Real Estate Firms Die Out Due to Lack of Succession Planning

Every company needs good succession planning, said panelists at the 2014 ULI Fall Meeting, but real estate is one of the worst sectors at practicing it.

succession

From left: Constance B. Moore, former president, chief executive officer and corporate director, BRE Properties, Inc.; Patricia L. Gibson, president, Hunt Realty Investments, Inc.; David J. Gilbert, managing director and chief investment officer, Clarion Partners; moderator Debra S. Barbanel, global head of real estate, Russell Reynolds Associates; moderator David P. Waite, partner, Cox, Castle & Nicholson LLP.

Every company needs good succession planning, said panelists at the 2014 ULI Fall Meeting, but real estate is one of the worst sectors at practicing it. Succession planning is important for protecting the future of a company for its investors, for its employees, and, with regard to partnership and family-owned firms, for its successor-owners, too.

“Real estate companies unfortunately are often very short lived compared to other industries,” said Patricia L. Gibson, president, Hunt Realty Investments Inc. “I’ve seen it more times than not that the [real estate firm’s] leadership is not prepared for succession and the company doesn’t survive past that first generation. In particular, small firms that do not have a succession plan in place are putting so much at risk by not being ready.”

Small- to mid-sized privately held real estate firms often find that the planning process has beneficial personal and family implications, too. “I remember one particular executive, and he wanted to have a very serious conversation about succession,” said David J. Gilbert, managing director and chief investment officer at Clarion Partners. “His main concern was, how do you transfer wealth, without destroying the next and successive generations? Family firms really need to deal with it.”

Succession plans aren’t just for the untimely death we all think about but can involve a surprise illness, a firing of a senior executive, a not-well-planned retirement, or other change in leadership that jolts the firm, its employees, or its investors.

Constance B. Moore, former president, chief executive officer, and corporate director, BRE Properties Inc., said that in-depth succession planning such as that done at BRE, which included all senior management, provides broad benefits

“An embedded succession thought process . . . makes the organization consider leadership changes and capabilities well ahead, and helps career development for employees,” she said. “An executive may not naturally think about their own succession—will I really get hit by a bus? And the planning and conversations with your executive team can be very hard sometimes, but are extremely helpful for everyone involved.”

Moore’s own succession planning—which she’d aimed for with a 2015 retirement—was moved up 18 months with BRE’s merger with Essex. “Our leadership planning became very useful for executing the merger. And I’ve been very happy to see how well so many of the people we worked with moved into important positions within the company, or moved to other companies. It’s some of the best proof of your succession and management planning.”

“It’s acutely important in our industry now,” added Gilbert. “People moved out of real estate into other careers in the last recession, so now we have an acute shortage of leadership capabilities. We need a second generation of leaders.”

Conversations with up-and-coming executives help them think about career planning even as the leadership team begins considering their future potential. Gilbert suggests putting people into leadership situations such as heading up a major project or a unit of operations so you can see how they work.

Whether done as an annual review or more than that, succession planning is critical to success.

“A company has to view it as an important and urgent thing, not some administrative issue that moves to a low priority . . . and doesn’t get done,” said Gilbert.

Ron Heckmann is a corporate positioning and media strategist based in the San Francisco Bay Area, www.heckmanncomms.com
Members Sign In
Don’t have an account yet? Sign up for a ULI guest account.
Members Get More

With a ULI membership, you’ll stay informed on the most important topics shaping the world of real estate with unlimited access to the award-winning Urban Land magazine.

Learn more about the benefits of membership
Already have an account?