9 best practices for succession in real estate
Succession planning gives your commercial real estate firm not just a brighter future but also a more stable present. How? By identifying future leaders and creating a plan to transition to a new generation of leadership when your firm’s current principals are ready to step aside, you will make your firm more attractive to high-level talent, strengthen morale and help you avoid chaos in the event of an unexpected illness or departure.
But how do you actually tackle succession in real estate? Wipfli and the NAIOP Research Foundation asked 22 senior commercial real estate leaders whose firms had explored succession planning strategies to share what worked for them.
Here are nine succession planning best practices that real estate firms follow:
1. Be proactive and plan early
Don’t wait for a crisis or a looming retirement to start your succession planning. While it’s tempting to write off succession planning as less important than the day-to-day business of your firm, remember that it’s actually an investment in business longevity that will pay stronger dividends if you start well in advance of a change.
Think about how long it took for your firm’s current leadership to acquire the skills, wisdom and expertise they rely on to run things. Well, your next generation of leaders will also need time to season.
That’s one reason why starting succession planning early is so valuable, because you give your current leaders a longer runway to mentor their successors. In the words of one real estate principal, “It’s probably about a five-to-six-year process [...] to get completed.”
Proactive planning also gives successors more time to build relationships with your existing lenders or investors or develop new ones. This lowers the risk of a loss of confidence among your firm’s backers when your leadership transitions.
And finally, starting your succession planning now gives you more room to figure out exactly how it’s going to work: inheritance, selling to an existing partner, a third-party buy-in or something else.
2. Ensure strategic alignment
If you can get everyone on the same page, your succession planning will go smoother. And building this sort of consensus starts with defining your vision for the firm’s future.
Leaders should talk about where they want the firm to go, not in the next quarter but on a timeline of a decade or more. Then think about how succession fits into that larger vision.
Doing this helps you choose a successor or successors who align with that overall vision. It can also help unify the rest of your team around the mission of working toward that future.
And consider that alignment can be especially important for succession planning in a family business, as office disagreements can often become quarrels within the family unit. One family firm leader told Wipfli, “I really want to figure out how to give them something that holds the family together and that they can also pass on to their kids.”
By focusing on early alignment, a family-owned firm may have a better shot at bringing the family together around a succession plan to fulfill that vision.
3. Create planning teams and leverage professional external support
Should you tackle real estate succession planning internally or bring in outside advisors? Yes.
You and your team know your firm better than anyone else. And you should be the primary engine behind your succession plan. In that spirit, many firm leaders have found it helpful to create an internal succession planning council to lead the work internally and provide governance around the process.
However, don’t be afraid to leverage outside help. Working with advisors, attorneys, accountants or consultants can help you better implement best practices and avoid unnecessary bumps in the road.
Often, one of the most valuable things an outsider can do is simply help you and your stakeholders have difficult conversations. As one firm president shared, “I don’t know that Mom and Dad are always equipped to talk to adult children and grandchildren about their death and their wishes, what they want for their business […] a family business consultant can really help with that.”
In other words, the right third party can frequently help you get to where you want to go faster and with less heartache.
4. Be thoughtful about financial planning
A succession should aim to accomplish three main financial goals. Ideally, you want to maintain the value of your business, minimize any tax hit and provide a fair exit for departing leaders.
But succession planning for real estate can be trickier than in other industries because of liquidity issues. Most real estate businesses are largely illiquid, which means a succession can be especially financially complex.
Here, the main step is to assess your firm’s assets and liabilities in the context of succession planning and with an eye toward any contingencies at play. The goal is to determine whether you need to make any changes before a succession occurs so that you can be prepared to meet the needs of the moment when it arrives.
In some cases, this may mean buying life insurance to cover an owner’s sudden death, as this could have significant financial implications for the firm in the form of estate taxes, buy-sell obligations, or other liabilities. It’s often also important to consider other ways in which the firm’s finances may intertwine with a leader’s personal finances or create clear buy-in structures for successors when needed.
5. Preserve cultural values
Strong businesses have strong cultures. But culture isn’t just reflected in numbers on a spreadsheet — it’s also a point of pride for leaders who want to do what they can to make sure that culture survives a succession.
One firm leader put it bluntly, “We really want to focus on people who share similar values with us.”
When considering candidates for future leadership, think about each of them in the context of your culture. Create an ongoing dialogue around why your culture is important with potential successors.
This is another area where the more time you have, the better. Incubating potential successors in your firm’s culture won’t happen overnight, even if those successors already work there.
Finally, consider specific cultural elements, like contributions you make to local charities or other community commitments. If you want these to last beyond a succession, make that known.
6. Use clear communication
There may be no single action you can take during succession planning that’s more valuable than clear communication. By making the effort to speak plainly and directly with everyone involved, you can avoid a great deal of conflict and uncertainty.
Think about the different stakeholders involved. Not just potential successors (who may be family members), but employees, partners, and lenders or investors.
All of those people will benefit from your efforts to keep them updated on your succession planning strategy and steer clear of any big surprises. As one family-owned firm leader told Wipfli, “I would be as open and as honest as early as you possibly can. I think the idea that Dad keeps this a secret until he dies and then everyone finds out is the worst possible model.”
Do what you can to keep your documentation simple here. Remember: Readers may not be real estate professionals, but other stakeholders, like family members.
The easier your thinking, decisions and vision for succession are to understand, the easier it will likely go over
7. Identify the right talent
Picking the right candidate or candidates to take over your firm’s leadership starts with understanding your current leadership roles and what it would take for a new leader to fill them. In other words, assess your needs before settling on a successor.
When evaluating potential successors, you should think about where each candidate stands in three different areas. These include external experience at other firms, internal experience within your own business, and how much they’ve already been involved in the kind of roles that a future successor would benefit from.
And if you think you have the perfect candidate on your team, don’t assume you know what that person wants. Take the time to ask.
As one leader shared, “Through our performance review and feedback setup, we ask what is it you’d like to be doing that you’re not doing now? And that’s a great way to gauge who’s hungry to do more and what their aspirations are.”
8. Prepare future leaders with leadership training and development
Mentorship and leadership development is essential to good succession planning. As noted above, your current leaders didn’t learn everything overnight, and your successors likely need help growing into their future roles.
Gradually increasing a successor’s leadership responsibilities can be a good step to take here. Allowing a successor to slowly take over some leadership duties while the current leadership is still in place creates opportunities for trial and error, mentoring, and the younger generation benefiting from the wisdom of their elders in the workplace.
Some firms even found benefit in a formal transition period where a new and departing leader ran the business together for a certain period of time.
9. Stay flexible and reassess frequently
Finally, remember that writing a plan in stone is rarely a good idea. The best succession plans are clear but flexible, so that leaders can adapt to contingencies or unexpected developments rather than remain wedded to a specific course of action.
One real estate leader put it like this: “You have to make halftime adjustments.”
His solution? Think of succession planning in terms of a rolling three-year plan rather than a strategy that you create and lock away in a vault until it’s needed.
How you can learn more about succession planning for real estate firms
Wipfli and the NAIOP Research Foundation spoke with 22 different commercial real estate leaders to discover how their firms handled succession planning. Read the full report for a more complete breakdown of their insights.
When you’re ready to begin your own succession planning process, Wipfli can help. Our advisors work with real estate leaders to identify your firm’s needs, facilitate conversations, and activate a plan to sustain your future. Learn more here.
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