Succession Planning for Real Estate Companies

Many small and medium-sized real estate companies were established by Baby Boomers, who are now approaching retirement. Alarmingly, many of these business owners are preparing to retire without a concrete plan to support the continued success and growth of their companies.

Proactive succession planning is time-consuming and challenging, but the consequences of neglecting it can be devastating. Contingency plans are designed to address unexpected turnover, such as sudden death, disability, or departure.

However, in the event of an unplanned vacancy, many companies have policies that fall short in defining a clear line of succession, leading to a power vacuum and potential mismanagement. In the worst-case scenario, a second- or third-generation CEO might have no option other than to sell the family business due to the lack of a structured succession plan.

Challenges in succession

Selecting a worthy successor is a daunting task, particularly for those aiming to preserve the family real estate business for future generations. It requires time, financial investment, and hard work to find the right person, but the investment is necessary. This includes identifying potential leaders within the company who have the necessary skills and experience and providing them with training and development opportunities.

The emotional component of succession should also not be overlooked, as it can be a challenging time for everyone involved. Successfully managing the transition with candor and goodwill helps prepare the incoming leader to continue building on the predecessor’s legacy.

Succession plans should be flexible to accommodate circumstances beyond your control, including unexpected life or health changes, market conditions, key employee departures, and changes in interest by your intended successors.

When and how to start your succession plan

One of the first questions business owners ask is when to develop a succession plan. The answer is: as soon as you become an owner and no later than five years before you expect to implement the plan.

Delaying succession planning until just before you want to exit your business may limit your options for potential buyers, the value you receive for the company, and the overall success of your transition.

To facilitate an effective succession process, consider these critical factors:

Proactiveness

Planning for succession early in the succession process is simply good business strategy. By doing so, real estate companies can better prepare for the future and execute on their strategic plan, while reducing disruptions that unexpected situations could bring.

Knowledge transfer

Real estate companies rely heavily on market knowledge, industry relationships, and regulatory understanding. This knowledge needs to be successfully transferred from outgoing leaders to successors to maintain operational continuity.

Communication

It is essential to have open lines of communication. This can combat the fear and inertia that often accompany leadership succession. Transparency across ownership and senior leadership is vital in maintaining stability during a transition.

Buy-in

Any potential new leader must secure the support of owners, senior leaders, and much of middle management. Without such buy-in, the risk of losing the firm’s best talent increases.

Culture

Any replacement should be thoroughly vetted for experience, technical skills, and capabilities, as well as compatibility with the company’s purpose, culture, and office dynamics. Aligning new leaders with the company’s culture and values is important for maintaining internal harmony and brand identity.

How we can help

Our team of owner transition advisors work alongside real estate companies and their owners to understand specific business needs and goals. We are here to seamlessly guide companies through every step of the succession and transition process.

Watch “Transition Options,” an on-demand webinar from our complimentary Owner Legacy Series. Learn more about common exit strategies that can help you understand the various transition options available to you — and how they can affect your personal and professional future.