Here are four ways to ensure a successful transition.

2002, Bill Donges joined Atlanta-based Lane Cos., an apartment owner and manager with 23,000 units under management in the Southeast, as COO. His path to leadership was clear—Donges would eventually replace company founder and CEO George Lane. And in 2005, that time came. Lane moved up to chairman and Donges became CEO. Under Donges, the company went through solid growth, but it simultaneously got overexposed in the construction market. “With George and me, it was working out quite well, if it wasn’t for the total collapse of the market,” Donges says.

But the market did fall apart, and with it went the board’s confidence in its new leader. The firm was building for demand that no longer existed, and construction loans were coming due. So in January 2009, less than four years after Donges’ ascension to the top spot, Lane announced that George would be resuming his CEO responsibilities.

Lane isn’t alone. Take Birmingham, Ala.–based Colonial Properties Trust. In early 2006, Thomas Lowder stepped down from the CEO post of the company his father founded in 1970. Like Lane, when the economy turned sour, Colonial, which owns more than 30,000 units across the country, found itself overexposed, holding more for-sale product in the pipeline than analysts preferred. By early 2009, the situation was dire, and Colonial’s board summoned Lowder back to the helm. “He needed to come back and help us get through this,” says John Rigrish, chief administrative officer for Colonial.

Indeed, in times of trouble, a company fresh from a transfer of power is still getting its sea legs. And when the ship is off course, there is often no one to blame but the new captain—at least, that was the case at Lane and Colonial. But experts say these kinds of situations do not have to happen. When turnover at the top is handled with extreme care and commitment, it’s difficult to tip the boat.

Chris Lee, president and CEO of Los Angeles–based CEL Associates, a consulting firm that has worked with numerous apartment companies on succession planning, says that extending the transfer of power indefinitely—or asking founders to return—is a surefire risk. “It’s rare to see someone step away and then step back,” he says. “The ones who have returned after a protracted leave aren’t as efficient or as effective as they were earlier because they were disconnected from the industry.”

In fact, the risks associated with any leadership change are extremely perilous—particularly for smaller companies. And with a new generation of multifamily executives reaching retirement age—folks like Tom Bozzuto, CEO of Greenbelt, Md.–based Bozzuto Group, which manages 30,510 units in the Mid-Atlantic, or Preston Butcher, chairman and CEO of Legacy Partners, an owner of approximately 20,000 units based in Foster City, Calif.—careful succession planning is as critical as ever.

“It’s not like a lot of my friends at Microsoft who decide to leave, put out a sell order for their stock, get their money, and go home,” says John M. Orehek, president and CEO of Seattle-based Security Properties, a private real estate owner with about 17,000 housing units in 30 states. “In the real estate game, most of my net worth is tied up in this company and the real estate assets that it owns. When I leave, I have to make sure there are good people who will be good stewards of those assets so that over time my net worth is monetized.”

Ultimately, getting the right person lined up to take over as CEO is one of the most important things an apartment firm can do. Here are four ways to ensure that the succession and transition plan you put in place goes off without a glitch.

1. Start Early.

The best succession planning starts long before a CEO even contemplates retirement. Experts like Lee suggest there’s no magic age at which to start succession planning, but as leaders move toward their early 60s or within five years of their likely retirement, they need to start thinking about it.

Consider Mid-America Apartment Communities, a Memphis, Tenn.–based REIT with 46,650 units nationally. When company founder George Cates took the company public 17 years ago, he added Eric Bolton and Simon Wadsworth to his executive team.

“There was no understanding that I would do anything other than work on operational matters. George was not contemplating retirement,” says now-CEO Bolton. “As I worked in the company culture, though, I found that I liked [operations] a lot. It evolved, and somewhere along the way, two years before George retired, he moved me into the president’s role, and it became obvious that’s where things were headed.”

Bolton has been in the top spot since 2001 and Wadsworth stayed on as CFO until his retirement in 2009. Now 54, Bolton is working on putting his own transition plan in place­.

Mid-America’s template is one that others should heed, says CEL’s Lee. He says proper succession plans should take no less than two years and up to five years to execute. And obviously, the older the leader, the more important it is to think about grooming replacements as soon as possible.

“There are companies that are planning successions though their leaders won’t retire anytime soon,” Lee says. “They’re doing all of the right things to prepare for any [eventuality]. These companies won’t miss a beat.”

Those companies without a plan could find themselves in trouble when the unexpected happens—something as tragic as the sudden passing of a founder or CEO. “The trap is that they don’t do succession planning,” Colonial’s Rigrish says. “It needs to be part of your plan, whether you’re private or public.”

Rigrish adds that the plan doesn’t necessarily have to follow any template. There just needs to be one beforehand. “The formality of that plan should match your culture,” he says. “Some companies need structure and written documents and practices and procedures. Other companies just need to know how they’re going to do things.”

Lee recommends the company put together an advisory board, which is, admittedly, a new concept to many private firms. Upon the death of the founder or owner, the board becomes a formal entity. “The advisory board allows an objective way of looking at the company,” Lee says. “The board is helpful in assuring the fulfillment of the [succession] plan and the performance of the company.”

2. Even if You Know Who You Want, Look Outside.

When Lee is working with his executives, he first asks them to do an exercise that, on the surface, seems to have little to do with choosing their next leader. He asks companies to outline the strategic direction of their company. “You have to figure out where you’re going,” Lee says. “That helps define the characteristics, quality, experience level, and expertise of that next leader.”

Lee’s method of seeking the next leader in an organization forces a level of detachment from CEOs who had planned on their son or daughter inheriting their position. “We always go through where you want the company to go, so that when the CEO compares their son or daughter to that criteria, they can see if they meet that criteria,” he says. “If the son or daughter is below or on the margin, I would encourage them to see what’s available on the outside and compare their son or daughter to that.”

In more institutional companies, the internal candidate may not be a relative, but it is usually a current executive valued by senior management. Still, it’s a good idea for the board to test those internal candidates against the outside world, not just hand over the reins. “We feel like the quality of the decision is better if we look outside,” Rigrish says.

The value of looking at external candidates is simple—by comparing internal candidates with external ones, you can better gauge the qualifications of each of the individuals in the pool of candidates. If the internal candidate has the potential to one day run the company, Lee can work with the CEO to set up benchmarks for him or her in order to trigger the succession.

In some cases, Lee may recommend a company bring in an interim leader in his or her late 50s to groom the next leader. When that individual hits retirement, the next person in line should be ready to go. That’s what is unfolding at Greensboro, N.C.–based Bell Partners, where Steven Bell, the firm’s founder, chairman, and CEO, brought in former Alexandria, Va.–based AvalonBay Communities’ executive Bob Slater to mentor his youngest son, Durant, in the operation of its now 60,000 units.

Even after the child takes over, Matt Slepin, managing partner at real estate executive search firm Terra Search Partners, based in San Francisco, says he often advises CEOs to “find a partner for your son. If the son is a strong manager but needs a deal guy, find a great deal guy and bring him in,” he says.

3. Groom from the Bottom.

To be able to consider promoting executives from within, you need to have capable talent. At Mid-America, succession planning goes beyond having someone ready in case a top executive leaves. The company’s executive leadership and board periodically meet to review who holds key positions and identify one or two primary backups.

“We review the incumbent because, as our company has evolved over the past 17 years, what different positions require in the way of skills and traits and qualities and capabilities evolves as well,” Bolton says. “There are cases where the position is outgrowing the incumbent.”

Part of the reason for this systematic approach is Mid-America’s public status—an issue that affects all public firms. “Your shareholders don’t want you to be leaderless in any key position you need,” Rigrish says.

As a result, at Colonial, the company’s CEO and chairman report to the company’s lead trustee of succession planning each year. As the firm goes through its planning by department, it asks those in leadership positions to identify potential replacements.

Slepin thinks these are good things to consider. “Are there people among the senior managers who can likely succeed you?” he asks. “If those people get hit by a bus, who can succeed them?”

It’s widely accepted in the industry that the best way to breed a capable successor is to “build your bench.” “You don’t want to be in a position where you have to fill a lot of senior positions,” says ­David Fitch, CEO of Atlanta-based Gables Residential, which manages 54,000 units nationally.

Cultivating talent to that point is a challenge, but over the past decade, a number of companies have stepped up their employee development programs. Front and center in this movement has been Houston-based Camden Property Trust, a REIT with more than 50,000 units nationally, which regularly over the past few years has been on Fortune magazine’s list of the best companies to work for.

Like many of the best-in-class apartment operators in the business, Camden cross-trains its potential leaders and exposes them to parts of the organization they may not otherwise have been exposed to. Maybe that means taking a good asset manager who doesn’t know about finance and putting him in the finance group. It will also expose these up-and-coming leaders to investors, shareholders, and analysts at NAREIT and other industry events.

“It’s all about picking the right people, grooming them, and figuring out what their strengths and weaknesses are,” says Ric Campo, Camden’s CEO. “We’re grooming the next generation of senior vice presidents and, hopefully, CEOs one day.”

At Chicago-based Equity Residential, a REIT with 132,699 units nationwide, chairman Sam Zell says the best way to groom young leaders is to throw them right into the fire. “You put these guys in a position where they aren’t in any way uncomfortable about coming to me and saying, ‘I don’t think we should do this,’ or, ‘We have a problem,’ or whatever,” Zell says. “I encourage everybody to get their hands dirty.”

4. Let Go.

Unfortunately, in some cases, the biggest challenge of implementing a transition plan can be the departing executive him- or herself. With so much personal wealth and legacy tied into a company, letting go of the reins is not easy.

Granted, there are many times when founding executives are justified in their attachment. The multifamily business is littered with leaders who stepped down and then came back—Lowder at Colonial, Lane at Lane Cos. Both returned to help their companies when the economy tanked. And those returns went well. Of course, there are also situations that are not as seamless, such as John Williams’ notorious attempt to come back to Atlanta-based Post Properties, a REIT with 20,505 apartments in nine markets.

“I think the biggest issue companies have with succession planning is that senior leaders have difficulty walking away or reducing the scope of their role, which is a huge problem if you want your business to be a viable one long after you are gone,” says Jerry Durkin, chairman of Atlanta-based Wood Partners, which owns 14,000 units nationally.

These days, Post is looking to plan ahead. “It has been all hands on deck,” says Linda Richards, the senior vice president in charge of human resources at the company. “Now, as things are picking up, we’re beginning to look at succession planning differently.”

Lee makes an effort to help these CEOs move on by getting them involved in other activities, whether it’s chairing the board of a nonprofit or getting them into fundraising. “There are all kinds of things you can do to keep them active and involved and utilize their expertise in a guru kind of way versus running the day-to-day operations,” he says.

But not every leader rides off quietly into the sunset after accepting the transition. Cates, for example, stayed on Mid-America’s board for seven years. In some situations, it wouldn’t have worked, but ­Bolton says he and Cates had mutual respect. They also had a monthly meeting to chat about the company.

“The incumbent and successor either need to have a special relationship, particularly if the incumbent will stick around for a while, or the incumbent needs to get away and be totally gone,” Bolton says. “At most major companies, consultants will tell you, the best thing is for them to leave and not create a perception issue for the new guy.”