In today's post-recession environment, institutional investors are placing a renewed emphasis on “enterprise due diligence” of real estate investment managers. Since real estate commitments are typically long-term, illiquid investments, the continuity and stability of sponsor management teams is a particularly important consideration. Succession planning is a key element of this due diligence process and, while it has always been important, it has become increasingly more so in recent years as more industry leaders near retirement age.
This is not just a real estate issue. In fact, many “alternative” investment firms are closely associated with one or more founders, leaving investors to question what happens when the visionary leader(s) exits the platform. These concerns can have real consequences for fundraising efforts. As one institutional investor stated in a recent FPL interview, “I couldn't invest in another fund without having some clear answers about succession and future leadership.”
It is against this backdrop that FPL Consulting and the National Association of Real Estate Investment Managers recently examined how real estate investment managers are approaching the important topic of succession planning.