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Many U.S. real estate investment trusts that began as family businesses are confronting the challenges posed by a shift to non-family governance, according to a new report by Moody’s Investors Service.

“The involvement of founding families in governing or running REITs is often a critical rating consideration,” says Constantine Nestoras, an associate analyst at Moody’s.

Rating agencies generally consider family leadership a plus for credit quality because those executives are more likely to maintain a long-term perspective reflected in conservative financial policies and decisions. But in recent years, some of those families have begun to consider investment options more broadly. Many have even taken their companies private rather than continue to work under the onerous demand of being public.

Much of that changing sentiment is generational, as second-generation family CEOs take over. Of 20 REITs Moody’s studied for its report, 15 have replaced founding CEOs during the last 10 years, usually with a professional manager rather than a family member. “Many leading U.S. REITs, however, remain under the control of a founder or founding family, despite the relatively high level of merger and acquisition activity, and ongoing stock issuance,” Nestoras says.

Whether families turn over the reins or simply lead the horse in a new direction, a divergence from long-term, conservative policy is bad news for investors. “This change in perspective is a negative for bondholders,” Nestoras says. “Selling out typically means higher leverage and an investor base with a short-term investment horizon; going private, even when the family remains involved, means higher leverage, less transparency, and less investment in core controls.”

In addition to the challenge of deciding founding families’ roles, U.S. REITs are confronting two additional governance challenges brought on by generational change. First, Moody’s observes that there has been only limited change in the composition of REITs’ boards in recent years. The Moody’s report suggests that REITs lure board members with fresh perspectives, more varied skills and more independence.

Second, REITs face broadening the governance changes they have already started, including improving management succession planning, control processes, and board and committee functioning. The report, “Three Critical Governance and Ownership Challenges for REITs,” was published Oct. 24 and is available from Moody’s.