2024 Fall Issue of Urban Land - 101

What Small
and MidSized
Real
Estate
Companies
Should
Know About
Succession
Planning
As boomers continue to
retire, having a concrete
plan ensures businesses
will continue to thrive
ELLEN KLASSON AND CHARLES HEWLETT
One Of the major reasons many familyowned
real estate companies don't survive
past the first or second generation is
a lack of succession planning. In theory,
it's great to think about " grooming " an
existing team member to take over the
senior role someday. In reality, succession
poses a serious challenge with farreaching
implications, especially for small
and mid-sized companies. Few firms can
afford to hire a deep bench of potential
successors, and if a preferred person
doesn't work out, finding a replacement
can be daunting.
The chances of a firm's survival in
many cases are grim. Once the reins pass
to the next generational leader, odds are
stacked against the company that it will
survive to the next succession. Research
by the Family Business Alliance indicates
that just a bit more than 30 percent of
family-owned businesses are able to make
the transition into the second generation,
and only 12 percent are still viable by the
third generation. A mere 3 percent make
it to a fourth generation or beyond.
Many factors contribute to these bleak
figures, including mergers and acquisitions,
rapidly evolving technology, and
the ever-changing ebb and flow of the
broader markets. Whereas most public
REITs have solid succession plans, many
private real estate companies are illprepared
for the top executive's eventual
departure.
Baby boomers formed most of the
small and mid-sized real estate companies
in operation today, and many of those
people are retiring or planning to. Yet an
alarming number of them are also getting
ready to leave without a concrete plan to
ensure their business thrives and grows
after they're gone.
Recruiting outside versus inside
In our experience at RCLCO, most small
and mid-sized real estate companies have
no formal succession plan in place for key
team members, and few companies have
afforded themselves the time needed to
groom a promising candidate-or to try to
regroup if that effort has already failed.
Even when a company believes it has
a viable internal successor, that person
may grow impatient and depart suddenly
if the process drags out too long-forcing
a renewed search for another qualified
candidate. An external search may be the
best option for a company that has only a
limited pool of internal candidates, especially
if time is short.
Here are three important factors that
should be considered to make the process
most effective:
Culture-Any outside hire should be thoroughly
vetted, not simply for experience,
technical skills, and capabilities, but also
to ensure compatibility with the company's
purpose, culture, and office dynamics.
Many small and mid-sized companies
have unique, deeply ingrained cultures
based on working relationships, job roles,
and skill sets that have evolved over
many years. Even the sharpest outside
candidate might not be a good fit for a
particular firm.
Communication-Open lines of communication
are critical, both with existing
employees and potential new members,
to combat the fear and inertia that often
accompany a leadership succession. Team
members should stay engaged and positive
in their work as the process plays out.
Transparency from the top down will be
Research shows that a bit
more than 30 percent of
family-owned businesses
can make the transition
to the second generation,
and only 12 percent
remain viable by the third
generation. Just 3 percent
make it to the fourth
generation or beyond.
FALL 202 4
URBAN LAND
101
INDUSTRY VOICES
F AMIL Y BUSINES S ALLIANCE
2024 Fall Issue of Urban Land

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