Three Macro Trends in Commercial Real Estate

For 2018 we wanted to point out three macro trends in commercial real estate that are becoming increasingly relevant to our clients:

  • Wealth Transfer – The wealth transfer “wave” is growing like a tsunami with trillions of US dollars are anticipated to be transferred from generation to generation over the next 5 to 10 year period. A good portion of this wealth transfer is associated with tangible assets including commercial real estate. Effective wealth transfer strategies are becoming increasingly imperative to address issues associated with real estate transfers and family dynamics.
  • Building Modernization & Technology  – Technology is shifting The commercial real estate landscape rapidly and owners are recognizing that they need to get up to speed quickly on modernization strategies because tenants are demanding these upgrades. Yes, modernization and efficiency costs money but these strategies can be the catalyst to attracting and retaining tenants, yielding operational efficiencies, and leading to financial ROI.
  • Taxes, Taxes, Taxes  – Tax reform has been the big elephant in the room for commercial real estate owners. Our team is constantly working with estate planning advisors to develop effective transition plans with commercial real estate portfolios that help to mitigate tax impact for the next generation of families that inherit these assets.

What is a Legacy Property?

A Legacy property is a real estate asset that has maintained its historical and/or cultural significance over multiple generations. It is a symbolic representation of not only the community for which it serves but also the storied history of family owners that have been responsible for ensuring its transition over time.

Ownership transitions with legacy properties are ripe with potential trials and tribulations that, if not properly planned for, can lead to disagreement, distress, and financial surprises that have a lasting impact on both the value of the legacy property and the human relationships established over multiple generations of ownership.

The most successful multi-generational property owners establish a property succession plan to address both the “human” and “property” level dynamics for today, tomorrow and over time. The establishment of an actionable succession plan allows the current owner and their family to re-discover the property in the context of current and future market cycles and plan for change. This plan is oriented around some of the following key questions from both a “property” and “human” level.

  • “Property” Level Dynamics – Today, Tomorrow, and Over-Time
    • What are the short and long-term goals with this asset?
    • What are the current and impending risks and opportunities associated with this property – Tenant, Debt, Tax Implications, Operations, Rehab, Redevelopment, Restrictions, etc.?
    • What are areas of operational and value enhancement that owners needs to start planning for today
    • What does the current market look like for this property and how is this anticipated to change in the future?
    • Is technology going to have an impact on the future viability of this asset? If so, how?
  • “Human” Level  Dynamics – Today, Tomorrow, and Over Time
    • What does the current and future organizational chart and decision making tree look like for this property – Investment, Management, Ownership?
    • What does the make-up of the next generation of owners look like as it relates to estate planning – Trustees, Beneficiaries, etc.?
    • What are the interests, skills, conflicts and emotional states of the next generation of property owners?
    • What roles and responsibilities do I need to consider filling now to ensure a smooth transition over time?

We are excited to announce our newest case study series co-hosted by Inheriting Wisdom and Lineage Asset Advisors entitled The Legacy Properties Series: The Value, Significance and Inherent Obstacles for Multi-Generational Owners. Please stand by for more information on the second part of our series which delves into the storied history of some of the most unique properties and owners in Southern California.