There is undoubtedly a void in second- and third-generation offspring wanting to take over the family business, but there is also a huge void of CRE executives ages 40 to 50 since the recession flushed them out, executives tell GlobeSt.com.
IRVINE, CA—There is undoubtedly a void in second- and third-generation offspring wanting to take over the family business, but there is also a huge void of CRE executives ages 40 to 50 since the recession flushed them out, executives tell GlobeSt.com. Griffin Cogorno, VP of client development at Unire Real Estate Group says he been hearing of the impending potential epidemic coming when all the Baby Boomers begin to retire, creating a possible serious gap in the retiring group of leaders and the next generation. Moreover, many companies don’t have a succession plan or next generation of top-level executives to steer the company.
We spoke with Cogorno, along with Brooke Gustafson, managing director at Birtcher Development, and Berkeley Davis, managing director of RETS Associates, about the biggest issues in CRE regarding succession planning and how companies should approach this issue.
GlobeSt.com: What do you see as the biggest concerns in CRE regarding succession planning?
Cogorno: There is undoubtedly a void in second- and third-generation offspring wanting to take over dads’/granddads’ CRE businesses. I believe there is a tremendous opportunity to manage/buy/partner with the Baby Boomers, who are starting to retire with no one under them to take over. I hear daily about large CRE portfolios going to sale because the siblings don’t have an interest and would rather cash out. I don’t hear much about my generation taking over large CRE holdings, and with the current price per pound at an all-time high, it’s luring many simply to sell assets rather than maintain.
There is a huge opportunity for our firm and other property managers to be a provider to these family offices and do all the heavy lifting for family portfolios who do not want to be sellers, but rather create family-legacy portfolios. CRE is also not sexy. The younger generation wants its workplace/portfolio to be sexy and fun. Stable CRE isn’t as appealing as a free lunch while working at SNAP or owning a few luxury single-family homes. I spend quite a bit of time in San Francisco, and it could not be more apparent that tech is sexy and CRE is not. The younger generation wants to display wealth and assets. I prefer—and I think my generation prefers—to own and operate cash-flow positive assets that are going to put my great grandchildren through college. I am not one to chase the market or asset classes of the month. I grew up in industrial, and that’s what I think it sexy.
I do feel like the Generation Z people coming up and out of college have a real interest in CRE; however, they lack the experience. The Millennials and my generation seem to lack the drive our parents/grandparents had. There is a huge void of CRE executives ages 40 to 50, since the Great Recession flushed them out. There is tremendous opportunity for anyone under 40 to do amazing things in CRE. The retiring workforce is ready to relax, and the supply of talent from ages 45 to 55 is light or already secured.
Gustafson: The CRE landscape has changed significantly over the past decade in response to the 2008 global financial crisis. The tailwinds of tighter regulation have spurred industry innovation and opportunity, and a new breed of mid-career CRE professionals are traversing this new territory alongside CRE industry veterans. The past decade has provided a unique opportunity for Baby Boomers, Gen-X and Millennials to work together in embracing the “new normal” in CRE and bridge the gap of common knowledge and experience—something that would typically fade with each new generation.
With this backdrop, the biggest concern for CRE succession planning is not the quantity or quality of the successor candidate pool, but the rate at which a transfer will take place due to Baby Boomer retirement goals and expectations. A 2010 study from Pew Research Centerpresents that “roughly 10,000 Baby Boomers will turn 65 today, and about 10,000 more will cross that threshold for the next 19 years.” That’s roughly four million Baby Boomers retiring per year. Given this statistic, it’s imperative that companies start their succession-planning search externally or groom from within today, so that transitions are as smooth and effective as possible.
Davis: Succession planning requires executive leadership to be more transparent and open to mentor the next level. Often, we see more of a territorial or closed-off approach because the executive’s role feels threatened by the next level’s abilities and eagerness to learn, but in order to have a clear path, we have to trust openly and allow that next level to see more of the responsibilities and burdens leadership carries.
GlobeSt.com: How should companies approach this issue?
Cogorno: Companies need to stay relevant and harness talented employees. CRE family companies need to plan ahead and decide if they want to hire an outsider to take over or hire a qualified full-service provider to handle their holdings. There seems to be a void in the 40- to 50-year-old executive, which means candidates who are 30 to 40 years old needs to be available to do the work of someone who historically would be 10 years older and with that much more experience. I am learning every day from my mentors, who are looking to retire within the next five years. Many of my peers see the opportunity and are taking advantage.
Gustafson: Company leaders and/or owners are tasked to identify a successor from either outside of the company or groom from within, with each of the two options presenting very different candidate profiles. Preparation, training and communication are critical components of the selection and succession process. Significant lead time is needed so that a successful transition can take place, and expectations of leaders and companies are properly met.
Davis: Senior leadership should be meeting on a regular basis addressing the succession plans for the company and each division. Leadership should have a clear mentoring program and the ability to see who has the potential to rise up to that next level when the needs arise. Companies should be asking themselves, “How are we building up this next level and giving them the tools and resources to see the clear career path within the company?”
GlobeSt.com: How can the different generations best work together to resolve these concerns?
Cogorno: CRE is easily teachable with the right mentor. Experience is so valuable, but being smart, dynamic and hardworking is as valuable as anything when it comes to CRE. CRE will always be a collaborative industry. We are all deal junkies and love to do deals with our network of professionals and friends. It is a niche industry where we don’t sell a widget or durable good. Most of the time, we sell ourselves, our building or our space. The human aspect as important as anything. Trust and relationships are integral.
Gustafson: Both generations will need to be patient. Candidates need to be patient in their ambition to lead, and current leaders/owners should take advantage of the opportunity to spend more time preparing the next generation. Too quick of an ascension has a downside. For example, not having enough exposure to the multitude of elements in CRE—entitlements, financing, leasing, asset managing, construction, marketing, etc.—could hinder a candidate’s ability to step into a new leadership role successfully.
Davis: Clearly, in most CRE companies, there are varied levels of leadership and management. Each level should have a clear understanding of their successor(s), and the collaborative discussion between management and executive leadership should assist in making this more of an open dialogue rather than a taboo topic. Reality is, the executive level in many firms are nearing retirement, and their successors have not been told their path to leadership, but rather are doing their job, succeeding and “dancing in the dark,” hoping to rise to that next level eventually. There should be an open and honest discussion between the varied management and executive levels if we want to retain our top talent and be clear about succession planning.
GlobeSt.com: What else should our readers know about this topic?
Cogorno: This topic is on the mind of anyone over 55. Some have begun working on their solution, and some are trying to push it down the line. I know the talent is out there, but finding a like-minded individual who fits with a company’s culture is not easy.
Gustafson: The topic of succession planning should not be taboo. It should be discussed and planned for as early as possible. Additionally, parts of the CRE industry have become very data rich, which begs the question of what the CRE leadership opportunities of the future will be and what role artificial intelligence and big data will play.
Davis: Look at your executive team and the talent level beneath them. Who is ready for the next level? Who is not? Are there areas where that next level(s) need more training, mentoring or coaching so they can grow to the next level? Are they clear on those expectations?