Planning for Succession of Family-Owned Real Estate Ensures Smooth Transition

Posted on May 15, 2014

Succession planning is an important part of the estate planning process. Decisions regarding family-owned real estate investments can sometimes be difficult, but starting early and seeking the professional advice of experts can certainly make things easier. When succession planning is an afterthought, options become limited and families can face pitfalls, experts say.

The best time to plan for a future transition is before a family is forced to make a decision out of necessity, such as in the case of an untimely death or incapacity. This can be especially important when there are multiple children, some of whom may not have been directly involved with running the investments.

“Real estate founders tend to wait,” says Patricia Bojanic, a tax partner with Troy-based accounting firm Gordon Advisors. “They’ve often built these buildings from the ground up.  The properties are running successfully, and they want to maintain control of them.  They don’t start planning for their succession until late in the game. Real estate is something we see people holding onto into their 70’s or even longer.”

According to Jeffrey D. Moss, an attorney and partner with the law firm Dawda, Mann, Mulcahy & Sadler, PLC in Bloomfield Hills, the first step in making sure there will be a smooth transition between generations is to identify future company leaders. If a family member doesn’t have the interest or expertise, partnering with a management company can bring the needed know-how.

“Sometimes, we see (family members) promoted to leadership positions and they don’t really have the experience. It can hurt the business,” Moss says. He also suggests that older generations consider sending their successors to leadership training and creating limited liability companies to establish parameters for company stewardship. And, having a clear understanding of the founder’s vision is imperative. “The founder creates the vision for the business going forward,” adds Moss.

Tracy Brown, Director of Multi-Family Management for Friedman Integrated Real Estate Solutions in Farmington Hills, agrees. “Understanding the founder’s as well as the children’s vision is key in operating real estate portfolios for families,” says Brown. The company has management relationships with clients across the country.

The conversation with a family regarding goals can be as simple as maintaining their periodic cash flow distribution or as complex as the family’s legacy goals for the property. “Each client has different directives for their properties,” offers Brown. One longtime client’s family tradition requires incorporating the original company logo and community design features from the 1960s into a more modern marketing strategy. “It’s all very personal to them,” Brown adds. “We continue moving the properties forward without just disposing of the legacies that are important to the families.”

The financial goal for families is to maximize performance while reducing estate taxes. Alan Steinberg, also a Gordon Advisors tax partner, suggests one strategy is to put some assets – a newly-acquired apartment community, for example –in a child’s name, rather than allowing him or her to inherit it later. “Let them have the growth,” Steinberg says. Moss concurs, stating “It’s a way to shift assets to the lowest tax rate while also giving the younger generation responsibility on a smaller scale versus inheriting an entire portfolio at once.”

Another strategy is to create Intentionally Defective Grantor Trusts, which allow older generations to move assets out of their estate and into a trust benefiting their children. “The older generation still pays the income taxes,” explains Bojanic. “Effectively, the income taxes are an additional tax-free gift to the child.”

While there are many succession planning decisions to make, hiring trusted and competent subject matter experts as advisors is among the most important, and the earlier in the process, the better. In many instances, hiring a professional property management firm to handle the day-to-day management of properties allows the heirs to focus on bigger picture issues affecting the estate.

For families wishing to divest, Barry Swatsenbarg, National Director, Investment & Loan Sale Advisory Services, and Rich Deptula, Senior Vice President, Investment and Loan Sale Advisory Services, at Friedman Integrated Real Estate Solutions have years of experience representing clients in real estate transactions. The pair brings extensive knowledge in valuing and brokering multi-family properties across the nation. They recently represented the seller in a deal involving Metro West, a 1,200-unit apartment community in Columbus, Ohio. Havenwood Townhomes, an affiliate of The Romney Group, was the purchaser. “This community was the largest value-add, multi-family asset in the Midwest,” Swatsenbarg says. “It was a terrific investment in a growth location and offered limitless repositioning opportunities.”

Whether families want to divest of real estate or pass entire portfolios down to heirs, competent advisors can assist, providing for a smooth transition.




Recognized as one of the largest privately-held commercial real estate organizations in the nation, Friedman Integrated Real Estate Solutions provides clients with a single point of contact for the full range of services it offers.

Friedman manages over 140 facilities encompassing more than 16M SF of commercial and 7,000 multi-family units across the country. Friedman’s brokerage team has over 800 current listings with $10 billion in closed transactions. As owners and managers of commercial property for 25 years, Friedman understands what it takes to achieve results that maximize the client’s objectives.

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