real estate

Real estate families have special challenges. In addition to their complex and varied asset portfolios, their companies are often dominated by an initial entrepreneur and frequently lack adequate governance structures or established plans for retirement and succession.

The business model has two specific components: ownership and management.  While all family businesses have these two components, in non-real estate businesses, they are more frequently blended together until estate planning activates; and even then, the concept of owner/management fosters the idea of keeping the ownership and the management in the same hands.

For family owned real estate companies, limited partnerships have historically been the dominant form of ownership. Consequently, each time an entity is purchased or a new development project is undertaken, the owner and the management of that entity are bifurcated.  Frequently, that bifurcation is an example of estate planning at its best:  The asset is never put in the estate of the senior generation, so it accumulates outside of the parents' estate while the senior generation keeps control of it through the structure of the partnership.

The management company is an additional source of income. Usually, there are one or two (but not all) members of the next generation in the business. The succession of the ownership has occurred through the structures of the real estate deals. However, the succession plan for the management/control issue is geometrically more complicated. There are partnerships everywhere with multiple owners/stakeholders that are, by definition of the structures, left without a legal voice. (Layered on to this ownership structure has been the emergence of both open ended and closed ended pooled real estate funds focusing on specific asset classes, presenting another set of succession and management challenges.)

Any time family members of the same generation have an unequal amount of control, the chances for conflict increase dramatically.  Limited partners may have a limited voice in a business context. It is only a matter of time before family members who are limited partners respond to that business limitation. They will articulate in no uncertain terms the discomfort of being partners while their wealth is being managed by siblings in whom they may or may not have confidence. Legal authority and responsibility can be passed down. Family authority cannot.

Addressing those complicated family business issues without damaging the wealth and the family relationships is a daunting task. It requires both the expertise of a professional skilled in family dynamics and a professional skilled in understanding the complexity of real estate. The combination of those skill sets is the cornerstone of TD&A's Interdisciplinary Method and the basis for our proven track record of working successfully both in real estate and across a variety of industries.

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