Succession Planning for Commercial Real Estate Firms

Preparing and implementing a plan to transfer control of a firm to a new generation of leaders can be a daunting prospect for business owners and senior executives in any industry. It can take years of careful planning to develop a blueprint that will satisfy current and future leaders and support a firm’s long-term success. Leaders of commercial real estate (CRE) companies often face additional, unique challenges due to their firms’ complex valuation processes, intricate tax strategies and multifaceted ownership structures.

The NAIOP Research Foundation commissioned this study to explore the challenges and opportunities associated with succession planning for CRE firms. The study draws on Wipfli’s experience advising firms on succession planning and interviews with CRE professionals at various stages of the succession planning process who represent a broad cross-section of CRE firms. This research reveals that most succession plans seek to accomplish these key objectives:

• Ensure business continuity by providing for contingencies, such as the death or disability of current leaders, and maintaining existing business relationships through a planned transition.
• Ensure an ownership transition maintains a firm’s value but also provides fair compensation to exiting owners and minimizes tax implications.
• Ensure alignment between current owners and their intended successors on cultural values and the strategic direction of the firm.

Factors such as a firm’s legal and organizational structure, financial condition, owner objectives and the readiness of prospective successors to take on leadership roles shape the details of an effective succession strategy. However, this study identifies several best practices that can help all CRE firms navigate the process of developing and implementing a succession plan. These include:

• Begin the process early, preferably years before an expected succession. Early planning reduces risks associated with an unplanned transition and gives a firm more time to prepare successors.
• Carefully identify successors who will be capable of and interested in running the firm, and prepare them with any additional training or experience they will need.
• Leverage planning teams and outside experts. Establishing a transition committee and engaging objective third parties can help a firm navigate the process.
• Communicate about the succession plan with employees, lenders, investors and other stakeholders to build confidence in a successful transition.
• Regularly reassess succession plans and make changes as needed to adapt to new circumstances.

Produced in conjunction with