Chris Lee, president and CEO of Los Angeles–based CEL Associates, a consulting firm that has worked with numerous apartment companies on succession planning, says that extending the transfer of power indefinitely—or asking founders to return—is a surefire risk. “It’s rare to see someone step away and then step back,” he says. “The ones who have returned after a protracted leave aren’t as efficient or as effective as they were earlier because they were disconnected from the industry.”
Equity Residential – David Neithercut
Credit: cleftwich
Under chairman Sam Zell’s watch, Chicago-based Equity Residential has transitioned through three CEOs, yet it still remains an analyst darling in the apartment REIT space.
Douglas Crocker II ran the company for 10 years—from when the company went public in 1993 to 2003, growing the firm from 21,000 apartments with a total market cap of $700 million to a $17 billion company with more than 225,000 apartments. Crocker stepped aside for Bruce Duncan in 2003.
Duncan came on with the idea of refining the company’s portfolio and implementing a new succession plan. Having made strides in those areas, he retired in 2005 to make way for David Neithercut, who had been a Zell favorite for years. Some industry watchers contend that Duncan was, essentially, brought on to groom Neithercut.
“David has worked for me for 20 years,” Zell says. “He was always measured, thoughtful, and intelligent. As his responsibilities have increased, he’s grown into them.”
In fact, the risks associated with any leadership change are extremely perilous—particularly for smaller companies. And with a new generation of multifamily executives reaching retirement age—folks like Tom Bozzuto, CEO of Greenbelt, Md.–based Bozzuto Group, which manages 30,510 units in the Mid-Atlantic, or Preston Butcher, chairman and CEO of Legacy Partners, an owner of approximately 20,000 units based in Foster City, Calif.—careful succession planning is as critical as ever.
“It’s not like a lot of my friends at Microsoft who decide to leave, put out a sell order for their stock, get their money, and go home,” says John M. Orehek, president and CEO of Seattle-based Security Properties, a private real estate owner with about 17,000 housing units in 30 states. “In the real estate game, most of my net worth is tied up in this company and the real estate assets that it owns. When I leave, I have to make sure there are good people who will be good stewards of those assets so that over time my net worth is monetized.”
Ultimately, getting the right person lined up to take over as CEO is one of the most important things an apartment firm can do. Here are four ways to ensure that the succession and transition plan you put in place goes off without a glitch.
