Commercial real estate jobs adapt to new market dynamics.
As the commercial real estate market has so adeptly illustrated during the past five years, the saying "What goes up must come down" has a much broader application beyond Isaac Newton's law of gravity. This idiom has served as an apt metaphor for not only the commercial real estate market, but also for the careers of the thousands of professionals who are employed in this $10 trillion industry.
After more than three years in the down phase of the cycle, it's starting to look as though commercial real estate's trajectory may be on the rise. Approximately 87 percent of commercial real estate executives who responded to a Christenson Advisors market outlook survey anticipate continued commercial real estate improvement in 2012, including improved revenues and profitability. And, as the commercial real estate market continues its ascent, the employment outlook will continue looking up.
Shifting Market Dynamics
To fully understand where the industry is headed, it's helpful to retrace the commercial real estate employment market's path in recent years. The market's downturn in 2008 caused the commercial real estate industry to shift its focus from transactions and development to portfolio and asset management. As a result, many companies redeployed their transaction and development professionals into portfolio and asset management roles.
Further, many commercial real estate companies used this extended down cycle to reassess their organization from strategic, organizational, human capital, and financial perspectives. Many firms restructured, resulting in layoffs and leaving highly skilled commercial real estate executives and professionals unemployed. Companies quickly learned how to do more with fewer resources and employees.
A number of executives, particularly on the debt side of the industry, branched off to start new firms and prepare for the next market cycle. Yet throughout the downturn and still today, the most in–demand commercial real estate jobs are in the areas of portfolio and asset management, capital markets, and finance and accounting.
"Given the contraction of the lending markets during the downturn, professionals with strong financing skills became highly valuable to our organization. High–performing–portfolio/asset managers help protect assets and increase value through expense control during volatile times," said the senior vice president of human resources at a public real estate investment trust in response to a Christenson Advisors survey.
"These managers are experienced at understanding the value of assets and knowing when to acquire and sell at the opportune time," he added. The survey further suggests that while not only remaining relevant during the downturn, the portfolio/asset management role has evolved. "Historically we've hired generalists in this role that do not focus on a particular property type, whereas today we look to fill these positions with property specialists," the survey respondent said.
Ready for Growth
With a substantial amount of capital remaining on the sidelines, many investors are eagerly waiting to dive back into the industry while others have already re–entered. Value–add opportunities are a key driver and have replaced the core deals that were active at the beginning of the downturn.
As a result, now may be an opportune time for young, well–educated professionals to enter the commercial real estate industry. Most companies have reassessed their operational strategies, right–sized their teams, tightened up their balance sheets, and are sufficiently prepared for business again.
As the industry moves forward, appealing job opportunities will emerge across all functional areas of commercial real estate, including transactions, development, capital raising, investor relations, information technology, and sales and marketing, among other areas. More than 75 percent of respondents to a 3Q11 Christenson Advisors talent management survey expect their companies to increase workforce size in 2012. This is a significant improvement for the industry.
Since the downturn, commercial real estate companies have increasingly searched for younger, less–expensive hires to shore up departments and be mentored by functional heads with 15 or more years of experience. "The youth are our industry's future and we need to keep indentifying and attracting young, talented professionals to learn and eventually lead the business," said a human resources leader at one of the country's largest real estate investment management firms.
A vice president of human resources at a public seniors housing company further added, "My advice for the young interested in commercial real estate is to get out there, be proactive and aggressive, network with people already in the industry, sell yourself, and work hard, because the rewards are fulfilling. Every sector of our industry — from hotel to office, apartments to retail, industrial to self storage — can provide an extremely satisfying career/life's work."
Those in commercial real estate who remained employed through the downturn were often labeled as high performers and deemed indispensible to the company, according to Christenson Advisors research. For many, however, this meant taking on increased responsibilities and working longer hours than what was required during better times. Many companies also shed their low performers and kept their top talent during the downturn, while other companies were apt to replace their low performers with highly skilled, proven professionals at reduced salaries given the level of talent readily available.
As companies move forward and continue to reassess their personnel, executives and staff will need to make an impact and add value to keep their positions. "We need the doers, not the hiders, going forward. Peak markets can cover up a lot of mistakes and make mediocre management teams look good," said a global head of recruiting for a large public real estate services firm. "Down markets expose weak management teams. Our focus these last several years has been to attract and retain top talent across all facets of our business, senior to junior."
Over the next several years, as the industry builds momentum, there will be a recurring push for increased sophistication and proactive behavior across all organizational levels and functional areas. As the downturn becomes an event of the past, executives will once again focus their efforts on growing their businesses in a rising market.
Compensation in the commercial real estate industry is highly competitive with other industries. Since reaching a peak in 2007, compensation has declined over the last few years as a result of the downturn. However, it has recently stabilized and now offers a huge upside given the current standing along the bottom of the market cycle. Base salaries that were reduced or frozen during 2008 and 2009 are once again increasing at the standard rate of 3 percent to 5 percent on average, according to Christenson Advisors research.
Similarly, cash bonus awards were down considerably in 2008 and 2009. However, bonuses paid for 2010 performance were in line with what was targeted at the beginning of the year and are expected to pay out at or above target for 2011 performance on average. Although long–term incentive awards in the private market have been somewhat limited, there have been consistent grants in the public market — particularly at companies that have raised capital and are well positioned from a capital structure perspective. Across both the private and public markets, long–term incentive compensation is expected to increase going forward. As a result, the compensation opportunities for executives and staff alike are compelling given the anticipated long–term growth of the industry.
As the commercial real estate cycle continues to climb out of a down cycle, exciting, rewarding career opportunities will become available for skilled professionals in the sector. While opportunities in certain subsectors, such as multifamily, healthcare, and seniors housing, are likely to re–emerge faster than others, the industry in general is well positioned for another great run.
Scott J. Kolb is a principal in the Chicago office of Christenson Advisors, a full–service real estate consultancy firm that provides customized executive recruiting, compensation consulting, survey services, and management consulting to the global real estate industry.