The Real Estate Investment Trust (REIT) industry is at an inflection point. As macroeconomic challenges—from interest rate volatility to rising operational costs— reshape the commercial real estate landscape, the importance of having the right leaders in the right roles for your organization has never been greater. With CEO transitions in REITs expected to accelerate over the next five years, boards face a critical decision: When does it make sense to promote from within versus hiring externally?
This question is not unique to REITs. Recent high-profile CEO transitions at Starbucks, Nike, Ross Stores, and Estée Lauder reveal broader trends across corporate America. Boards are increasingly grappling with balancing continuity and fresh perspectives, particularly during periods of economic uncertainty.
A Generational Shift in REIT Leadership
The REIT sector is entering a new era of leadership transitions. Historically, the industry has seen an average of seven CEO successions annually (2013–2022). This number rose to nine in 2023 and twelve in 2024, likely reflecting evolving market dynamics, increasing activist involvement1, and an aging leadership cohort. The average REIT CEO is 60, with typical retirement occurring at age 64. This wave of anticipated transitions underscores the need for strong succession pipelines.
Moreover, the data show clear patterns in how REITs select successors. Internal candidates remain the preferred choice, with CFOs and COOs increasingly ascending to the CEO role:
- Over the past 10 years, 32% of CEO successions were previously CFOs, and 31% were COOs.
- Over the last three years, those figures have risen to 43% and 35%, respectively, often accompanied by the "President" title.
- Nearly 84% of CEO successors since 2014 have come from a real estate background, underscoring the value of industry-specific expertise.
Boards that recruit externally are increasingly prioritizing leadership experience, with 50% of all external CEO hires in the past two years having prior experience as a CEO. This trend reflects a clear preference for candidates who can quickly adapt and perform in high-stakes leadership roles.
Two notable examples from the REIT sector include AvalonBay (AVB) and Macerich (MAC) – both searches that Ferguson Partners conducted. Ben Schall's move to AvalonBay, following nearly six successful years leading Seritage Growth Properties, showcased his ability to reposition the portfolio and drive operational excellence in the real estate industry at large, despite not having direct experience in the multi-family real estate sector. In contrast, Jackson Hsieh's appointment as CEO of Macerich aligned closely with MAC’s requirement to stabilize the portfolio, increase liquidity, and subsequently deploy future capital. Both leadership transitions highlight the value of seasoned CEO-level leadership and stakeholder management experience.
Insider vs. Outsider: The Leadership Dilemma
The insider-outsider decision is one of the most consequential choices a board will make during a succession event. Our research across the REIT industry reveals key insights and trends related to the insider-outsider dynamic:
1. Turnaround Scenarios Favor Outsiders – when there are no qualified insiders: External hires are often brought in to navigate strategic pivots or address However, the learning curve can be steep. Our research shows that 68% of externally hired CEOs underperform market indices in their first year, although 67% outperform by year three as they stabilize the business and execute their strategies.
2. High-Performing Companies Favor Insiders: For companies with strong operational performance, continuity is Insider CEOs, particularly those with CFO or COO experience, bring institutional knowledge and a deep understanding of the company's culture and operations.
3. Proactive Succession Planning Pays Off: Over the past two years, 70% of CEO transitions have occurred as part of planned succession events, aligning with the consistent trend observed over the past decade. This highlights the effectiveness of proactive succession planning to ensure smooth leadership transitions and minimize disruptions to critical business operations and strategic initiatives.
While these are the trends in our data, 2024 saw two examples in Corporate America, at Estée Lauder and Ross Stores, which highlight alternative approaches, and one at Starbucks which follows the trends observed in our data.
Estée Lauder chose long-time insider Stéphane de La Faverie as its new CEO, signaling a preference for continuity and deep company knowledge during challenging times. In contrast, Ross Stores appointed Jim Conroy, an outsider from Boot Barn with a track record of turnaround and subsequent revenue growth, indicating a desire for fresh perspectives even amidst relative business health.
Meanwhile, Starbucks opted for an outsider with proven turnaround expertise, Brian Niccol, to steer their revitalization efforts, underscoring the trend of leveraging external leadership to drive significant transformation during pivotal moments.
Strategic Observations from the REIT Sector
The REIT industry's approach to leadership transitions offers lessons for boards in any sector:
- Prior Experience Matters: The trend toward hiring individuals with prior CEO experience reflects the high stakes of leadership and strategy in the real estate industry boards value candidates who can quickly adapt to the unique demands of REITs, including capital markets expertise, stakeholder relations, and operational leadership.
- Industry-Specific Expertise is Critical: With nearly 84% of CEO successors since 2014 coming from real estate backgrounds, the REIT sector demonstrates the importance of real estate This contrasts with some sectors, where hiring from adjacent industries is more common.
- Internal Pipelines Drive Stability: The increasing preference for CFOs and COOs as CEO successors underscores the importance of cultivating internal talent. These roles are often steppingstones to the top, making leadership development at all levels critical.
Given the trend of CFO progression to CEO, our research also explored succession at the CFO level. Stay tuned for a forthcoming article where we'll dive into the critical topic of REIT CFO succession, sharing key insights and strategies to navigate this vital leadership transition. Given that many CEOs were previously CFOs, understanding CFO succession is not just about financial leadership but also about cultivating the next generation of strategic leaders.
Actionable Insights for Boards
To navigate the leadership transitions on the horizon, REIT boards must adopt a deliberate, data-driven approach to succession planning. Key recommendations include:
- Invest in Leadership Development: Build a strong pipeline of candidates for CFO, COO, and other key roles in addition to CEO. Providing these leaders with rotational assignments, mentorship, and exposure to capital markets will prepare them for broader responsibilities. Boards should also consider annually engaging in a robust succession planning and talent management process for the senior leadership team. It is essential for boards to move beyond reviewing slides and engage in meaningful discussions in the boardroom around critical questions such as:
- Who is ready today?
- Who would be our emergency successor internally, and who might we consider externally?
- Who is ready 1-3 years out?
- What skills are we lacking today that need to be filled?
- Emphasize Continuity Where Possible: Promoting from within offers stability and continuity, especially in companies performing well. Boards should evaluate the readiness of internal candidates, address skill gaps through targeted development, and maintain a focus on retention of high-potential leaders in the succession pipeline. This may include a regular review and re-calibration on compensation to support retention.
- Prioritize Experience in External Hires: For turnaround scenarios or strategic reinventions, external hires with prior CEO or CFO experience are increasingly valuable. Leaders with strong capital markets expertise and intimate knowledge of the REIT investor community are crucial. However, boards must align on timelines and provide these leaders with the runway to succeed.
- Communicate Clearly and Consistently: Leadership transitions can create uncertainty for employees, investors, and other stakeholders. Boards should prioritize transparency and alignment to maintain trust and confidence throughout the process.
- Measure and Adapt: Succession planning is not a one-time exercise. Regularly review and update plans to reflect evolving business needs and leadership capabilities.
The Future of Leadership in REITs
Succession planning is no longer just a governance responsibility—it is a strategic imperative. With the pace of transitions accelerating and the stakes higher than ever, the REIT industry has an opportunity to set a gold standard for leadership continuity.
By investing in proactive planning, prioritizing industry expertise, and embracing a balanced approach to insider and outsider hires, REIT boards can ensure their companies are poised for success in an ever-changing landscape. For the REIT sector, the future of leadership will be defined by those who prepare for it today.
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1 https://www.law360.com/real-estate-authority/articles/2280746/reits-should-expect-more-shareholder-activism-in-25