Everything, everywhere all at once. Much like what Michelle Yeoh’s character experienced in the hit 2022 sci-fi movie of the same name, this seems to be the state of Canada’s real estate industry. Developers who built significant wealth through the decades-long condo boom are navigating a depressed market and facing big decisions.
The enterprising families behind these businesses are tackling whether to retire and exit, professionalize or hand the reins to the next generation. All of this is happening as the biggest wealth transfer in history takes hold. Some 60 per cent of family enterprises across industries are expected to transition ownership within the next decade.
The stakes are high, especially among Canada’s real estate families. According to KPMG, investments in residential real estate alone account for about 7 per cent of nominal gross domestic product (GDP).
“A significant amount of Canada’s real estate industry is built by entrepreneurs,” says Lorne Shillinger, KPMG’s family office leader for Ontario and Atlantic Canada. “A lot of the apartment building stock in Toronto was built in the 1950s and 60s by immigrant families. Every investor class invests in real estate. It’s an attractive long-term space for capital, with stable returns and steady appreciation.”
We work for a company that has a lot of purpose and we all feel very strongly about it. That is in our DNA but everyone took different paths to figure it out.
Stratton Townley
One family’s approach to succession
The questions of what happens with the continuation of a business in an industry challenged by a difficult development market, with values down overall in the asset class, is one that portfolio founder Eve Lewis is addressing with her children. Earlier this year, she sold real estate research and consulting firm Urbanation, a business she founded more than 40 years ago, in large part because none of her children were interested in running it.
“I was okay with that because I had moved on from it,” Lewis says. “If one of the children had been interested, I probably would not have sold it, but it’s not as creative as all the [other businesses] we work on, and that’s what everybody is more drawn to.”
Lewis continues to lead two interconnected companies: real estate development and heritage restoration company Woodcliffe Landmark Properties, with her son Stratton Townley, and real estate sales and marketing brokerage Market Vision, with her son Brodie Townley. Lewis took over the leadership of Woodcliffe immediately after her husband, Paul Oberman, died in a tragic accident in 2011.
Today, Lewis and her sons are taking what she describes as an organic approach to succession. While there was never an expectation for any of the children to join any of the businesses, the one constant message was to pursue whatever they loved, work elsewhere for at least five years, and then, so long as they were passionate about the industry and shared the vision and purpose of the business, the door would be open.
“When you have successful entrepreneurial parents, you want to make it on your own,” says Stratton Townley, who worked in the investment sales brokerage industry for 10 years before joining Woodcliffe in 2022.
“Sometimes, from my perspective, joining the family business felt like the easy route. I can tell you it is definitely not the easy route. For me, the upside is being able to work with my brother between two businesses that work together and being able to work with a parent who cares so much about what she does. We work for a company that has a lot of purpose and we all feel very strongly about it. That is in our DNA but everyone took different paths to figure it out.”
Lewis points out that the multifaceted nature of real estate, involving acquisitions, planning, zoning, design, marketing, sales, construction, legal issues and property management, requires a wide range of knowledge.
“It’s an industry where you need to spend some time in it to get the experience and most of all the confidence. That is how we work organically together. As time goes on, my kids are taking over more of the responsibilities, direction, and decision-making as they learn and feel confident. They are contributing significantly to the running of the company, and they have experience or talents that I don’t have, which is a great mesh to work together on.”
What’s keeping real estate families up at night?
The fundamentals of succession planning apply across industries. Lorne Shillinger outlines the critical questions all enterprising families must address when they are preparing for a transition:
- Is there a continuing business or is it time to sell?
- Who is going to lead the business? Is it family or third-party management?
- Who is going to continue as owners and who wants to be bought out?
- What is the governance structure of the organization going to look like? Because you don’t have to be an active manager, but you do have to be an educated, well-informed owner.
- What does an exit look like? Is it the family getting out of an entire business? Or is it branches of the family being bought out to facilitate long-term continuity?
- What will the tax structure of the exit look like?
“We did a lot of planning for families selling their businesses after Covid. These are the same discussions we’re having today,” says Shillinger, adding that there are several distinctive issues many real estate families also face when it comes to transition:
- the cyclicality of the industry
- the illiquid capital-intensive nature of development, which can necessitate raising capital to fund a buyout
- cash flow
- complex taxation issues as a result of large, embedded gains in older assets that need to be managed, and global investments, which require navigating jurisdictional tax treaties
- the need to address succession within the platform that drives the business, which is its own entity and needs to be valued and has its own leadership issues
- wealth accumulation from long-term rental properties
What transition looks like on the ground today
“In most cases, where it is a mature operating business that has a market name to it, that has value, there is usually a desire to keep the platform and the name. Increasingly, I’m seeing third-party management supplementing or replacing family management,” says Shillinger.
“We also have families who have put a real effort into creating opportunities for their children and grandchildren to gain experience and rotate into leadership over time. It really depends on the family’s preparation and willingness to change. If you have a very strong-willed founder, they must be open to change and not everybody is. For a business to have long-term succession, it has to be addressed early on.”
Succession is not a moment in time
Lewis has been clear with her children that she has no plans to ever fully step away. “Retirement in the way it is traditionally expressed is not of any interest to me. But transitioning responsibility, accountability, creativity and decision-making, that is important.”
For his part, Stratton Townley appreciates the opportunity to learn from his mother in a company that continues to evolve. “When I was younger, I thought succession was a moment in time, a date that happens and there is a transition. We have a great team around us as well as a great leader who can help me grow into a role where I can take more responsibilities, and she can focus on the areas of the business she most enjoys.”
Mary Teresa Bitti is an award-winning journalist, content creator and entrepreneur who works with media, corporate and not-for-profit organizations to tell their stories.
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