The real estate market continues to amaze – record prices per square foot and a flurry of activity have Montreal in a continued selling frenzy. For families that have held real estate for decades, through 2 and 3 (or more) generations, this activity has them seeing dollar signs like never before. Older buildings with marginal profitability due to long-standing tenants and old leases are receiving offers that are too good to be true, especially when they look at the minimal cash flow being thrown off as these older buildings require significant capital investment to upgrade buildings and attract higher paying tenants – many are caught in a circle that requires them to spend cash on older buildings to make cash.
Montreal’s business community and much of its wealth was built on investment in real estate – commercial, industrial and residential. But three generations later, many are deciding its time to take the cash and run. And who can blame them, building wealth for their families means diversifying risk and investment vehicles – so much cash is tied up in the Montreal real estate market that their portfolios are unbalanced
However, for many families that have passed buildings down through the years, many thru Estates of the original building owner, we are seeing how “smaller buildings” that we very loosely run as proverbial “mom and pop shops” are now multimillion dollar investments – and have been treated, throughout the years like informal, small multigenerational businesses.
The result? Share registries are not updated, shares of corporately owned buildings still in the hands of deceased owners, or unsettled Estates, loose management & shareholder agreements between original investors who were friends, but now see generational succession passing title to children, and then on to grandchildren. A simple, original two-owner building now can have twelve or more owners (grandchildren) without proper documentation, minute books, shareholder registers, agreements to sell, unique side agreements between partners and much more – this can either slow the eventual sale of a building or line the pockets of professionals as last minute updates, modifications and negotiations internally between twelve or more shareholders can put a potential payday in jeopardy.
Hence, those families with real estate that has been handed down thru death and family Estates should look to update, “paper” and put their proverbial houses in order BEFORE they entertain an offer. You would not want to risk losing a huge financial windfall due to shoddy paperwork, undocumented shareholder arrangements or just pure sloppiness, would you?
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Do you have additional questions about transitioning a business to a family member, family business governance and succession planning? Please do not hesitate to contact our team.