Family offices are becoming more discriminating about real-estate investments as higher interest rates increase their caution over committing capital. Investment chiefs are looking for properties available at substantial discounts and assets whose rents can adjust to inflation, rather than treating property as a uniform opportunity. Their interest in real assets remains, but the terms of a purchase, the flexibility of leases and the risks attached to borrowing are drawing closer scrutiny.

The constraints extend from fund financing to the length of an investment commitment. HB Wealth advises clients against funds with leverage above 65%, while Rob Haugen, who oversees private capital investments at Michels Family Office, is reluctant to accept a 10- to 15-year lockup in data centres at current interest rates. Those positions illustrate the more demanding tests being applied to property investments: an asset’s appeal must be weighed alongside its financing and the period for which capital will be committed.

Haugen, also chief investment officer of Michels’ spinout, River1 Asset Management, wants greater confidence that rates are heading lower before substantially expanding investment beyond exceptional opportunities. His approach is selective rather than a complete withdrawal from real estate. A sufficiently attractive purchase can still merit investment, but the wider direction of interest rates remains important to his willingness to do more. That distinction leaves room for individual transactions without signalling a broad increase in appetite for property.

Read more: New York City Council passes COPA to give nonprofits buying priority

An office building acquired at a low price, with a tenant already occupying much of the space, is one example Haugen considers attractive. Large-format retail offers another route. He said the firm joined a group of investors to buy a Kohl’s outside Milwaukee roughly 18 months ago. The examples place the emphasis on the circumstances of a particular asset, including its purchase price and existing occupancy, rather than on an unqualified preference for either offices or retail property.

At HB Wealth, chief investment officer Joel Houck is seeing large family offices ask more questions about real estate and other real assets, including warehouses, farmland and timber. Inflation is among their principal concerns. That interest provides a counterweight to the restraint associated with high rates: families remain interested in assets that may help protect purchasing power. Tax treatment adds to the attraction, Houck said, because depreciation can allow tax on distributions to be deferred until the property is sold.

The inflation argument nevertheless depends on how a property’s leases work. Houck cautioned that protection requires managers to be able to adjust rents promptly; multifamily housing, industrial property and retail do not all offer the same pace of repricing. He highlighted industrial assets and housing as areas where rents can rise on a regular schedule, with constrained supply also supporting their appeal. The distinction makes lease flexibility central to the investment case, rather than an incidental feature of owning a physical asset.

Read more: U.S. reduces embassy staffing as warnings of Iranian threats intensify

HB Wealth’s leverage guidance places a separate limit on that enthusiasm. Its advice to avoid funds above the 65% threshold shows that interest in inflation protection does not amount to an endorsement of every vehicle offering property exposure. The asset and the fund’s financing need to be considered separately. Taken together with Houck’s comments on rent adjustments, the guidance sets out a conditional case for real estate: the appeal of the underlying property does not remove the need to examine borrowing and leases.

Data centres expose another dividing line between investor curiosity and willingness to commit. Haugen’s concern centres on accepting a lengthy lockup while rates remain high. At Cresset, chief investment officer Mike Silverman said clients frequently ask about the sector, but the firm has not pursued investments because of the risks. The reservations suggest that demand for information about a property category should not be confused with an intention to invest, particularly when a commitment extends well beyond the immediate interest-rate environment.

Silverman regards data centres as an investment whose outcome depends more on technology than on conventional property considerations. A lengthy lease with a major tenant may appear reassuring, yet technological change could diminish the building’s value by the time that lease ends. Large institutional investors have taken a different approach: Blackstone’s $200 billion data-centre empire has become an anchor of its artificial-intelligence strategy. The contrast highlights differing assessments of the sector, with family-office caution sitting alongside a substantial institutional commitment.

For the investment chiefs expressing reservations, the next steps depend on conditions rather than a fixed timetable. Haugen wants confidence that rates are heading lower while remaining open to unusually compelling purchases. Houck’s emphasis is on assets that can adjust rents and funds that avoid excessive leverage. Data centres face additional questions about commitment periods and future technological relevance. Family offices’ continuing interest in property therefore comes with a narrower filter: inflation protection remains attractive, but price, financing and lease terms determine whether an opportunity merits capital.