The Invisible Cost in Family Offices: Structures that Work... Until They Stop Working

In a family office, the return on a real estate investment is almost never lost due to a big mistake. The most common thing is that it leaves “wearing out” little by little due to structural details that no one attended to in time. The structure may be well made of paper, but if it is not designed to operate over time, it ends up generating friction, delays and unnecessary costs.

Let's talk in simple terms. ROI is the return that we all want to maximize: that capital grows, that projects flow, that it can be refinanced, co-invested or sold without problems. IOC, on the other hand, is the cost of improvising. It is what is paid when the structure only resolved the initial closure, but did not foresee how to make decisions, how to manage tensions between partners or what to do when the project does not go exactly as planned.

For example: who decides to refinance? What happens if more capital has to be injected? How do you replace an operator who is not complying? What majority is needed to sell? What information should be provided and when? If those rules are not clear from the beginning, each situation becomes a new negotiation. And every negotiation wastes time, relationships... and performance.

Something similar happens with money flows. While everything is going well, the scheme may seem sufficient: capital comes in, expenses are paid and it is distributed. But when a scenario of stress arrives, cost overruns, delays, lower sales, financial pressure, the lack of clear rules on reserves, payment priorities or consequences for non-compliance can directly affect the return of assets.

Institutionalization is not bureaucracy; It is protection of performance and assets. It means having clear rules of operation, governance and capital flow before problems arise. It also involves reducing financial risks (poorly documented decisions, uncontrolled cost overruns), reputational risks (conflicts between partners, non-transparent information), possible regulatory sanctions and, very importantly, preventing spaces where fraud or misuse of resources may arise. When information is mandatory, decisions have defined thresholds and there are automatic mechanisms to correct deviations, the family office stops depending on improvised agreements and begins to operate with true institutional discipline.

In our experience accompanying family offices, the true value of a good legal architecture is not only in “complying” with formalities, but in designing a structure that resists growth, co-investment, financing and generational transition. When that is done well, the ROI is protected and the IOC, the silent cost of improvisation, decreases very significantly.

If you are interested in reviewing how institutionalized its structure is today and where there could be gaps that are affecting performance, we can gladly make a brief diagnosis to identify non-obvious risks and opportunities for improvement.