Governance, liquidity, and ownership structures of the Carson Estate Company

Carson Estate

This case about the Carson Estate Company, a REIT based in the Los Angeles area that has been in existence since the 18th century. This paper will examine some key questions about the Carson Estate Company.

Survival

The Carson Estate Company has been able to survive for 15 generations for a couple of reasons. The first is that the way the company has been organized has held most of the company's assets together. The share structure has allowed for heirs to earn wealth from the estate without having to divide the company. Second, the company has been able to change with the times. Since its inception, the land the company owned was agricultural land, developed for resources like oil and water, and now is commercial and residential real estate in a major urban area. The ability to change with the times has been essential to its survival.

Liquidity

When this was an oil and gas business, there would have been substantial liquidity. Today, as a real estate business, liquidity should come in the form of profits. There are no payments for this land, just property taxes, so the Company should be fairly profitable from the rent and leases that it has on its properties. Therefore, the company should be able to pay out dividends to the shareholders quarterly or annually to provide from some liquidity. Money would not be reinvested unless the shareholders agreed that this was a good idea. Otherwise, family members are more than welcome to sell their shares. If there is no public market for the shares, there might be a system in which the company did share buybacks, so that all of the other shareholders would effectively buy somebody out if they wanted to cash in.

Ownership

At this point, it is not critical for this to be a family-owned company. Carson Estate is a professional real estate company. The ownership and management at this point can be professional. It is unlikely that any of the shareholders has a genuine emotional stake in any of the assets, even if they do in the company as a whole. I do not really see any benefits of this being a family-owned company, since there is no family pride aspect to real estate management. Detriments are going to be with respect to communication and in-fighting. These sorts of problems are common for families that have a lot of unearned money. It is expected that with family there might be a lot of ego involved in some of the decisions, whereas it would be preferred if the company was run in a purely rational manner.