Nearctic’s strengths expose its weaknesses

Step #2 - In launching Pelham Homes as a separate company, is Nearctic losing sight of succession planning?

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The Meeting

With its executive team approaching their golden years, Nearctic – an Edmonton-based real estate development company founded in 1979 – has arrived at an intersection. Which road does it take? The development group has roots in buying and refurbishing distressed commercial and industrial assets – though its name is inspired by a racehorse once known by founder David Kent. Fittingly, Kent, who’s now 61, often uses horses as a metaphor. For Nearctic, he sees a cart for those horses to pull and a map pointing them toward Pelham Homes, a residential infill development sub-company that Nearctic founded in 2005. But Nearctic needs to decide the route the horses should take: How do they pull the Pelham idea toward success as a stand-alone company, while also managing succession planning, institutional knowledge, leadership, and mentorship issues for the larger Nearctic Group? Or at least it needs to agree that this is its main challenge.

The Context

The first advisor meeting between Nearctic and the advisor team provided by Alberta Venture was held in Edmonton on December 4. Nearctic CEO David Kent, CFO Scott Brinsmead, Vice President of developments Pat Adams, Vice President of operations Gui St. Germain and administrator Tiffany Lorenz met with program advisors Wellington Holbrook, executive vice-president of ATB’s business & agriculture division, Douglas Ballou, a lawyer with Macpherson, Leslie & Tyerman, and Sharaz Khan, a professor with the Haskayne School of Businesss.

The Goal

The meeting’s goal was to identify the company’s main challenges and its targets in the year-long Next Step program. It was also the first chance for Next Step advisors to give the company their thoughts.

The company’s goal over the course of the Next Step program is to draw on the advisor’s wisdom in transitioning Pelham Homes – an initiative born of a desire to give back – from a sub-company of Nearctic’s to a stand-alone. “I guess part of it is we are financially sound and successful,” Kent says. “We have a lot of experience and talent and knowledge, and we have a market we feel we can use that in, so we want to give something back and this is one of the ways that we feel we can do it.”

Pelham Homes is developing aesthetically leading residential infill properties, the first a seven-unit townhouse project in Edmonton’s west-end. “We feel we should be doing about 100 [infill developments per year],” Kent says.

The Challenges

In order to achieve Nearctic’s goal for Pelham, to complete 100 infill units yearly, “we need to up our game in terms of the personnel we have, so that we don’t kill everybody else in this office from a workload point of view,” Kent says. To that end, since the meeting in December, Nearctic has hired a leader for Pelham.

Regardless of the company’s identified challenges with Pelham, the Next Step advisor team saw several other issues that need addressing. Succession planning is one such challenge, according to Next Step advisor and Haskayne professor Sharaz Khan. “There is no exit plan” for Nearctic’s executive team, Khan says. “That direct question was asked and they haven’t got one, they don’t want one and we were almost pushing them into getting an exit plan.”

ATB’s Wellington Holbrook echoed Khan’s thoughts. “You’ve got a leadership team there who are probably in the last five years, probably, of their most productive time, and I think they want to make the most of it by going out with a bang,” he says. “But they’ve got to have a plan for what’s going to happen after that bang. It wasn’t clear there was a plan, except to say … just sell all the assets, which they could do at any time.”

“I guess I take my lead from them,” says Douglas Ballou, with Macpherson, Leslie & Tyerman. “They seem to be talking about this new initiative in terms of the goal being to build and sell residential units per year. How they may structure that separate from Nearctic, how they would brand it, how they would market it, seem to be key objectives on their list in terms of next steps.”

The Way Forward

Khan says Nearctic should consider capturing the institutional knowledge that Kent and other executives hold in their heads but haven’t quantified. “I’ve seen this at companies, they hire one person for one year and they follow the main players in the organization everywhere, and they capture everything they do and they come back and code it,” he says.

Ballou says capturing corporate knowledge is one idea that Nearctic should consider. But there’s another idea he’s hoping they explore, too. “I thought I heard them saying they want assistance from the group on how they should structure, brand and market the residential unit [Pelham Homes],” he says.

For Holbrook, the road forward is all about planning for what comes further down the road. “So many great businesses aren’t successful after the seasoned leaders leave because all the intellectual property is in their head, and they’ve never documented it, basically handicapping future leaders,” he says.

The Debrief

AV: What help did the advisors offer?

David Kent: There were some interesting questions that helped focus us and challenged us as to why we’re doing certain things. I believe we had the answers but it’s always nice to have an outside, independent set of eyes to look at things to say, ‘Have you guys thought of this?’ And in most cases, I believe, pretty much we had the answers for them.

AV: Has Nearctic thought enough about succession planning?

Khan: No. That was one thing that was quite clear, that they needed to start thinking about it and also bring in some family members to create that succession planning.

AV: What’s Nearctic’s greatest strength facing the succession challenge, and also Pelham Homes?

Ballou: It struck me as a team that’s been together for a while and obviously that works well together in terms of commercial real estate development.

Holbrook: These are people who’ve seen it all and done it all, and can probably accomplish just about anything.

The Next Step

Kent and Nearctic’s executives will regroup in February with the advisor team after they’ve had time to mull some of the ideas and absorb some of the changes their new hire has created after the first meeting. Holbrook sees challenges but he also sees a lot of potential in Nearctic. “The strength they have is the strength of their portfolio of assets, which are great properties that they’ve built to a point that they’re just humming along so I think they’ve got a great foundation to build on,” he says.

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