CRE Capital Markets For Dummies: What is it Actually?
Hi guys,
So I've heard a ton of people mention capital markets when talking about leasing or investment sales jobs.
What is it actually? Are you selling loans? Is it a sales job? Is it a strong first job out of college, or is a first job in cre leasing or investment sales better?
Any insights are appreciated
Capital markets just means the flow of cash. It can be either debt or equity. In CRE capital markets are usually groups at the big brokerages that handle investment sales (equity) or debt placement. Some places like JLL refer to their debt/equity groups as "capital markets", so it can be a bit confusing. Leasing would not be considered under this umbrella. Really great place to start out if you can get on an institutional group, meaning the team you are on is mostly working on behalf of institutional investors to purchase/sell or finance CRE valued above ~50mm. You will get great experience in underwriting, due diligence, marketing, research etc.
Ok that sounds great! Is it a sales/commission based role? Or is it mostly salary?
If you get on a top team as an analyst you won't be doing much sales. Just doing most of the grunt work for your senior brokers, who will be bringing in business. Those types of position are salary + bonus. Of course if you start at a lower tier shop like Marcus and millichap you will be commission based on day one.
What's even more confusing is that within our market, their Capital Markets group is IS and their DE group is referred to as the Investment Banking group.
8.5.2Haha yeah that's definitely confusing
This is mostly accurate, but would add that Investment Sales doesn't really mean "equity" placement. They might be involved in equity placement/raises, but by and large, equity placement guys out raising JV, preferred equity, etc are NOT investment sales guys at the big shops. Equity placement is more complex than IS in general, but I have seem a few IS teams doing both so guess it just varies by each company. Typically, at the big brokerage groups, equity placement is called "structured finance"
Yes this is correct. I was more referring to on an extremely high level understanding of capital markets, IS is just facilitating the transfer of equity from one owner to another. Yes some firms like C&W would house debt/equity under a group called Structured finance. But again it can be a bit confusing as there isn't a standard across all the big brokerage shops.
If you are referring to a brokerage, this is a fancy way of saying debt/equity brokerage or "placement" (all ways of saying "mortgage broker" without using that phrase). This phrase is also used by some investment banks (i.e. Debt Capital Markets and Equity Capital Markets), it is still fund raising, but the bank actually underwrite the securities they sell (or just make a fee). You can also see this in principal shops, where it generally means the team responsible for raising debt/equity (generally implies from institutional sources).
Since you ask about the roles in a brokerage (like CBRE/JLL), yes it is a sales job, earnings ultimately come from fees collected at closings. It is "arranging" a debt and/or equity investor between borrower (buyer/developer) and source (bank, PE fund, etc.). It is a very close relative of Investment Sales (IS), and in some firms, they are joint teams or roles, but often separate teams (they can even split by equity and debt). I'd say they are very good places to start out of UG, great career track and place to learn. What's better when compared to IS or leasing is all a matter of what career track you want and what you fit/do better.
The more "finance" hard core you are the more you will like cap markets, the more you like true real estate and deal making, the more you like leasing (cool kids say landlord rep and/or tenant rep brokerage). IS is more balanced, but the finance work they do is more just lease abstracting and building simple proformas/argus models. Cap markets may have you doing full blown structured finance with complex waterfall payout structures.
I think you are best to go where you are most interested and skills fit, that makes it very personal (presume you go brokerage in the first place).
Sounds great! I interned last summer in IS and loved it however the shop I was at was all commission and deal flow was pretty slow.
It seems that in capital markets you can make basically the same money while having higher deal flow and better opportunities to go into cre development or private equity down the line.
Do you have any thoughts on whether IS, leasing, or capital markets would be best to get into development of private equity down the line? I loved meeting with clients to help sell their properties through IS, but I feel like if cap markets is client facing, it would be similar in that regard?
Also thanks for the detailed response!
Well, you are dead right on one thing, it's allow about deal flow (that's true of IS, DE, and Leasing). I mean, you can make hypothetically millions in any of those if successfully closing enough deals.
As for the proverbial "exit op" I would think more in terms of functional role --> similar functional role (i.e. going to work for a client or competitors of clients). Thus, the most "direct" routes look like...
Investment Sales -> Acquisitions (be that for developer or principal investor), with Asset Mngt a close second (they handle the dispo side of the transaction)
D/E Brokerage -> Capital Markets (Developer/Principal investor) or Acquisitions/Portfolio Mant (debt fund/equity fund.. as in making LP/JV investments)
Leasing -> Asset Management, with Development as close second (could be "in-house" function or part of general development project team)
This is to imply any rule that you can't go from Leasing to Acquisitions or IS to Development, just pointing out the most direct routes. In short, getting hired by the people who you call clients and thus work with on a daily basis in brokerage.
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