Two brothers start buying property, build a real estate business and watch their holdings appreciate over decades.
Eventually, the next generation comes along, grows up.
Some want to join the family business. Others pursue different careers.
If they are lucky, grandchildren, great-grandchildren, spouses and cousins join the dynasty, all with ideas about what should happen to the family fortune. Who gets to make the decisions? Who gets paid for doing the work? How do you keep the tensions and inequities from ending in a lawsuit, or uncomfortable Thanksgiving dinners?
On Monday nights, a 29th-floor conference room at One Vanderbilt becomes a classroom where real estate’s best-known families confront these questions in front of an audience: the students in NYU Schack’s Real Estate Family Business Management continuing education class.
The class runs for five weeks at a time. On school nights, multiple generations of real estate dynasties take their seats along a rectangular table. Simon Ziff, the class’s bushy-haired co-founder, sits at one end, and NYU associate dean Marc Norman, his more buttoned-up counterpart, at the other. Industry heavyweights Tony Malkin (father Peter took over management of the Empire State Building, seeding an empire now held as the Empire State Realty Trust), Scott Rechler (sold his family business Reckson Associates Realty and started RXR) and Nathan Berman (self-made, and whose son and younger brother have joined his MetroLoft Developers) have all been guests.
But inside the classroom, it’s less Principles of Management and more group therapy session or business strategy brainstorm, thanks to the student body. Anyone can sign up — it costs $850. But the roster skews heavily toward real estate scions, a glance at the name tags revealed. The Real Deal was permitted to observe off the record, but quietly noted the Who’s Who of New York’s real estate elite.
“I could have said no, but I would have had to find someplace else to spend Thanksgiving.”
Ziff, president of Ackman-Ziff Real Estate Group, started offering Family Biz four years ago at the University of Miami and established it in New York the following year. He wanted the class to address two fundamental goals: prosperity and happiness. They don’t always go hand-in-hand.
“So many people are interested in learning about lessons in family business, and the tricky part, what inspired me, was the question ‘what’s the goal?’” Ziff said. “The goal is to be happy. It’s not just to make money.”
The stakes are particularly high in real estate, where assets can remain in a family’s hands for generations and appreciate dramatically along the way. A portfolio that began as a handful of properties can grow into a multibillion-dollar empire, and an increasingly complicated puzzle to divide among heirs.
Matters of succession are typically opaque, and the class discussions open a window to the challenges families face as they build or sustain the success of previous generations.
First bell
The speakers talk about the evolution of their family businesses and offer advice on delicate issues like succession, sibling dynamics and compensation. The audience absorbs the lessons over slices of pizza and soda in plastic cups.
Not every family follows a carefully laid plan, the stories reveal. Liz Holland, who gave TRD permission to quote her remarks, said her entry into her family’s real estate business, Abbell Associates, came unexpectedly. Holland had built a successful career as a bankruptcy attorney when her grandfather summoned her home to Chicago to take over the business in 1997. It had never been discussed, she said.
“I was drafted,” Holland said. “My number was one. I could have said no, but I would have had to find someplace else to spend Thanksgiving.”
Holland was preparing to move to New York for a new job, but she put her negotiations on hold, packed up her things in Washington, D.C. and moved back to Chicago. She is now the firm’s CEO and general counsel, overseeing all business and legal matters.
“At the time I was pretty pissed because I felt like my career had been hijacked,” Holland said. “But in hindsight, I got to work for my grandfather for two years before he died, and I think you kind of have to have that experience to appreciate it.”
Many young members of the audience could probably relate to that feeling, the pull of family obligation against personal ambition. Most of the speakers mentioned family members who had strayed from the family business.
“In the early generations of family businesses, it’s kind of assumed that everyone’s going into the business,” said Stephen Rabinowitz, co-chair of Greenberg Traurig’s global real estate practice. But today the path from the dinner table to the corner office is less automatic.
Rabinowitz advises many of New York’s top real estate families on succession planning. He is a regular speaker at the class; the conference room at One Vanderbilt is in his firm’s offices, which hosts many of the sessions.
“Part of what I like to preach to the clients we work with is to try not to get your families into the business immediately,” Rabinowitz said. “Make sure that you cultivate in them a specific set of skills and interests before they get into the family business, whether that’s going to business school or law school or working at an institutional company to learn other styles of working.”
In the families that spoke, the next generation cut their teeth at other firms or earned graduate degrees before going to work for the family business. Even then, getting in the door is one hurdle. Earning the respect of colleagues is another.
Study hall
Todd Cooper, who gave TRD permission to report his remarks, told the class that he was the only one among his siblings to join the family business, Kimco Realty, which his father, Milton, co-founded in 1958.
“It was a challenge at first,” Cooper told the class. “It’s very frightening to come in and be the son of a founder and then start working, but you just gotta outwork everybody. It’s the only advice I can give.”
Cooper learned the leasing side of the business from his uncle Sam and eventually took over. But after seven years, he decided he wanted to start his own business and co-founded the retail brokerage Ripco Real Estate.
“There are a lot of founders who say, ‘I founded this business and I need my whole family to benefit from it. But if you don’t create an incentive for someone to work hard, you’re probably putting an expiration date on your business.’”
“It took some time because my dad didn’t want to let me go,” he said. “For his generation, that was just a total ‘no-no.’ But I just wanted to do my own thing.”
Belonging to a prominent real estate family can be as much a burden as an advantage, Ziff has learned from the class. The next generation may benefit from name recognition and connections, but they also have to contend with the assumption that their success was handed to them.
“I’ve seen super-talented, committed, philanthropic, hardworking next-generations that have to go through life with their friends, their colleagues, just looking at them and saying, “You’re only here because of your name,”’ Ziff said. “That’s not easy because respect is important, and not having it can impact happiness.”
Hard conversations
Every week from the audience, Albert Laboz of United American Land asked a variation of the same question:
“You have a couple cousins in the business, a bunch of cousins not in the business. The managers are growing the business, and it’s really being very accretive. What is the proper compensation for the managers for growing the business?”
It’s one of the hardest challenges, and no two families approach it the same way, Rabinowitz said. Compensation might take the form of salaries, a share of the profits from new projects, or both. They have to figure out some balance between rewarding active participants and treating passive owners fairly.
“There are a lot of founders who say, ‘I founded this business and I need my whole family to benefit from it,’” Rabinowitz said. “But if you don’t create an incentive for someone to work hard, you’re probably putting an expiration date on your business.”
Rabinowitz teaches the importance of family charters that address employment requirements, training, ownership transfers, divorce, death and what happens when a family member is no longer capable of running the business.
“I think you have to have a realistic and written-down set of rules that describe how participant family members and non-participant family members will be treated,” Rabinowitz said. “It avoids a lot of problems and a lot of disputes in the future where people are kind of improvising as opposed to being governed by a set of rules and principles.”
Family members bring years of history into the room, old rivalries, perceived slights and memories of who got what. A disagreement over distributions or management can quickly become a referendum on who was favored by a parent or grandparent.
The conversations can be uncomfortable but they’re easier to have before a crisis than in the middle of one, Rabinowitz said.
At Abbell, the next generation has five members. Holland began talking to them about the family business when they were kids. Owning part of it didn’t necessarily mean working in it, she explained.
At one family dinner, she recalled, she told her daughter and a niece that they seemed especially suited to real estate. One was nine; the other was five.
“This got sprung on me,” Holland said. “I’ve been crystal clear with these kids from the earliest days.”
It’s the kind of communication Ziff hopes the class will encourage. Unlike most business negotiations, these conversations don’t always stay in the conference room. The people fighting over the future of the company may also be the ones passing the potatoes at Thanksgiving. The holiday came up during three different sessions of the class this fall.
“Thanksgiving is really where the rubber meets the road,” Rabinowitz said. “Everybody has to sit at the table with sharp knives in their hands.”
