buyer and without the same type of time and work it takes to get a property listed and shown on the market. In short, if the offer and buyer are strong, an off-market deal may have the advantage for buyer or seller-side investors of being clean and efficient. 

CM: What is your outlook on the future role of private wealth in CRE?  

JJ: My outlook is a strong one.  Private wealth has always played and will continue to play a major role in real estate investments. I believe there is a shared sentiment in the value of strategically owned real estate to diversify one’s investment portfolio — as a way to grow wealth, possibly receive some tax benefits and pass a tangible investment to heirs. I don’t think this sentiment is going anywhere.  And, with our growing private wealth in certain circles, I expect sentiment to grow.