In an industry still heavily dominated by its founding families — the Taubmans, Bucksbaums, Simons, etc. — succession planning can be a ticklish issue. Firms, especially private companies, have to transition to new leadership without alienating a layer of senior executives (and clients) who may have more experience than the new bosses.

To avoid unnecessary hardships, a common rule of thumb is that firms should think at least three years in advance when planning a leadership change, says Craig Rowley, vice president of the national retail practice at the Hay Group, a Philadelphia, Pa.-based consulting firm. But Youngstown, Ohio-based Cafaro Co., a 60-year-old firm with more than 34 million square feet of real estate in its portfolio, began prepping its third generation of leaders for much longer than three years — it got them in the business when they were just 10 years old.

Anthony Cafaro Jr., the 32-year-old vice president of real estate, leasing and construction and the youngest grandson of the firm's founder, William M. Cafaro, started accompanying his father to meetings with prospective tenants in the mid-1980s, as soon as he was deemed responsible enough to leave the house on his own. The plan, even then, was that Anthony, and his older brother William A., 37, vice president in charge of asset management and accounting, would eventually assume control of the enterprise. Today, the brothers are running the company's day-to-day operations, while their father, Anthony Sr., retains the CEO title.

The principals say there is unlikely to be an official announcement about the change in control since the company's succession process, according to Anthony Jr., is organic. Anthony Sr. continues to take an active part in the company's operations and offers his sons advice as they work to perfect the model which their grandfather founded the firm on.

First task: Paint the curb

But while he is happy to share his knowledge, Anthony Sr., never believed in giving his boys a free pass — they had to learn every aspect of the real estate business from the ground up. When each boy turned 12, their present was a job working on the maintenance crew at the company's sprawling Eastwood Mall complex in Niles, Ohio, where they swept the parking lot, painted the curbs and scrubbed the toilets. With all its components, today the center contains 3.1 million square feet of retail space, ranking it as the largest shopping complex in the United States, according to the ICSC,

“I do not believe that people can be successful if they do not understand the value of a dollar,” says Anthony Sr., who also started his real estate career as part of a traveling maintenance crew serving Cafaro's strip centers. “If everything was going to be given to my sons on a silver platter, they would not understand the responsibilities that have been placed upon them.”

Phyllis Cafaro, the boys' mother, who works as vice president of marketing and who has known Anthony Sr. since high school, says that this philosophy goes back to William M. Cafaro. She recalls visiting Anthony Sr. at a job site when they were teenagers and seeing him working alongside the maintenance crew, even though he didn't need the money. “He taught his sons a strong work ethic by example and today I think they appreciate all the knowledge and opportunity he gave them,” she notes.

By age 15, William attended his first ICSC Spring Convention in Las Vegas. A few years later, Anthony at 13 got his first taste of the big show. There they learned and listened, sitting in on tenant meetings while lugging site plans around the convention floor. They also nudged their father to enjoy the city, something he wouldn't have done on his own. “I remember he never brought a swimsuit with him when he would go to the convention, but I made him bring one the first year we went together,” says William. “It was a lot of hard work, but it was also fun.”

And while the boys cut loose a little, the conventions primarily served as a training ground and it was there the younger Cafaros began to understand the art of real estate negotiation. “Relationships define how this business operates,” says Anthony Jr. “Sure, people look at the demographics and the rental rates, but there is the intangible component of having a sense of trust and knowing that you can shake someone's hand and make a deal.”

Over the past several years, developing bonds with retail executives has become even more important, Anthony says. With retail professionals jumping from job to job three or four times a decade, making one good contact can be the gateway to relationships with several retailers.

Besides attending the Spring Convention, both sons would spend summer breaks working jobs in different departments at the company, including billing, operations, marketing and legal. They were paid on an hourly basis, but even though they were the owner's sons, they say they didn't get any special treatment and weren't cut any slack in getting their jobs done.

The process, Anthony and William say, was invaluable in preparing them to run the firm. That's exactly what companies should do to ensure their CEOs have enough inside knowledge to effectively lead the firm, Rowley says. “They don't have to be an expert in every area, but they have to understand the entire company,” he notes.

The experience also equipped the brothers with what Anthony Jr. believes were essential management skills. “It's easy to sit behind the desk and say, ‘This needs to be done,’ or ‘That needs to be done,’ but unless people have done it themselves, they might not know what it takes,” he explains. “I would not ask anyone at our organization to do something that I wouldn't do myself.”

Getting started full time

Anthony Jr. joined Cafaro full time in February 1997 as a leasing agent, after graduating from the Boler School of Business at John Carroll University, a small Jesuit college in Cleveland. He took over marketing several under-performing shopping plazas near Canton, Ohio. One had a vacancy rate close to 100 percent.

“I think my father directed our head of real estate to treat me as any other new hire with no experience, which meant giving me the account with the least desirable tenants and properties that the least tenured guy at the firm had before me,” he explains.

Anthony Jr. moved on to specialty leasing, eventually overseeing the whole specialty leasing department, with responsibility for reviewing all holiday tenants. Having never received a formal promotion, Anthony Jr. says he has risen within the company by assuming more responsibilities as opportunities arose.

“I don't think there was ever a clear step where I was put in charge, I just took on more responsibility,” he explains. “The only sign of my coming into authority was that a year and a half ago I moved into the office that my father had occupied and he moved into my grandfather's office and I ultimately became the final signatory for the landlord in all real estate deals.”

Meanwhile, William, who also spent his first year as a leasing agent, realized that he had more of an analytical bend and joined Cafaro's accounting department. One of his notable contributions to the firm has been investment diversification. While his grandfather believed that all proceeds from the company's existing properties should be put into real estate, according to Vincent Morgione, a controller who has been with the firm since 1958, William started allocating a portion into the money markets, including hedge funds, bonds and equities. “Our malls are cash cows, but there are not many opportunities to build new malls,” he explains. “So we realized that we needed to divest a little bit from the real estate market and into the public sector.”

By allowing the younger generation to assume their responsibilities gradually, the Cafaro Co. has avoided a tug-of-war that could have occurred with inexperienced new players occupying the corner office.

“You wouldn't even know there was a change,” says Fred Battisti, chief site planner and a 41-year employee at Cafaro. “The kids were brought up in the business. … Their parents did a great job with them.”

As a result, Anthony Sr. has relaxed his workload. Last year was the first in more than three decades that he did not to attend the Spring Convention and he's not going this year either.

Meanwhile, William, who has two sons of his own, 2 and 4 years of age, plans to follow his parent's model.

“I would leave the choice to them on whether to join Cafaro, but you've got to teach your children that hard work only starts at the bottom,” he says.

And that means they better be ready to paint. “I would expect them when they turn 10 or 11 to work during the summer in various maintenance positions at the organization,” William says.

MANAGEMENT OFFICE

PROBLEM:

The Cafaro Co. needed to groom its third generation of executives to run the 60-year-old, family-owned firm. But how do you conduct a transition without disrupting operations?

SOLUTION:

CEO Anthony Cafaro Sr. introduced his sons to the business while they were still in their teens and they grew up learning about every aspect of retail real estate, making them familiar faces long before they starting running the day-to-day business.