2020: Real Estate Bonuses
Out of total curiosity, does anyone know what real estate bonuses are going to look like this year? Would you expect many to be slashed to zero? I'm interested to hear what people may know, interested in the distinction between brokerage, PE, banks, dev, etc.
Note, there are layoffs in the industry (even banking). So still need to keep perspective, but just a shit time.
Most CMBS teams are/were closed up, most debt teams at REPE debt/debt fund/commercial mreits are temp closed up... or very very cautious. YE2020 P&L on these groups are going to be brutal... luckily the BB RE teams/CMBS teams could hopefully swing some bonus funds from non-related depts. (still gotta be shit $$), but the smaller/housed outside of IB groups presumably will have $0 bonus (again this is not confirmed for me but all but understood by most transaction deal teams).
There are a couple forums on there but RE is obviously getting crushed in this... id say worst fucked industry (fed barely helping, all local/state assistance more or less overlooks RE and fucks the LL, which trickles to lender, trickles to bondholders, etc.). No evictions, rent/mortgage moratorium dialogue, believe NYC voided all personal rent guarantees to commercial tenants (i.e. retail shops closed)... and FED has essentially overlooked RE. Understandably it's an insane time, but all the relief is geared to tenants (individual or biz), with what looks to be a deliberate oversight on the direct impact on owners/lenders/investors (bc "fuck the banks man" politicians who cannot comprehend the full market relationship... and are fucking these groups that are hurting due to an imposed government shut down (i.e. solution worse than the problem).
Little rant there lol
I've been in natural resources and this is my fourth downturn in the last ten years.
No offense, but you've had a very great run... but rent is due and it's RE's turn to experience pain again,
NP.
At my level with decent experience, pretty locked into debt… so depending on your specific shops platform ppl move to BB teams/CMBS teams/other debt funds/REPE RED/Mreits/lifeco etc. and also brokerage. I assume you can move to really any debt team. Theres a lot of movement of senior guys flipping between all the banks / REPE debt funds, etc. As an example, I and past co-workers from my current role/prior roles have moved to/from BXMT, Apollo, Ares, Starwood, other mreits, benefit street, Cantor, Nuveen debt, MS / MS CMBS, Barclays, DB, WF, JPM & JPM AM, etc. Also, depending on your current shop/current team, many have securitization type roles for CMBS/CLO etc, so you could probably move to a more structured fin/credit and/or securitization team vs. an origination/UW team... if you're on that front/touch that side of the biz. Could also move to the in-house capital market/finance team for a fund (i.e. those seeking financing for their assets). If you're asking for what type of roles, anything from originations (these guys move around decently), UW, AM, credit/risk, securitization, and even credit trading (again pending your specific background).
Jumping to equity at the vp/director level is probably unlikely/difficult (however some of these "debt" groups work higher in the stack often and also may do some JV investing too, so again depending on your specific role/background it may happen), but I’ve had analysts/associates switch to equity (even major teams Brookfield/BX after some experience and obviously smaller shops). I’d say fairly common to jump to some equity related role, even if asset management focused with ~1-2 years of experience on a debt team from some of the above names. Couple analysts jumping every year.
However, unfortunately given the current climate & some decent layoffs at some of these firms/presumably hiring freezes.. might be a bit before new roles open up... especially on debt.
Hope this helps.
I would avoid taking the onslaught of think-pieces about the death of office and mass migration of apartment users as gospel.
Office will be fine and young people will still want to be in cities.
Agreed, the constant RE end of the world discussions/articles (WSJ, economist, etc.) are getting insane... Sure sectors will be hurt and will need to adapt... but there is no mass exodus, no massive LT market swing (frankly the sectors hurting... were already hurting/already the weaker/more susceptible to market adjustments... shit retail, lodging, malls, etc.). Many groups were dumping these (or being much more cognizant here) years ago. Ppl forget RE is the largest asset class and that's not even moving into RE credit/mbs/derivatives etc.
Same conversations were had during 9/11 and the recession... and look at the past couple years...
It seems like the bulls for office are office owners... removing WFH from the equation, which a lot of young people like even if it is a few days a week, think about the analysis of pricing. You price based on SF, linked to heads in the office, linked to demand for the tenant's product. Lots of moving parts, but if the SF the tenant requires is now less, and some offices have vacancy, the price per sf will come down becasue it is a market just like any other market. The reduction in $/sf coming in for an office LL directly impacts the valuation of the asset, bc RE is a cap rate game.
I dont see why there is push back on office valuations falling materially, it is simple math driven by supply and demand. If you were UW'ing a value-add office deal last year, and that was your portfolio in office, it makes sense to think in terms of office-apocalypse bc depending on your leverage and purchase cap rate, there is no way to achieve your target yields and it is a real possibility the asset will be approaching debt covenant triggers.
I dont have experience in office, but the writing is on the walls based on simple math and supply and demand.
The counterpoints that I've seen thrown around most:
-While number of employees in a location at any point in time will go down, that SF / employee to provide a healthier work environment.
-Several companies have had high profile WFH failures in the past and concluded the being in the office and seeing employees is important to build culture and for retention.
-That people have short memories, and COVID won't reverse the global urbanization trend that has occurred for the past 50+ years.
While I understand what you're saying.. your point, while coherent is not very relevant. Clearly if tenants leave/vacancy increases and/or caps widen then value drops... but you seem to be focusing on the very short-term (sure many guys right now will not hit their expected returns... this is probably across nearly all RE and many industries for that matter... we essentially turned off the economy). Do you actually feel that many tenants will vacate in the long-term (ie tenant that do no fold from the closure. but simply vacate? That midtown or Hudson Yards, Fidi will become ghost towns? That a large portion of firms will WFH? Clearly there will be market adjustments, but I would argue these are temporary, ~next 12-18 months. I think people are overestimating the lack of desire/demand for office space (while also underestimating the populations ability to forget/move on... 1-year from now... this will be distant memory IMO... again recall 9/11 and the recession). People act as if NYC (or similar) is going to become desolate bc some groups may WFH. Are all banks/MBB/law firms/HF/RE firms etc moving? Do you actually think that?
I'm based in NYC, obviously still WFH right now... I can tell you the vast majority of our office wants to go back ASAP. While WFH can be productive, ppl want to camaraderie and miss the interaction (on top new hires essentially requiring face time / in office learning experiences). Frankly many of the older guys simply want to get out of their houses/have some time away from their families.
I'm on the non-bank debt side, but have worked at a BB, I know nothing will change for these groups (in regards to their footprint).. all this talk is just that and conjecture / talking points. I know our ext. counsel(s) has stated they want to be back and I presume many IB/financial roles will also seek to be back in their spaces asap.
I'm not an office investor, but I don't buy all this "end of the office era" BS. The concept is not thought through.