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Spencer Levy
As the baby boomer generation retires, the impact is being felt across the labor force and economy. While our show often looks at the macro view of such trends, on this episode we're speaking with the leaders of two privately run firms that have on-the-ground experience at this crossroads. They offer lessons about business decisions, location strategies, partnerships, challenges, and unique opportunities they're discovering through the process of succession planning and passing the torch.
Spencer Levy
This episode was recorded at an event put on by the Detroit chapter of the ICSC, where I recently led a panel discussion called “Legacy of Leadership”. It features the heads of two iconic real estate families that have been operating out of Michigan across generations: the Schostak family, which has been doing business out of Livonia for 100 years, and the Friedmans of Farmington Hills, whose business dates back to the 1980s.
Spencer Levy
We're going to skip the formal introductions – we'll cover all that shortly – and forgo our usual teases so we can jump right in. Coming up, the business of commercial real estate legacies. I'm Spencer Levy, and that's right now on The Weekly Take.
[audience applause]
Spencer Levy
Welcome to The Weekly Take, live. We are joined by two terrific families, long standing pillars of the community, starting with the Schostaks. So I'm just gonna go right down the line and ask you, who are you and what do you do? So David Schostak, CEO of Schostak Brothers & Company, who are and what do you do?
Davis Schostak
I'm David Schostak. I am, as you said, the CEO of Schostak Brothers. I am the third-generation of our fourth-generation family business, and I work for Jeff.
Spencer Levy
Jeff, what do you do?
Jeff Schostak
Yeah, he's been using that joke for 15 years. Gets a laugh every time, it's a good one. I'm Jeff Schostak. As President. I oversee our development and acquisitions. And as David mentioned, I was the first of the fourth-generation to join the family business.
Spencer Levy
Very good. And David Friedman?
David Friedman
My name is David Friedman. I'm the founder, visionary, and co-CEO of Friedman Real Estate Group, second-generation. And I work for Jared
Spencer Levy
And Jared?
Jared Friedman
I am Jared Friedman. I am the co-CEO of Friedman Real Estate. And basically I do all this stuff that my dad doesn't want to do.
Spencer Levy
And there it is, and that's what we're talking about here today. We're talking about from one generation to the next, not just the what or the why but the how. So let's start with you, David Schostak. Fourth-generation business, hundred years into business, what's going on in terms of the transition? Why are you doing it? How are you doing it?
Davis Schostak
So we're in the process of making a transition from the third-generation, which is my brothers and I, one of which is Jeff's father. So Jeff is my uncle. We transitioned with our father, I don't know whether it was probably 30 years ago now. He's since long been passed. And I think what we believe strongly in the Schostak family is that it's the next generation's turn. You can't control from the grave, and if you want to have succession, you've got to give the next generation the opportunity and the authority and the power to proceed in a direction that they want to do. So what we're in the process of doing now gets a little bit more complicated, since now we're dealing with cousins and not siblings anymore, but plan out a governance structure for the cousins and how they want to run the business, how they wanna make decisions, and what businesses they wanna be in. And we want all that to be their decisions, not ours. We're here as the third-generation sort of on our way out to lead them a platform for them to do as they please. They have their job cut out for them because unlike the last generation, not all of the cousins are in the business. There's nine cousins and three of them are in business. Jeff's been here the longest, but Jeff and his cousins Jake and Josh are the cousins committee that are gonna run the business and going into the next generation. And we are on a 12 to 24 month process to formally make that transition. Not that the uncles and the fathers are going away. But that it's their turn and their opportunity.
Spencer Levy
David Friedman, what's going on with your company? Same questions. What? Why? And how?
David Friedman
So I'm teeing things up for the second-generation. Our business is about 37 years old. It's not 100 years old like the Schostaks. And so I've got three boys. All of them are working within the company. And so we're setting up a very similar board of governance in a transition from me to them to be able to take our legacy and to build it and grow it probably three times greater than what I was able to do. So I've had a lot of discussions with David Schostak. He’s been kind enough to help me through this process, and with other people. And it's challenging, but for me, I've spent 37 years working at my company, and longer than that in the business, and it is time for us to pass it on and hopefully we can continue the legacy and have a fourth-generation. So that's what we've been doing.
Spencer Levy
Great. So before we get into some of the technical things you've done to make this process smoother, more accurate, let's start with you, Jeff Schostak. Fourth-generation, been in the business now with your family for 15 plus or minus years. How's it going?
Jeff Schostak
I mean, it's going great. Kind of like my uncle talked about, G3, generation-3, my dad and uncle about 20 years ago really started planning ahead for the fourth-generation. So there was a lot of procedures and things in place that made it easier for us to kind of navigate as we joined the business, one of which was working away for a period of time and things of that nature. And so we've been able to work really well together for the last 15 years. And I think a lot of that is just due to all the planning that my dad and uncles went into, realizing that we're now a cousin generation with working members and non-working members, and it's really helped us be successful in the fourth-generation so far.
Spencer Levy
And Jared, same question to you. How’s it going?
Jared Friedman
It's a process and it's a journey, right? And unlike the Schostaks, when I first joined the business eight years ago, succession wasn't really thought of, right? I had one brother in the business at the time. I came back and, at the time, it was just my dad's company. He was the board, he was the decision maker. So a lot of these succession planning things didn't really have to be thought about. So the first two years was definitely a struggle. It's kind of like those insurance commercials. You don't realize you're exactly like your parents until you start working with them every day. And then you realize your two type A aggressive personalities sometimes don't mix. But we got in the groove and we got into gel and we really found our space and how to work together. And since then, it's been going fantastic. Not only do I have one brother who was in the business when I started. We had another brother, his twin actually joined us two weeks ago. So now there's four family members working within the business. So, it's going great. There's up days, there's down days, and there's a lot of learning experiences that go along the way. But overall, it's a fantastic experience to work with your family and really transition from one generation to the next, and create a structure that is sustainable for everyone going forward.
Spencer Levy
Let's now talk about the how. And so David Schostak, you went through a real process here. I know you went to a school to get some lessons and some consulting. Tell us about it, because this is not just, this seems like a good idea, let’s do it. There was a real process here. Tell us about it.
Davis Schostak
I think if you wanna be successful in a family business, my brother coined a phrase, I’m sure we probably read it somewhere from some of the research that we did, but you gotta spend as much time working on the business as you do in the business. It's just not gonna happen automatically. Like Jared said, it's a new experience in working with your father or your uncle or siblings and whatnot. And you've got to spend the time, make the effort. You've got to understand that you're going to have to do it by consensus and not by what you necessarily want to do all the time. And there is a roadmap for doing it. We've gotten involved in a lot of family business organizations. The three of us, probably 20 years ago now, like Jeff said, we went to Northwestern University at the Kellogg Center there, and had an intensive week of just issues as relates to family business. How do you set up a board? Is it a fiduciary board? Is it a board of family advisors? Who sits on that board? What decisions do they make? At what point do you turn things over? At what point do you turn things like the equity in the business over versus the decision making in the business? And it's all complicated. There's no right or wrong way. But I can tell you that it just doesn't happen without a lot of effort. So you've really got to put your mind to it, and I go back to the phrase that I started this with is, if you're interested in doing it, be prepared to make sacrifices and be prepared to work as hard on the business as you do in the business.
Spencer Levy
So David Friedman, same question but I'm gonna follow up on a comment that David Schostak made about the way he runs the company, and he used the term board of directors, advisors. Sounds to me like a quasi-public company approach. So comment on both the how, the process you're following, but also how do you feel about being in a private family business versus a public company, and are there lessons to be learned in both?
David Friedman
So, you know, I, too, was able… I spoke to David Schostak. We had a bunch of meetings, and I also hired a consultant to help me with the Board of Directors and Board of Governance. And I think it's really important that you have that, so there's definitely a line, a difference, between family and running a company. And I think educating your kids, too. And having them realize what they have and how they have to vote and how they have to get along, and outside directors is really important. We actually called it the hit by the bus program. So if something happened to me, what would happen with the company, because I was the sole owner of the company. And I think that it's evolved, it's worked, and I think everybody understands the value and understands the role process. So the question really was, what is the difference between a private and a public company? I would say that a public company is probably working quarter by quarter on earnings, and they have to make decisions for stock prices and different things, for EBITDA to report to their investors. You know, we own the company entirely. We are gonna make decisions that are for the benefit of the community, of our family, and of our clients, and we're gonna focus on relationships and long-term planning. So we don't report earnings daily or quarterly. Yearly, we do, and we talk about those things, but we have a long-term perspective, we wanna do the right things, we're very Michigan-orientated, and so because of that, we have to handle certain relationships in a certain way. And so I think it's a little bit different being a private company versus a public company.
Spencer Levy
So let's now talk to the next generation, and Jeff…. second-generation. And let's get right to what is considered to be a challenging issue. The challenging issue is as the family tree gets bigger, there's more of you in that second-generation. There's you and your other relatives. How do you deal with that? How do you divide up responsibilities? How do you divide up who is a leader, who is on the board? Walk me through that.
Jeff Schostak
Yeah, no, it's a good question. I mean, you kind of nailed it with what you said, which we try to do really well, is divide up responsibilities. And so we're not constantly at the same meetings doing the same things. Like, David and I are very rarely in the same meeting, and it's been like that for a long time. When I first started, obviously, there was a lot of that. But we realized that we needed to kind of divide. So then you take now me, my cousin Josh, who's in the crowd here somewhere, then my other cousin Jake, because we really want it set up that everyone kind of has their own niche or area of the business that they're focused on, whether it's acquisitions of a certain asset class, or its development, or its more operations. Whatever it might be. But we wanted to set it up that we're not kind of stepping on each other's toes, that we're each finding our own areas that we can profitably grow the business without getting in each other's way. And we all get along great, so obviously that's a big help. We're very close, even though we're cousin generation, not siblings. But I think the biggest key that was kind of ingrained into us that we've been working on as G4 is really finding our own path and working together when we can to help each other and be partners on everything, but not be too much doing the same.
Spencer Levy
So Jared, same question, and I'm going to put a finer point on this. I think it's fair to say that this is a success story here, that you're all sitting here talking through these issues. But I know of many family businesses that are not this story. I know of many family businesses, particularly when they get down multiple generations where, particularly when you're dealing with an active participant in the business versus a passive person that may be an equity holder in the business, there could be disputes. And again, I'm not suggesting there's disputes here, but there can and probably will be. How do you deal with this issue of having multiple folks involved? And what's your dispute resolution mechanism?
Jared Friedman
Yeah, you bring up a really good point. And I think the statistics show that 70% of second-generation businesses fail and 90% never make it to the third. So the odds in theory to your point, Spencer, are stacked against you from making it work, right? And it is very hard. And another thing that David said too, that I picked up on is, working in a family business is about sacrifices. Look, it's the greatest opportunity in the world. We're all blessed. You know, Jeff and I are blessed to have that opportunity. But it doesn't come without its challenges and you definitely have to make sacrifices. And I think really understanding that it's not your business, right? You're an owner in the business, you are part of the business, it's your family business, but it's your business. It's your family's business. And so you really have to understand that from that perspective. And I think my dad, David, has done a really good job of setting up some checks and balances to make sure that we're not making decisions, right? I don't wanna have to sit down with my brothers over a meal and fight over certain decisions or fight over compensation issues or fight over things like that. So really making sure you have the right advisors, whether it's a board of governors that helps you make decisions on major items. Whether it is having people within the business, right, that can help be that voice and that sounding board to make decisions. You know, at Friedman we're really lucky that we have a ton of team members that have been with us for 20, 30 plus years at this point. And so having those different resources within the organization to help guide, mentor, and kind of help the family make decisions is really important, too. So there's probably no one perfect recipe, but I think you know having some different checks and balances, some protocols, some procedures, some outside advisors helping you with certain decision levels is really important. But at the end of the day, you’ve got to make sacrifices and you’ve got to get along with your family members, because they're going to be there whether you like it or not, and so you really got to operate as a unit.
Spencer Levy
So let's talk about one specific thing. What do you do when there's a new investment opportunity that comes into the office? Do you have an investment committee? Is it a decision of one?
Jared Friedman
Yeah, when a deal comes in the door, really making a decision on it, we try to be as collaborative as possible, right? We try to get input from all the family members, but also, as I mentioned earlier, a lot of the team members that have experience, right? The president of our organization, Scott Shefman, has been with us for over 25 years. He's a key asset. You know, really helpful in making decisions. Our director of acquisitions has been with us over 15 years, so he's really helpful in helping make those decisions. So it's very much a committee, sounding board. But as of right now, as my dad mentioned, David, he is the final say on go or no go with deals, right? We do have a plan, it's called a hit by the bus plan, as you alluded to earlier, that in the event he's not around, those types of decisions will go to a board of directors that'll make those type decisions. So we have the governing protocol in place, but because he's the first-generation, he's still a voting member of one for the time being.
Spencer Levy
That's the investment committee. So David Schostak, we were talking in the green room about where the market is right now. And I think it's fair to say it's been a little choppy the last couple of days. And as we tape this on April the 10th here in Novi, Michigan. But your company's been around 100 years. And you've seen thick and thin. You've seen the global financial crisis. You've seen cycles. How do you keep a company going through thick and thin, through cycles?
Davis Schostak
Patience and liquidity, I guess is the best way to put it. Yeah, I think that my father used to have an expression, a good shaking out in the economy is a good thing as long as you're not the person getting shook. And I think any of us that have been in this business long enough have been shook before. And with that comes a new experience and a new decision making. And one of the things we say around the office just about every day is, we try to make a new mistake every day. We just don't want to repeat the old mistakes. And so when times get difficult, you've got to draw upon your experience, and you've got to think where there's opportunities. The Friedman family, in particular, have been brilliant at seizing opportunities in difficult times, particularly in the office building arena, but in other asset classes, as well. So there's always opportunities out there, and you’ve got to find them, and you’ve got to be in a position where you can execute on them, even when it is that times are difficult. And sometimes it's unexpected, and sometimes it is out of your control. Obviously, you know, the tariff situation now and the financial markets are in roil and you know, what kind of impact does that have on real estate business? You know, I don't think any of us know yet. I think it's a little early in this whole process to make a decision. Is capital going to exit? Are the banks going to withdraw their support and what's going to go on in those areas? But I just think as a general statement, you just got to keep your eyes open in difficult times and weather the storm when you've got assets that have issues. But at the same time, look for opportunities.
Spencer Levy
So David Friedman, same question but I'm going to follow up on what was just said by David Schostak. He used two words: patience and liquidity. And I'm gonna ask you the same question, how do you keep a company moving through thick and thin? But I'm also, since you are the first-generation of your company, how do you get going? How do you create this new enterprise? Specifically, where's your capital coming from? Is it all your own? Do you have institutions? Do you have high-net-worths? And how does that play into the decision of how to thrive through thick and thin?
David Friedman
Yeah, so when I first got in the business, it was just me. And it was before the S&L crisis in 1987. So very quickly during the S&L crisis, I learned that things happen pretty bad. And so we were able to take advantage of that. I had a partner that was 12 years older than me that was able to help me. He was older. He had a lot of wisdom. He was able to help me navigate through that. So to answer the question is a combination of a lot of things. Initially, it was our capital and then we started syndicating some deals and with some outside capitals and partners. So, you get money from all different things. You try not to use all your liquidity. You're the operator. You bring in the deal. There's value that you're creating, and there's always institutions that will team up with you. And the more experienced the longer you've been in the business the easier it is to get that, and so when things get tough, we're pretty nimble of a corporation. We're big but we're nimble. We have a lot of different things that we do. So, you know, when the brokerage business, we're in the construction business, the capital business, and the acquisition business. So we can see very quickly what's going on. During COVID, for instance, we realized the office market, in which we're a large holder of office buildings, was gonna probably be affected pretty rapidly and pretty bad, even though we didn't feel it because all the rents were coming in because there were big corporate tenants. But we made the decision to sell a bunch of buildings and thank God we did. And we moved, and then we started buying some stuff back. So we're a pretty nimble company, and I think we're in tune to the market, especially here in the Midwest. And we move pretty quick, and we think things through. So, we use a lot of outside cap, a lot of JV partners, and that's how we do it.
Spencer Levy
Jeff Schostak, I've been fortunate on The Weekly Take to have many successful second-generation companies. And one of the things I've noticed about many of these companies is that the new leadership makes changes. David Schostak, we're dealing now with a company of multiple generations, lots of challenges in a marketplace macro, but you've got your core day-to-day business. And so we heard from David Friedman talking about the various sub-companies he has within the umbrella. He mentioned construction, he mentioned brokerage. I worked for a big developer in New York. We had a very similar structure of 10 different types of companies underneath one umbrella. But some people think, well, we should be the masters of one thing. We should be, necessarily, maybe we should outsource some of these things. How do you make the decisions on what to have under the umbrella versus farming it out to somebody else because you want to be the expert of what you do?
Davis Schostak
So we have evolved over time. Our business started off 100 years ago by my grandfather and his brothers and they were residential brokers. So obviously the business has evolved. Our father was a commercial broker and whatnot. And we've evolved to the point now where we don't do very little of any agency work. It's all for our own account. Every once in a while, they'll both get hired to do something. But we've concluded we wanna spend our time and our resources on working on deals that are strictly for our own account. But that being said, we have professional managers that come from professional organizations and REITs and whatnot, so that all the services we do provide are full service internally. So we do our own leasing, we do own management, we do outsource occasionally, we've outsourced some multifamily asset management and whatnot. But we've built up an expertise with people internally, because I think it was like Jared said. The family might have a vision, the family might have resources, the family might be entrepreneurial and risk takers, but someone's got to operate this real estate, and we have developed an internal staff that can do the full service of leasing and management and operations and acquisitions and financial analysis. The only difference between us and what the Friedman's have been very successful at is we strictly do it for our own account versus on an agency basis.
Spencer Levy
So same question to you, David Friedman. Go into a little bit more detail, if you wouldn't mind, by how you have structured the sub-companies under your company, whether it be construction, brokerage, management, or otherwise, and how do you make the decision of, maybe I'm gonna farm this out?
David Friedman
Yeah, so you know, over the years… I started as a brokerage company and then I started the property management company. And when I was doing office leasing years and years ago, one of the legends of office leasing was Mickey Nemer. And so Mickey Nemer used to do his own space planning, his construction, and management. So I kind of evolved into that with our product type, which was office, because office is pretty hands-off. So over the years, things have grew. The brokerage companies grew. The property management grew. We got into construction. And I find it very useful to be able to control everything and being very nimble and get things done quickly and effectively and efficiently. So we utilize that service. We offer it to a lot of relationships that we created over the years and it just blossomed. So it blossomed from Michigan to a lot of different parts of the U.S. And we were able to become the go-to for distressed assets because of the S&L crisis. I created those relationships when I was like 30 years old, like Jared's age, and evolved into…. You know, the S&Ls went away and special services came around, and all of a sudden all those guys that work for the banks worked for the special services and they were our friends. So I couldn't say no to the business and it was very helpful for us because it became…. We would know things, we would know about a building that's foreclosing before it foreclosed because we had asked to do a valuation of what the value was. So, it's been very helpful for us. It's a lot of work. It's not easy. It certainly would be nicer just to work on our projects ourselves, but we've created a name and a brand and relationships, so we're into that. That's evolved, and then Jared obviously created some new lines of businesses with our SF Capital, which was a natural tag on. And we're able to leverage all those resources and take advantage of that. So, it's been great and it's helpful for our company and our employees and our kids and stuff that work for us. So it has been good. If I were to just have to build buildings to make a profit and things were bad and I built a building, I could lose money… It keeps us out of trouble a little.
Spencer Levy
So the third party business, and Jared if you could just follow up on what David said, what is the new business you formed?
Jared Friedman
Yeah, so over the years, like the Schostaks, they've evolved and done a great job of doing it. So we have to continue to evolve, as well, in our business. So a couple of the businesses that we created, one of them was S&F Capital, which is a commercial and mortgage banking business, right? So we were managing properties, we were brokering properties, and so we brought on a team to help do financing of properties. And so we're always trying to provide services for the fully integrated approach. Now, one of the other things we've created recently here that you'll see an announcement on is we've created a new ground up construction business, as well, too, to tack on to our existing premier construction and design business. We’re bringing on a team later this year to help really fully integrate that process. So, always looking at new angles to try and provide better service to our clients because we really think that having a fully integrated platform and house to serve clients and help our relationships is really important.
Spencer Levy
So it's fair to say, and again, there's a lot of distinctions between the two companies, but the Schostak enterprise is primarily for your own accounts. The Friedman's is some for your account, but some for third parties. 50-50, how would you, David, put it? Or Jared?
Jared Friedman
It depends on the business line. But I'd say probably 70% of our business is probably for our key relationships and partners. And probably 30% of our business is for our own account. And a lot are our clients, our partners, our relationships that we've had for 30 years. So we're a family business. And we have family companies. And all of our relationships are family. So it's really one big…
David Friedman
Happy family.
Spencer Levy
There we go. I'm going to ask one wrap up question. These were terrific questions. I want to thank our audience. But the real question is this. You've all had very successful, extremely successful family enterprises. But I would say more than half this audience makes a choice. Do I do what you're doing? Or do I work for an enterprise? Do I go to a big corporation? Do I start my own? What advice would you give them to make that decision? And we'll go right down the line starting with Jared.
Jared Friedman
I think a lot of times in working in a business in which you own, you have to take on real responsibility, um, versus working for an enterprise. You have to want it, number one, but you’ve got to realize that it's a roller coaster. Everyone sees the good a lot of times. You know, everyone's like, Oh my God, it's amazing. It's the greatest thing ever. But there is a tremendous amount of hard work that goes into it. And there are a lot of ups and there's a tremendous number of downs, and it's the ability to roll through those downs and learn from those experiences and power through it. So it's a lot of hard work. It's not for everyone. There are days in which I'd rather say, hey, I can go home and clock in at nine and check out at five and be all set to go. But you gotta want it and you gotta want that responsibility and understand that it's a significant amount of work. So it's fun, but it's daunting. And I think I learned that a lot from my dad and just watching him, going to work with him. I mean, I even joke with people. I've been through most office buildings that I don't even remember because I went through when I was five years old going with him on Saturdays. So it's really something that you’ve got to want to do, and realize that it's a challenge and a journey, and not instant gratification.
Spencer Levy
And if I can add one word, which you didn't use, but I'm going to use it, it takes a little bit of courage, because when it's your own business, it's not just your money. It's your name on the door, and that's a difference. David?
David Friedman
Yeah, I would say that that's true. There's no question about it. But for me, I wanted to be in business. I was an entrepreneur. I had the desire, and I wanted to do it, but it's been very rewarding for me. Much more rewarding than I thought it would ever be. And today I look back, and it's 37 years later. Sure, I could retire and I can go sell to CBRE or maybe somebody else, but….
Spencer Levy
We're negotiating up here right now.
David Friedman
No, not at all. No shot. But for me, for me to pass it on to my children and help them navigate it and help them do something much more than I've ever done. You know, my father had Morris Friedman & Sons Plumbing and Heating. So now this is Friedman Real Estate Group. And so I think for me, it's a legacy. For me, it's our reputation. For me, it has been very rewarding. It's been very financially rewarding, and I hope to God that they can take it and do more so than I've ever done.
Spencer Levy
Just about out of time, so Jeff, David, final thoughts?
Jeff Schostak
I'll go quick. I guess I would say it's probably a little bit of both. Obviously, I was fortunate that the business was already started. But running a business, starting a business even more so, is obviously incredibly difficult and very hard. So I think your best bet is to work for someone first, learn. Maybe you end up partnering with them on certain deals or whatever it is, and you kind of have your quasi-owned business. But just, if you're going to do it, you better have that drive because it is 24-7, 365, never stops.
Spencer Levy
David Schostak, the final word.
Davis Schostak
Prepare for sleepless nights. It’s easier to go to work for somebody. It’s easier to be a part of corporate America and rise up the ranks of it. There's something very, very special about being part of a family business, but there is a lot of stress, a lot of pressure, and it isn't for the faint of heart.
Spencer Levy
So on behalf of The Weekly Take, let's hear it for our panel.
[audience applause]
Spencer Levy
Thanks to the Schostaks, the Friedmans, and all our friends at ICSC Detroit. And thank you for joining us. We'll have more from Detroit in a bonus mini-episode featuring questions from the live audience. They were very curious about strategies and ideas about the inner workings and dynamics of family businesses, but I think some of what they shared apply to any business, too. So look for that bonus episode later this week. There's also more on our website, CBRE.com/TheWeeklyTake. You can also subscribe, rate, and review the show there or wherever you listen. And of course, we encourage you to share it with your work family, not to mention your friends and relatives, as well. We'll be back next week. For now, I'm Spencer Levy. Be smart. Be safe. Be well.
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