Wow, the recent news surrounding the Libfeld v. Libfeld dispute is getting a lot of attention! This raises the profile of intergenerational real estate to a new level, as internal matters do not often make their way to a public audience.
Long story short, this multi-billion-dollar portfolio, built from scratch in the Toronto suburbs by a Holocaust survivor, has been ordered sold because Teddy Libfeld’s four wealthy sons cannot work together.
This didn’t need to happen!
This writer contends that Libfeld v. Libfeld could have had a different outcome if good governance was in place – if not by the founder, then by the next generation when they were still communicating and on good terms.
Yes, I know, hindsight is 20/20 and I may be over-simplifying, but there are insight and lessons here that can be of value to others in similar situations. I work with many intergenerational real estate families, and I believe that my experiences in helping them have resulted in learning some key principles:
- Governance matters most.
- Deal with challenges while you are still in control and address fissures early before they become chasms that cannot be bridged – keep it out of court.
- Independently retained external professionals work within silos of expertise. Don’t expect them to solve the entire challenge – keep them in their lanes.
- Utilize a “quarterback” who looks at the big picture, brings the necessary resources and experience to the team, creates alignment in terms of strategy and focus, and executes a process to prevent meeting on the courthouse steps.
Common characteristics of family ownership
Intergenerational family disputes can happen over something as simple as the family cottage, or as complex as a multi-billion-dollar real estate portfolio.
After 35 years of working with families, I’ve noticed there are common characteristics of real estate ownership as it moves between generations. Most real estate empires began simple and small, typically with a developer during the 1950s, ’60s, or ’70s.
They’re usually not born with privilege and often come from difficult circumstances, as chronicled in the recent Canadian feature film Shelter.
These entrepreneurs run their business with an entrepreneurial mindset even though they’ve become large corporations – sometimes the size of a public company.
As the company moves from first to second to third generations, the individual goals and desires change as the family naturally gets larger. Unfortunately, in some cases, the founder has not left governance in place to account for the varying family members’ needs, wants and desires.
Many of my clients have a similar story, and our “quarterback” strategy and execution has yielded successful resolution to their challenges. In contrast, this recent Libfeld v. Libfeld dispute documents how they enlisted professionals in areas of expertise, yet no agreements could be reached – they were missing the quarterback!
The roles of a “quarterback”
We have filled this quarterback, or trusted advisor, role for many years and here are some of the working practices we’ve learned:
- It’s going to take time to execute the final resolution – be patient.
- Focus on what people can agree upon first (ex. “we can’t let our children inherit this situation”).
- Pay for good professional advice (but keep them in their lanes).
- The solution often falls out of the real estate assets (asset class, geography, ownership structure, sentiment . . .).
- Have a quarterback who understands real estate, and people, and can coordinate the efforts of external professionals while exploring all the options for solving disputes.
- Arriving at a resolution involves everyone giving a bit in order to get to an out-of-court solution – once it’s in the hands of a court, control is lost.
Coincidentally, earlier this year we released a white paper Control & Ownership for Multigenerational Family Real Estate, as featured previously here at RENX. You can request access to the white paper at https://svnrock.ca/family/ and download an introductory resource.
So, what makes multigenerational family real estate so difficult? Why are there challenges and issues? Quite simply put, these family companies are complex in three ways:
- Portfolios are not easily divisible (fungible) and valuation is complex.
- Separation of the real estate.
- Diverse people dynamics.
1) Portfolios are not easily fungible and valuation is complex
This is the easiest of the three.
The real estate can be figured out with traditional skills and expertise available in the marketplace (building condition reports, appraisal reports, financiers . . .). Family members can get this information independently or together, but all members need to understand the assets.
Yes, it will take a bit of time and the numbers don’t lie.
2) Separation of the real estate
As one of my clients said to me, “It would have been much easier if my father had sold the $100-million portfolio, bought Royal Bank shares and had given each of us four kids $25 million. If he had done that, I’d probably still be talking to my siblings.”
In that case, the father had left several real estate assets that were not easily divisible.
The real estate can be divisible using the practices mentioned above, coupled with a thorough process.
We’ve helped divide real estate assets, several times, into pools where you take into consideration traditional valuations, minority ownership discounts, cash rebalancing, and with a reasonable degree of sanity (while taking into consideration family members’ financial and emotional needs), you can get to a fair and equitable division.
This allows each family member to continue with their desired interest, perhaps managing the family portfolio together, managing it independently, or liquidating their proportionate share.
3) Diverse people dynamics
Most professionals within the real estate fraternity have their specific skills and they operate in silos of expertise. They are needed for the execution of many required elements such as discovery, valuation, legal procedures, agreements, taxation, brokerage, etc.
Handling people dynamics is an art, as much as it is a skill, and clearly, this is not brokerage. But for the quarterback, it is essential! The quarterback can’t give everybody what they want, but they can give everybody what they need while creating a permanent solution that won’t spill over into the next generation.
As I alluded to earlier, even when families aren’t getting along, they can all agree the situation needs to be solved before it goes to the next generation. One thing is for sure – in a court-ordered resolution, everybody loses!
Bringing this all together, I hope you’ve gained some insight as to why I stated earlier “this didn’t need to happen . . .”
There is a process that can help avoid the ultimate scenario of having someone else decide for you – as we’re seeing now with Libfeld v. Libfeld, and that is my message.