Wealth managers explain why they appreciate the tax and wealth transfer benefits of real estate even in the face of a raging bull market.
Wall Street traders seem to have forgotten about investing in real estate. Financial advisors, on the other hand, have not.
Not too long ago, back during the pandemic when most Americans were performing their business from home via Zoom, investment interest in commercial real estate fell off a proverbial cliff. Why bother looking? Nobody was going to the office anyway.
Simultaneously, the pervading pandemic uncertainty kept residential real estate frozen solid in most markets. Why? Nobody could leave their old home to shop for a new one.
Once the economy officially opened roughly three years ago this week, real estate began to thaw of course. But investors, at least on Wall Street, clearly moved on. The State Street Real Estate Select Sector SPDR ETF (Ticker: XLRE), for example, is up 15% over the past 3 years. The tech-fueled S&P 500, meanwhile, soared 75% during that time.
High-net-worth advisors, however, never really gave up on real estate. They always believed in the value of holding real estate for tax purposes, generational transfer and appreciation, among other issues. They were simply biding their time.
Michael Shawn, founder and CEO of Peregrine Private Client, for one, believes the HNW families who get the most out of real estate are the ones who treat it as a multi-purpose tool rather than a single-trick asset. In his view, the same property can solve a tax problem, a legacy problem, an inflation problem, and a cash-flow problem in the same year — but only if it’s selected, structured, and managed with that breadth in mind.
“Clients must understand the nuances of holding real estate. And advisors should start with a clear understanding of an investor’s liquidity profile and the comfort level with holding assets for extended periods. Then there are questions of the quality of the sponsor or operator and the financial structure of leases and their alignment with quality tenants,” Shawn said.
He adds that there are also issues surrounding capital structure and debt maturity that could drive costs related to the holdings in either direction over the investment’s lifetime.
“There are countless tax implications to consider, as well as risk mitigation and insurance matters. These are the questions we work through with clients before signing, and the ones we most often see other investors skip,” Shawn said.
Elsewhere, Matt Dmytryszny, CIO of Composition Wealth, says real estate can offer investors a source of income that’s not highly correlated with the economy and they are a long-term hedge to inflation. Collectively, these two features add diversification to a portfolio. Furthermore, he says HNW and UHNW investors can find the tax benefits particularly attractive, most notably through the 20% REIT tax deduction and/or the ability to utilize depreciation to offset income.
“Fees can be high depending on the strategy. Underlying managers can get compensated through property acquisition fees, development fees, property management fees, and this can be above and beyond any fund management or performance fees,” Dmytryszny says.
Moving on, Max DiSesa, managing partner at Seven Bridge Wealth Advisors, says the tax benefits of real estate are underappreciated now that the One Big Beautiful Bill Act made 100% bonus depreciation permanent and codified Opportunity Zones for the long term. It also left 1031 exchanges relatively untouched so a client can run sequential 1031s across a lifetime, defer the gains the entire time, then pass the property to heirs at a stepped-up basis with the deferred gains erased.
“With the new $15M per person estate exemption, that’s a generational outcome you genuinely cannot replicate with a stock portfolio,” DiSesa said.
LOCATION, LOCATION, LOCATION
As for the top emerging areas of real estate investment that clients and advisors should be watching in the coming year, Peregrine’s Shawn is focused on Dallas-Fort Worth, Raleigh, Charlotte, Savannah, Nashville, Northern New Jersey, Tampa-St. Petersburg, and Manhattan. He believes capital flows in 2026 will continue to be bifurcated.
“Sun Belt and Southeast for growth and select Northeast gateway submarkets for trophy assets and repriced opportunities. Our pipeline is concentrated in the markets where housing and daily-needs retail fundamentals are strongest, generally Sun Belt and Southeast growth metros with diversified employment bases and real population tailwinds,” Shawn said.
Composition Wealth’s Dmytryszny, however, warns that if interest rates keep rising, this could lead to higher borrowing costs and pressure commercial real estate prices. He points out that 10-year Treasury yields have been range bound of late which has helped real estate markets to heal and keep borrowing costs in check.
Alternatively, he says excess supply in multifamily and industrial sectors is projected to inflect to excess demand over the next year or two.
“If this plays out, rent growth could accelerate, providing a nice boost to industry fundamentals,” Dmytryszny said.
Finally, Seven Bridge Wealth’s DiSesa says data centers are his highest conviction real estate call right now. National vacancy is below 2%, most facilities are pre-leased before completion, and AI infrastructure spending is producing one of the largest real estate capital cycles in modern history, according to DiSesa, adding that the main constraint seems to be the power grid.
Senior housing is his second best choice with the demographic math driving his thesis.
“The first baby boomers turn 80 this year, the 80 plus age group is the fastest-growing in the country, and we think new supply has been muted for years,” DiSesa said.
