Differences between CRE vs REPE
What are the main differences between Commercial Real Estate Brokerages such as CBRE, Cushman&Wakefield, Colliers, etc and Real Estate private equity firms in terms of barriers to entry, company culture, working hours, compensation structure, prestige, etc..
Prestige levels really top out at Marcus and Millichap. There’s truly no equal.
They are two different parts of the business.
Brokerage sells assets. Private equity firms buy them. Both can be hard to get into. For example, you may be able to get into CBRE, but can you get onto the top CBRE investment sales team in your market which has 12 people and only 2 analysts? To me, that’s just as hard as getting into a top PE firm.
As far as comp, they are similar. Brokerage you can make much more at a younger age. At the top levels, for the majority of people, you will make the same as a broker and as an MD at a PE fund.
I really do not think this is true. Top level folks at PE funds are going to make way more than their counterparts at brokerages. Which is why you don't see many 9 and 10 figure net worth brokers, but major markets are lousy with them from the equity side of things.
Ownership, because of the risk that comes with it, will always pay more than being a middleman leeching a couple points off a transaction
disagree, but our opinions are going to be very anecdotal. You likely know more high earning owners. I know more high earning brokers. And I'm not referring to cherry picking the famous RE billionaires, just speaking in terms of sheer number of anonymous folks earning 7-figures in their 30s-40s I know personally. Even the principals at REPE funds I've worked at or am friendly with regularly joke (but half-serious) that they should've been a broker.
Anecdotally I am inclined to agree with Ozymandia on this one. As Ozy already mentioned: risk and reward. There is waaaay more risk on the ownership side than the sellside. If a broker can't sell a property or the deal falls through..there isn't any financial repercussions to the broker, but there is A LOT for the owner. Also, many brokerage shops eventually turns to ownership over time. I'm not saying that they abandon their brokerage business, but I've never seen a developer or real estate investor go from developing/investing in real estate to selling it. It is always a broker turning into an investor/developer. There must be a reason for this - there is more money on the ownership side. If the risk to reward ratio left these brokers worse off, then they would stay purely as brokerages
Also going to echo Ozy here, though this really is uber subjective and can look rosy from either side. But in my humble opinion if you're looking at the top performers over the course of an entire career, REPE is lights out. Of the group of guys who made intergenerational wealth in this business, a small amount did it through building adaptive commission-based businesses.
~4% weighted average gross commission on $X annual transaction value for CRE advisor vs 0.75x - 2x MOIC on $Y for REPE Partner.
Top Broker invests fees after paying his firm, support staff, potentially a lot to govt. He buys index funds and invests in sweet heart deals. Consistent annual income likely beating REPE Partner gross income in several years.
Top REPE Partner doubles every other check he writes in 1 - 3 years, realizes a significant depreciation tax benefit, and re-invests excess cash flow with greater opportunities. REPE Partner has some exceptional consecutive years over the course of his career and doubles capital base in 3 - 6 years more than once. Compounding math wins. Their LPs introduce them to other entrepreneurs during career upswings and puts money to work with them.
So overall is REPE is closer to traditional private equity?
I don't want to speak for the corporate private equity guys because I'm not one of them. But the only major, big picture difference between real estate private equity and corporate private equity is the type of asset you're acquiring and managing. We go after commercial real estate. Corporate private equity goes after companies. We go after commercial properties and development sites where we believe we can generate NOI and sell at a higher valuation. Corporate private equity goes after companies where they believe they can generate additional EBITDA and sell at a higher valuation.
Comparing CRE brokerage to REPE = comparing income to wealth.
Equity and carried interest gets you wealth. Brokers have a front row seat to this wealth creation through their roles working with REPE and observing their clients process of wealth creation. They get into the game as soon as they can rub two nickels together.
Better to own the banana tree than to be stuck working for bananas...
Along those lines - I know of significantly more brokers making 7 figures on the broker said than on the ownership side, but I know of significantly more on the ownership side making 8 figures than on the broker side. In other words - I know a lot more rich brokers than folks on the ownership side, but I don't know too many brokers that are truly wealthy whereas I can think of several on the ownership side. Tons of brokers making $1MM a year but not many cracking true wealth. Whereas there's actually not that many people on REPE or dev side making 7 figures consistently, but the owners of those companies are truly wealthy. Ceiling higher in REPE, but average higher as a broker.
I guess REPE firms also pay salaries to their employees while brokerages are purely commission based, which can be tough for someone just starting out like myself.
Yes. Most brokers invest as a side hustle. If they are successful as brokers, the money is too good to walk from when they can do both, especially when your job as a broker provides you with an inside track to the best opportunities.
sums out exactly how I feel but wasn't articulating as clearly
I’ll chime in. Broker here.
Without question, there’s more money to be made on the ownership side. That said, if you’re comparing a career in brokerage vs a career as a salaried plus bonus guy working his/her way up the ladder, I guess it’s more variable.
Ozy pretty much summed up the difference between risk vs opportunity cost. Only thing I’ll add is that the risk on the ownership side is really only assumed by the partners. Don’t think that just because you’re working at a REPE shop that you yourself are taking any risk.
To give a purely anecdotal example, my dad was involved in a partnership with a few other guys developing SS buildings. It was basically a side hustle for them and pretty small time. That said, each of the partners equity stake was earning them low 7-figures each project. And again, this was a small time, no-name side hustle. Point is, way more upside if you’re on the ownership side and actually have an equity stake.
Lower levels = similar in terms of comp, hours. private equity = more prestige
Mid level = I may be in the minority, but I think so long as you have a good head on your shoulders, easier to get to a place of making mid 6 figures in REPE than in brokerage
Upper level = There are some guys in brokerage that are true rainmakers, making 10 mil a year. My guess is there are 10-50 guys like this (think like Harmon's recent move). And then there's a good group making 7 figures. There are more guys making the 10+ mil a year figure in REPE (probably still a limited list outside of BX), but there are way more 7 figure earners in REPE than in brokerage when you account for carry
Wtf does this title even mean? I don’t wanna be that guy. But people can’t just come here and ask basic ass questions and expect us to do all the leg work. I’ve gotten a ton of value from this site. Don’t get me wrong. But this is like asking what’s the difference between accounting and finance. There are tons of sources out there you can use to educate your self on CRE.
As someone who is learning about the industry, I read the title and was like damn maybe I don’t actually know anything…
Brokerage is easier to get into, more positions out there since it is basically sales compared to PE. You really need to be competitive here and be capable of closing deals to be truly successful.
Company culture on brokerage is more competitive and brotherly-like, as in fratty in some ways. Running into former athletes isn't unusual here too. PE is a little more team focused but still hierarchical, to see some closed doors between teams at a brokerage isn't unusual by comparison.
Working hours, brokerage it's less of a fixed thing in my opinion, but I think the market will influence your hours more so. PE still gets impacted by changes in the market, but additional surveillance on performance of an asset becomes the focus, so hours go up!
Comp has a wider spread on the brokerage side because it's just a translation of how many deals were done. The average on the brokerage side is going to be lower compared to PE but again this is mostly because the number of PE positions are far fewer compared to brokerage.
Prestige, uhhh...not sure if this matters. I'd say traditionally PE has more prestige because it's buyside, but if you're killing it as a broker and making more money than someone in PE, does it matter anymore?
Agree that prestige is meaningless, but for those who think it's important, I honestly think a successful broker in a good market is more prestigious than most REPE positions (unless you're a partner/principal at a firm that's just crushing it). I think most people in the industry that aren't in a position to make multi-7 figure promote checks every few years are envious of brokers that are doing well in their markets (and I'm talking broker's making $500k+, not even the ones crushing it). Reason is that most REPE positions are only paying <$350k in cash comp until you're like 35+ (unless you're in NYC or at a large fund). In a 1st or 2nd tier market, most brokers that make it to early 30's at a large brokerage are capable of making $500k+ whereas you aren't seeing that kind of cash comp in REPE for a lot longer in most instances. I also know lots of 25-27 year old brokers making $300 - $500k a year which is highly unlikely in REPE outside of the likes of Blackstone type firms. I also know several brokers that hit a 7 figure year before age 35, which again highly unlikely in REPE unless you're the outlier that got a large % of promote at an early age in perfect timing of a bull market where your firm crushed it. I think most people that have been in the industry at least a few years know this, and thus being a good broker is more prestigious within the industry than most probably think from the outside
So in terms of prestige it goes REPE---->CRE----------------->Residential Real Estate?
CRE just means commercial real estate. CRE doesn’t mean brokerage. it’s like saying “so prestige is NBA > Basketball > street ball
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