As Baby Boomers get older and come to a transition point in their lives, Transpacific is being asked more and more to manage family real estate holdings. Parents have concerns about whether their children have the skills to manage property; children have their own careers and aren’t interested in managing a portfolio; siblings have different ideas about what to do with the property they inherit.
Not all property management companies have the blend of personal and business skills required to manage family holdings. You need to be able to understand and manage group dynamics, know how to blend and balance family and business strategies and goals – and have experience with the day-to-day aspects of managing a property. Family holdings offer unique challenges, but over the years, we’ve found that some basic preparation can make all the difference.
Build in rules that keep the business operational
If you’ve spent your entire life managing a building, it can be hard to let go and allow your children to step in with their own style and values – generational differences cause conflict with surprising frequency. In general, no matter how well you get along at the dinner table, there will be times when family members disagree over how to manage a property. Anticipate this by building rules and procedures for decision-making and meetings into a family ownership agreement, so that no single person can hold the group hostage to their opinion.
We’ve seen many cases where one family member in the ownership group refuses to communicate with the others. It can paralyze the business, making it impossible to pay invoices and handle maintenance or tenant issues. If you have a formal, documented process to fall back on, the other family members can call a meeting with a written notice that includes an agenda, and make the decisions described on the agenda at the meeting, even if a family member chooses not to participate.
Make all partners accountable
Even if your entire family agrees to help manage the property, you need a designated point person who will assume overall responsibility, so that no important task is left undone. Build in accountability, so that your point person doesn’t become overloaded with work, or frustrated because they have to remind others to do their fair share.
Managing a property is time-consuming, and requires skill sets such as accounting, leasing, maintenance, and work flow management. Not everyone in the group will have what it takes to do the job. And what happens if – despite their best intentions – they do the job poorly? We’ve seen more than one situation where a family member performed construction work, but the work wasn’t done properly, resulting in delays and cost overruns. At best, it’s an awkward situation. At worst, it leads to conflict within the group.
It’s best to treat any services provided by family members, such as construction, accounting, or maintenance, as if they are arms-length contracts. The obligation should be described in a written agreement, including scope of work, completion dates, how and when compensation is payable, and what will happen if one or more family members are dissatisfied with the results.
Have a Plan B
Despite your dreams for their future, not everyone in your family may want to own and manage property. All family members suffer when someone is forced to remain in a partnership against their will – a reluctant co-owner is never a good partner.
If you don’t want to sell your real estate, you need a strategy for the retention of the property and its ongoing management. In this case, you not only need a property manager who has the skills to manage your property, they should also understand how to promote transgenerational wealth. At the very least, they should have the skills necessary to interface with your accountant, lawyer, and estate planner.
Find an adviser who can help navigate family dynamics
Family dynamics within a partnership can get in the way of doing what’s best for the business. The right advisor can offer an outsider’s perspective free from that tension, but they should also have experience dealing with a business board or family council, because managing those dynamics is half the job.
Your advisor needs to be able to assess and navigate the needs of each personality involved: perhaps one sibling wants group harmony, while another wants control, or one sibling needs lots of analysis and data, while another just wants the highlights. Your property advisor’s job is to help the group make the best business decisions for the property – despite their individual needs.
Of course, you’ll also want to choose an advisor with solid business sense, operational experience, and up-to-date knowledge of current practices and legislation in the real estate industry. With the right manager in place, the portfolio you’ve spent a lifetime building can continue to earn wealth, and give you and your family the freedom to choose how much you want to be involved in day-to-day operations.
This article by Rod Fram first appeared in the May 2019 edition of the Western Investor.
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