A Seismic Generational Shift Is Afoot Among New York's Real Estate Stalwarts
Major shake-ups in the C-suites of some of the biggest real estate firms in New York are reshaping the leadership landscape across the city as the industry grapples with a prolonged downturn and how best to prepare itself for the next chapter.
Commercial real estate is being buffeted by slow sales, soaring interest rates and recession fears. Plus, there are now wider existential questions about how workers will use the office long-term and what that will mean for the value of the buildings upon which many New York real estate dynasties built their empires.
It is setting the scene for something of a regime change across the city’s most influential real estate companies, real estate insiders told Bisnow.
“The world has changed so dramatically. Bringing some fresh perspective is helpful,” said Scott Rechler, the CEO of one of the city's most prominent developers, RXR Realty. “During big moments of change like this, people tend to take a step back and think more carefully about the future.”
Certainly, this past month has brought a significant changing of the guard at three of the city’s biggest property owners. Silverstein Properties replaced its CEO in late October, on the same day Rudin Management CEO Bill Rudin announced he was passing control of the company to the fourth generation of the family.
A few weeks earlier, SL Green announced that it would not renew the contract of its longtime president, Andrew Mathias, ending his tenure at the end of this year, although he will still serve as a consultant going forward. Each company has its own unique set of circumstances, sources said, but there is no doubt succession planning has taken a more urgent tone as real estate firms shore themselves up for this next economic chapter.
“It was big. We all noticed,” Hunton Andrews Kurth Global Real Estate Practice co-Chair Laurie Grasso said of the spate of leadership announcements. “Transfer of leadership in difficult times gives you the chance to show your strengths in a difficult real estate market and an upward real estate market.”
Silverstein Properties replaced CEO Marty Burger with Lisa Silverstein, the daughter of the company’s chairman and founder, Larry Silverstein. In a statement on the day of the announcement, a spokesperson for Silverstein told Bisnow in an email that the company was “sharpening its focus on its core businesses."
Burger, who became CEO in 2014 and secured billions in financing for some of the firm's signature projects, such as 3 World Trade Center and the Four Seasons New York Downtown, expanded the workforce at the company significantly and oversaw its expansion into new markets such as Philadelphia and Los Angeles.
Largely seen as a deal-maker by the industry, Burger and the family had reportedly had different visions for the best future of the company. While Burger wanted to continue pushing for deals, others wanted to focus on the assets and developments the company already owns, The Wall Street Journal reported last month.
Burger said in a statement after Lisa Silverstein's appointment that working at the company for 14 years had been an honor and he was “eager to pursue some exciting new opportunities.” He declined to be interviewed for this story. A Silverstein spokesperson didn't respond to a request for further comment.
While Silverstein consolidated leadership within the family, Rudin's succession brought in a nonfamily member to the company president role for the first time with the appointment of Neil Gupta. Samantha Rudin Earls, 39, and Michael Rudin, 38, the children of CEO Bill Rudin, will take over as co-CEOs in January.
“I've always had this [vision], once my children decided they wanted to be in the business, and they've proven themselves to want to take on this responsibility,” Bill Rudin said in an interview with Bisnow last month. “That distinguishes us from other family businesses, where the transition is not as smooth.”
The Rudins declined to talk further about the changes.
New York City's largest office landlord, SL Green, announced on Oct. 10 that it declined to renew Mathias' contract. Mathias — who made $12M in 2022, The Real Deal reported — had been with the company for more than 25 years and had served as president for the last 17.
While he will still serve on the board of directors and as a consultant to CEO Marc Holliday, his new contract pays him $100K a year.
“Andrew is a partner and a friend, and I'm happy that he will continue in his role as a director of the company and as an adviser to me,” Holliday said on the company's Oct. 19 earnings call. “Andrew will undoubtedly have the opportunity to move on to other things, and we will have the opportunity to bring up some of the younger talent we've been mentoring to assume positions of leadership as we're ready for incredible opportunities that will be before us in the new year."
Press representatives for SL Green didn't respond to a request for further comment.
Ric Clark has experienced this type of turnover himself.
Today the managing partner at WatermanClark, he spent three decades at Brookfield Properties, including years as CEO and chairman. He passed his global CEO duties over to Brian Kingston in 2015 and stepped back from his daily duties in early 2020 when Ben Brown, who had been running Brookfield's operations in New York City and Boston since 2018 and who is in his mid-30s, stepped into the role.
“Typically these things are in the works for years, and succession is something on the radar of the board,” Clark said in an email. “There’s usually a plan in place. Someone is identified and groomed in advance for the role.”
But not always, said D.J. Schepker, an associate professor and research director at the Center for Executive Succession at the University of South Carolina Darla Moore School of Business. He said in publicly traded companies, many boards accept the need for appropriate succession planning but fail to make appropriate arrangements.
“The cost of executive turnover is significant,” he said. “In publicly traded corporations, single turnover events of CEOs can sway stock prices significantly and cause companies to lose millions in market capitalization.”
Succession planning can take years, he said, and errors of judgment are enormously costly. His research indicates it takes an average of 18 months for a board to even establish if it has made a poor appointment to a C-suite position.
“It is incredibly sensitive, and it's why it requires deft leadership from the board of directors,” he said, adding that CEOs are often deeply entrenched in their roles, with an enormous sense of self and identity attached to their position. “World-class CEOs will initiate that conversation early. … Any successful organization, at some point in its life, will have to have a leadership transition.”
It is an issue that has plagued several companies in real estate for some years. At Vornado, there are regular questions about the succession planning for Chairman and CEO Steve Roth, who is now in his early 80s.
For years, Michael Fascitelli, who was made CEO in 2009, was set to take over, but he left the firm suddenly in 2013, The Wall Street Journal reported. Roth, who had heart surgery in 2017, hasn't revealed details but said on an earnings call in 2018 that a succession plan is “in place.”
“I’m clearly not going to go forever,” Roth said at the time, according to the WSJ. “I’m clearly on the back nine. I may be on the back half of the back nine.”
Publicly traded firms often underinvest in succession planning relative to the more immediate demands, said Sam Chandan, director of New York University’s Chen Institute for Global Real Estate Finance.
“In any given year, between 10 and 20 percent of public firms in the United States see a transition in the CEO,” he said in an email. “In perhaps half of these cases, survey data shows that boards are starting from scratch in identifying candidates for the role. That can lead to disruptions in the continuity of business strategy and execution.”
In New York, recent leadership transitions are bringing the median age of the city's biggest real estate owners down significantly. The new Rudin CEOs are younger than 40. Laura Hines-Pierce, who was promoted to co-CEO of Hines last year, was 38 at the time of the appointment and thought to be one of the youngest CEOs leading a real estate company.
“It’s not for the faint of heart to work on succession planning,” said Grasso, who said she has spent several years putting together plans with clients. “You have to make sure everyone in the organization, everyone up and down the chain, is comfortable.”
Of course, the city is grappling with a slew of business challenges. Academics at New York University and Columbia University estimate that the value of office buildings in New York City could decline by as much as 60% by 2029. Office availability is elevated at 17.8%, and the investment sales market is on pace for the slowest year since 2009.
Rechler said many firms have been adapting their approach to the real estate business, which means adapting the plans for the future. Times like these are good times to bring in new talent with different skills and perspectives, he said. He joined the business in the 1990s, in the middle of the savings and loans crisis, he noted.
“Whenever I speak to young professionals, I say, ‘This is your moment’ by going into the business in the midst of a major paradigm shift,” he said.
When it comes to succession planning, he said RXR has an emergency plan in place, as well as long-term plans that are more dynamic.
“As we've expanded nationally and expanded our product offerings, we are trying to think about a series of potential successors of our business lines, not just one successor,” Rechler said. “We at RXR are in the midst of going through our pandemic pivot. … If you're going to pivot, you can't just pivot with the same people doing the same thing.”