Family-owned commercial property includes multifamily residential properties like duplexes or garden apartments, office buildings and retail spaces, as well as industrial or hospitality spaces such as hotels. These investments are often a significant source of wealth for extended families.
However, managing these investments can be difficult for families because decisions involve a larger pool of owners, requiring unanimity. It makes decision-making more complex and can strain relationships. For more information about the family owned commercial property development in Adelaide, click here.
Investing in Growth
Real estate returns tend to be higher than stocks, and families who are comfortable taking on more risk may find commercial real estate an attractive choice. However, this type of investment can come with its own unique set of risks.
Families can purchase individual properties, invest in private equity funds or REITs (real estate investment trusts) or invest in a property syndicate. The type of vehicle chosen depends on family preferences, including whether members want to participate directly in a development deal as co-general partners or are willing to take a passive role as limited partners. Additionally, families need to think about how these new investments will fold into their existing estate and trust planning.
Decision-Making
As with any real estate investment, family-owned property decision-making begins with evaluating various investment goals and the required risk-adjusted returns. A thorough due diligence program should also include a review of the market(s) and supply-and-demand trends, including the current and projected future occupancy rates.
Family business decision-making is typically more informal than that of an operating company. In family-owned commercial properties, this can result in an informal company structure with a lack of written policies and strategic long-term planning.
As the family grows and members move in and out of the ownership pool, dynamics change. It heightens the need for a long-term plan for financial support, governance, and usage that takes all of these changes into account.
It may also be beneficial to bring in a non-family manager to enhance the management expertise and capacity needed for advancing a growth strategy. A qualified attorney can help family owners evaluate and craft a structural holding to meet these needs best.
Governance
The interrelationship between family and business is complex in family-owned commercial property. The primary objective is for family members to invest their time and money in order to receive financial returns. For example, in the case of a family ranch or recreational property, the owners want to generate income by harvesting mineral rights and then sharing those proceeds with other family members.
The complexity heightens the need for a long-term plan for the management, preservation and transfer of ownership that balances the views and experience of current family members with those of future generations. For more information about the family owned commercial property development in Adelaide, click here.
Governance is the structure of processes that integrates business decisions with familial consensus, a key to maintaining family prosperity and unity across multiple generations. The process involves establishing a board of directors, family council and shareholder council that can guide the company’s strategic direction and facilitate ongoing productivity and harmony in the family. It also ensures that company knowledge is transmitted to future generations of family leadership and ownership.
Legal Issues
When a family owns property together, careful planning is required to ensure that all owners have a clear understanding of their roles and responsibilities. Failure to plan can create legal issues and cause strained relationships as ownership passes through generations.
The need for unanimity can result in lengthy discussions, which may impede decision-making. It can also lead to disputes over minor issues, such as who will walk the dog, or larger ones, such as whether to make significant capital improvements. For more information about the family owned commercial property development in Adelaide, click here.