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Real Estate

Investment professionals finding themselves in demand, as real estate cycle matures

Experienced real estate investment professionals who can boost return from existing portfolios are in high demand.

“There's a war on talent,” said Kent Elliott, principal of RETS Associates, an executive search firm based in Newport Beach, Calif.

Mr. Elliott added it's harder to close on a hiring because candidates' existing employers are matching prospective new employers' compensation packages.

Searches for investment experts who can get the most out of a real estate portfolio increased 33% in the three years ended Dec. 31, according to data from executive search firm RETS Associates. Last year alone, investment manager searches were up 12% from 2015.

On the flip side, hiring of acquisitions professionals has slowed to a trot. Searches for acquisitions professionals dropped 70% in 2016 from the prior year, compared to a 30% decline in searches for acquisitions executives from 2014 to 2015. From 2013-2016, RETS' database showed a 43% decrease in the number of searches for acquisitions professionals. The data are derived from RETS' database of 40,000 real estate executives.

Although acquisitions is the only job sector with a decline, it demonstrates that commercial real estate is in a mature spot in the cycle, he said. Hiring trends are true for both real estate money managers and real estate investment trusts, Mr. Elliott added.

An annual survey by the Chicago-based trade National Association of Real Estate Investment Managers and executive search firm FPL Associates showed a similar trend, said Melissa B. Thelen, Chicago-based director in the compensation consulting practice of FPL, a subsidiary of FPL Advisory Group LLC. “Given where we are in the cycle it is not surprising that between 2015 and 2016 we have seen increased demand for asset managers and a decrease in demand for acquisitions professionals,” she said.

9% rise

The median salary for an asset management head rose to $641,563 last year from $588,650 in 2015, according to the survey, which is released each October. Meanwhile, the median salary for the head of transactions dipped to $750,000 in 2016, from $777,450 the year before. (The survey is based on a small sample of about 50 respondents.)

Real estate executive hiring trends follow the real estate cycle, noted Gemma Burgess, a New York-based managing director in the executive and director recruitment business of FPL Partners, another FPL Advisory subsidiary. “There's a feeling that the market is a little toppy,” she said.

And real estate money managers are not adding deal professionals, she said. “They are looking for executives who can drive portfolios forward and squeeze every dollar out of the asset and out of the financing.”

Hiring of acquisitions professionals is down from 12 to 24 months ago, she said. Just after the financial crisis, real estate managers moved their acquisitions staffs into quasi-asset management roles. When managers began buying properties again, firms moved these individuals back into pure acquisitions posts.

Now, these firms are bringing in talent to manage the portfolios they have amassed, Ms. Burgess said.

With property values rising, real estate managers are no longer making money at the acquisition stage, Ms. Burgess said. “So they have to really work the asset to achieve the returns in their business plan. When a skill set is in hot demand, compensation becomes more competitive.”

Historically, there has been a wide dispersion in compensation between acquisitions executives and asset managers, Ms. Burgess said. That gap is narrowing for those who can demonstrate skill in managing portfolios.

Nationwide, RETS Associates is seeing an increase in base salaries for overall midlevel real estate professionals in the 20% to 40% range year-over-year, with an equal or greater increase in incentive compensation depending on a variety of factors, including region and industry sector.

For example, a 25% base salary increase year-over-year is standard across the board in top-tier markets on the West Coast for mid- to senior-level executives, RETS' Mr. Elliott said. RETS executives are working to place an asset manager in the San Francisco Bay Area for a $200,000 base salary and a $200,000 incentive bonus. In 2013, RETS placed an asset manager in the Bay Area for a $160,000 base salary and a $75,000 incentive bonus, he said.

Incentives grow

To attract talent, companies are not only paying executives base salaries plus cash bonuses but also offering stock or a portion of carried interest or a percentage ownership, Mr. Elliott said.

“As we enter into the mature end of the cycle, (ownership or carried interest) becomes another arrow in the quiver to attract talent,” he explained.

FPL's Ms. Thelen agreed compensation has been on the rise.

For several years following the downturn, compensation increased pretty materially as the industry recovered, Ms. Thelen said.

“As the cycle has matured, however, this growth has leveled off, with year-over-year salary growth tracking closer to 3% to 5% across the industry on average,” she said. “Salary growth for asset managers is modestly higher, more in the range of 4% to 6%.”

There are a number of factors leading to higher salaries in the past few years. Sometimes executives get hefty recruiting premiums for joining a new organization, she said. Other companies might be truing up their compensation packages after paying executives below-market rates.

There's also been an increase in searches for executives overseeing development or construction, but much of that is in the Western U.S., Mr. Elliott said.

FPL executives have noticed the same trend.

“We continue to work on a large number of development and construction executive mandates which might be surprising to some,” at this late stage of the real estate cycle, Ms. Burgess said.

“Firms love to buy at the bottom of the cycle and sell at the top!”

Professionals are in demand mainly to helm urban development and transportation hub projects, she said.

Even so, all real estate executives are conscious that the cycle is nearing its end, Ms. Burgess said. Prospective employees are now more likely to inquire about the health of the company they are considering. Today, executives are taking into consideration such factors as how well the company would do in a downturn and total capitalization of the firm.