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An Industry Redefines Its Leadership
By Anthony J. LoPinto
May 7, 2002
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There are major changes coming in the types of executives that real estate firms are recruiting. These changes will be seen throughout the organization, from the executive suite to the operating units. These changes will bring unique opportunities and challenges to an industry that needs to expand and reinforce its management bench strength.
It is re ported that Equity Office Properties has retained Heidrick & Struggles, a multi-industry executive search firm, to recruit its new CEO. What is interesting is that both Heidrick and Russell Reynolds, its competitor for the EOP work, led their pitches with senior members of their financial services practices instead of their real estate team.
Why? Because Sam Zell and the board are reportedly interested in attempting to recruit non-real estate executives. This is on the heels of EOP's search for a CFO that has been focused on non-real estate financial executives. EOP is now in the S&P 500 and is therefore among the first REITs to try to diversify its executive team with professionals from outside the sector. As a major public company they need people with extensive corporate and public market experience, a talent that is rare in the real estate world. Most of today's REIT executives have not built their careers in the public markets.
The EOP story is only a reflection of a larger shift that is going on among the larger public real estate companies. Even larger private firms face some of the same pressures. Whereas once these businesses could finance their activities internally, or with the support of a single, long-term financial partner, many of them now have raised, or are trying to raise, substantial funds from third party investors. These outsiders expect the same level of professional management and communications that they get in relation to their other investments.
Changes in the type of talent required to run a real estate firm can be seen at the operational level as well. Our firm recently managed a search for a senior property-management executive for an international owner/developer. While operational skills were still important, they were also looking for exceptionally strong financial skills, with a strong footing in asset management. Most important, they were looking for someone who could be part of the company's succession plan.
However, there is a significant exposure associated with reaching out to new sources of talent. Real estate is a specialized industry, a hard -asset business that requires a base of knowledge, perspective and practical experience that underpins the process of management at all levels. Executives without this in their backgrounds must be able to draw on talent from below to leverage their management and strategic skills.
Equally important is the personality of the existing team and its willingness to support the changes that are sure to come from a new executive who is hired to "change the game." To complement this, the newcomers must have exceptionally strong, well-honed and flexible management skills and an openness to listen to the voices of experience while not becoming hostage to them. Otherwise, the effort to bring in new management skills will result in poorer performance, departures of critical talent and, in all likelihood, a decision to revert to traditional models of real estate leadership. We are all going to watch the EOP story unfold and hope that the results support the growing need to recruit, develop and retain better and more professional management for the emerging global real estate business.
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