Episode summary
Why Family Offices are Focused on Tax Aware Strategies
How I Invest With David Weisburd
· · Hosts: David Weisburd · Guests: Andrew Berman
Summary
Andrew Berman argues that private real estate can generate meaningful after-tax outperformance when it is structured for taxable investors rather than for generic pre-tax returns. He says Architell was built to maximize after-tax returns for a taxable client base, drawing on what he saw at AQR as tax-aware public market strategies scaled successfully. In his view, real estate already has one of the most advantaged tax codes in the U.S., but most investors leave a lot on the table by not approaching it intentionally.
The core claim is that “structural alpha” from taxes can matter more than the usual manager-to-manager spread. Berman says a tax-aware private real estate strategy can produce more than a 2x after-tax net-of-fee return versus a tax-agnostic one, especially when managers are not forced to sell quickly to crystallize promote or chase liquidity. He says taxable investors are often underallocated to private real estate because they look at pre-tax returns instead of after-tax wealth creation.
He also emphasizes longer hold periods, depreciation benefits, and careful use of 1031 exchanges. Architell underwrites to 15-year holds and does not rely on 1031s, which he says are useful but often overused and costly when they force investors into rushed purchases. For family offices, he says the biggest split is between large in-house investors and those who need an outsourced solution focused on tax efficiency.
Key takeaways
- Andrew Berman says Architell is focused on maximizing after-tax returns for taxable investors, not just pre-tax performance.
- Berman says tax-aware private real estate can produce more than a 2x after-tax net-of-fee return versus a tax-agnostic approach.
- Berman argues many private real estate managers are incentivized to sell too soon because carry and liquidity goals conflict with after-tax optimization.
- Berman says Architell underwrites to 15-year hold periods and does not rely on 1031 exchanges, even though he calls them a gift from the IRS.
- Berman argues taxable investors are often underallocated to private real estate because they evaluate opportunities on a pre-tax basis.
Notable quotes
“we are a private investment firm specifically focused on maximizing after tax returns for a taxable client base”
“real estate is gifted one of the most advantaged tax codes of any investable asset class in the United States”
“Approaching private real estate investing in a taxfed manner can result in a two times greater after tax net of fee return”
“our strategy specifically, we're not relying on the 1031 exchange. We're actually underwriting to 15-year hold periods”
“you look at the incredible traction some firms like AQR have gotten as they've grown their taxaware investing business”
How the episode opens
So you worked inside one of the two AQR co-founders, David Cavaler's family office. You saw an opportunity to invest in real estate in a taxawa strategy. What was your thesis behind starting what you do today?
Starting with Architeel, we are a private investment firm specifically focused on maximizing after tax returns for a taxable client base. Um, you know, I began my career at AQR and as you mentioned, you know, I I was I saw how AQR was developing what has now become their taxaware public market strategies. And as you're probably well aware, they've grown significantly over the past several years with this strategy.
You know, as as they were growing and incubating those strategies in house, there was an opportunity because AQR doesn't do anything within private markets to try and bring the same tax focused lens into private assets. Tell me about the opportunity for taxawa aware investing in real estate. You know, real estate is gifted one of the most advantaged tax codes of any investable asset class in the United States.
And I I think what will be pretty eye opening is, you know, everybody knows or has an intuition that real estate can be tax efficient. But I don't think most people understand just how much they're leaving on the table unless they approach it in a very intentional manner.
Break that down to brass tax. What kind of tax savings are we talking about? And does this really move the needle? Approaching private real estate investing in a taxfed manner can result in a two times greater after tax net of fee return or or basically true wealth creation compared to a tax agnostic strategy. Look at incentives of the managers that are actually you know managing these underlying private real estate investors investments.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- family office tax-aware strategies
- private real estate tax alpha
- depreciation recapture capital gains
- 1031 exchanges
- manager incentives hold period tax drag
Companies and tickers mentioned
- Arcitell
- Architelle
- AQR Capital Management
- AlphaSense
Watch the episode
Watch “Why Family Offices are Focused on Tax Aware Strategies” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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How I Invest With David Weisburd, this episode and its artwork belong to David Weisburd. Octagon is not affiliated with the show; this page is an independent summary.
