Mentoring Successors And Ensuring Client Continuity Are Key Factors
All good things, as they say, must come to an end. Whether you are nearing retirement or have decided it’s a good time to sell your firm, SIORs agree that planning ahead is one of the most critical elements to successfully preserving your legacy.
“The greatest risk to the owner of a brokerage is that they leave their succession planning too late,” says Christopher Aquilina, SIOR, regional director – Europe, with Spring4, London.
“For many CRE professionals,” he continues, “Decades of deals, client relationships and market knowledge have built more than just a business — they’ve built a personal legacy. Yet even the most successful brokers can be caught unprepared when it comes time to sell or pass on their practice. Planning for disposition or succession isn’t just good business — it’s essential for safeguarding your life’s work. ”
It’s difficult, he stresses, to sell a business that doesn’t have a clear succession plan. “Investors and other CRE firms won’t be interested if there is a risk that the client base walks out the door with you,” he notes. “Similarly, if you leave it too late, then younger partners will be less inclined to buy in at a decent valuation for the same reason, if indeed they’ve stuck around that long!”
Mentoring, he adds, is also key to proper succession planning. “It’s important to identify the rising stars in your business at an early stage and give them a roadmap to becoming owners,” he says. “Give them non-brokerage management responsibilities such as finance or marketing. This will prepare them for future leadership but can also free up your time.”
If there is to be any residual value to the business, there must be strong client relationships with good records.
Brian Lightle, SIOR, founder/broker associate, Lightle Beckner Robinson, Inc. Commercial Real Estate Services in Melbourne, Florida, agrees. “Begin with the end in mind as step one in preparing for business disposition or succession is intentional planning and the earlier you start the better,” he advises. “I am amazed at the number of brokers I speak with who are less than 5 years away from ‘retirement’ but do not have a plan in place.”
If you are fortunate enough to be an SIOR, you never have to handle that planning process without expert guidance. As Cathy Coate, SIOR, executive vice president and senior advisor with Blueprint Commercial in Philadelphia relates, “I’ve got my plan [by] following the regulations. If you’re an SIOR and moving into retirement status, there are very specific criteria.”
Bob Gibbons, SIOR, with REATA Commercial Realty, Inc., in Plano, Texas, offers this additional observation: “You should undertake a realistic critical analysis of whether the business is sellable or not,” he says. “If the business can’t run without your personal involvement, it’s probably not sellable in the traditional sense.”
He adds, however, that this doesn’t mean there isn’t “value to capture.” Gibbons says he has worked with a few older tenant rep brokers who wanted to retire but who also wanted to take care of their clients. In exchange for “very warm introductions,” he agreed to pay a higher-than-normal referral fee or as long as they kept their licenses active. “This,” he says, “has worked very well.”
Another good strategy Gibbons has seen friends use, he says, is to bring in younger agents and give them a path to ownership after a certain number of years and production level.
Strategies Can Vary
While all such transitions may have similar goals, the strategies for achieving those goals can vary. However, say SIORs, some issues are critical across all transitions. For example, Gibbons notes, “If there is to be any residual value to the business, there must be strong client relationships with good records.” A tenant rep friend of his, he shares, was a “cold-calling machine” but never stayed in touch with past clients. “He left a ton of value on the table both throughout his career and when he retired,” Gibbons notes.
He also stresses having a strong foundation in place. “I was very blessed to have added great partners and assistants over the years to leverage my growing business, and this created the need for early valuation formulas and buy/sell agreements which helped lay the foundation for future transitions,” he explains. His method of valuation is based on a percentage of average gross revenue.
“By having the foundation put in place early (valuation formulas, buy/sell agreements, regular discussions, etc.), our ownership transition has been very smooth, almost invisible to most of our clients and the outside world as I continue to produce, remaining active/visible in the community and only my title has changed,” Gibbons shares “This enables me to work indefinitely and for the company to grow and thrive under new vision and leadership.”
Speaking of new vision and leadership, ensuring successors are in place is equally critical. As part of that planning, last year Spring4 was converted to an Employee Ownership Trust (EOT), which effectively means that the business was sold to the Spring4 staff.
While EOTs are unique to the U.K., Acquilina notes there are similar structures around the world; the equivalent in the U.S., for example, is an Employee Stock Ownership Plan (ESOP). The EOT, he explains, allowed for some of the older owners that were starting to plan for retirement to sell their shares without losing control of the business. “The nature of a sale to staff is that the business doesn’t appear to change hands to the outside world, so there are no difficult conversations that need to be had with clients,” he explains. “The other key advantage is that it makes the staff owners of the business, which results in greater motivation as they have a direct interest in the overall financial performance of the company.”
He adds that when a succession strategy for Spring4 was originally being considered — at which stage all exit options were on the table — they appointed a Non-Executive Director. “The objective of this was to prepare the company for a potential sale by making us into the best version of the business that we could be,” Acquilina explains. “The non-exec brought fresh scrutiny to the way that we operated and helped us to streamline our processes. We improved our financial reporting because any interested party was going to want to know exactly how we were performing. We worked on our marketing, as raising the profile of the business would elevate our position amongst potential suitors. We improved our internal policies and HR functions to ensure that we could easily demonstrate our compliance during a due diligence process. Whilst this exercise was instigated to prepare for a potential sale, it simply made us into a better business.” The non-exec, he adds, was also able to advise on potential exit strategies.
Coate has seen both sides of the succession ‘coin.’ While still with a company she had worked with for years, she began training a young broker “in the way I wanted him to be – how I liked my clients to be treated.” That plan did not go very well. Then, the company hired a more seasoned broker who had a lot on his plate and was only interested in her “choice” clients.
“In the meantime, I happened to be recruited by a startup firm, and one of the principles of the startup had been working as a colleague. His son also joined the firm, and he was a delight to work with.” They had similar interests (non-profits), she relates. The son and his partner started a new firm and recruited her to join, in part, to be a senior advisor and help them develop the company. “My legacy is to turn over my clients to this new startup and train them to work the SIOR way,” says Coate. “If you’re an SIOR, that means that you are the best at what you do. If you refer something to an SIOR you do not have to worry; they’ll do what’s best for your client, send you a referral fee off the top – everybody’s happy.” She follows that model with the new firm and is encouraging one principal, in particular, to earn the SIOR designation.
“As long as I keep my license and make referrals I get paid a referral fee,” says Coate. “I just refer to them as my retirement plan.”
My legacy is to turn over my clients to this new startup and train them to work the SIOR way,” says Coate. “If you’re an SIOR, that means that you are the best at what you do. If you refer something to an SIOR you do not have to worry; they’ll do what’s best for your client, send you a referral fee off the top – everybody’s happy.
And What About The Clients?
Handling clients during transition, says Coate, “Is dicey; you win some and you lose some.” It’s important, she says, to be thoughtful and strategic in making the new connections “so my long-term clients will feel comfortable with the transition.”
Of course, transitions can work both ways. She tells the story of one situation involving a good long-term client. The Executive Director of the organization had been her boss earlier in her career. “She retired, and we had a meeting to introduce me to the new director,” she shares. “They seemed totally uninterested in me or my work. So, over a period of a few weeks I decided what to do. I brought the two principles of the new firm, [while the new director] was interviewing other brokerage firms. Thankfully, my references stepped in and so did those of the young principles; Philly is a small town – everyone knows each other. Thankfully, he trusted the people he spoke with and we got the assignment.”
“Clients are central to the value of our businesses, and often those relationships are very personal,” adds Acquilina. “It can take many years build trust, and therefore introducing younger partners to the clients of partners that wish to exit at some point should start very early in the process.”
The bottom line is, getting it right when it comes to these transitions can be most rewarding. “After 37 years in the industry and 29 with Team LBR,” says Gibbons, “I am very blessed to remain with the company and watch my legacy continue to grow for many years to come!”
This article was sponsored by the SIOR Foundation - Promoting and sponsoring initiatives that educate, enhance, and expand the commercial real estate community. The SIOR Foundation is a 501(c)(3) not-forprofit organization. All contributions are tax deductible to the extent of the law.
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