I chose to work in development in no small part due to potential comp. For mid-size to institutional developers (i.e., not putting in your own money) are developers underpaid compared to acquisitions and capital markets roles? Every comp report I review (Arcana, Rhodes) has development comp more closely tracking to asset management, and well below cap markets and acquisitions. Constantly surprised how low the numbers look compared to other principal side roles. This is surprising to me - is that everyone else's understanding as well? Makes me want to lateral over to acquisitions or even capital markets.
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Only because you specify that you aren’t putting in your own money, and that’s even becoming less and less definitive as development becomes more and more institutionalized and base and bonus pay gets increased as a result. Once you hit a certain level, you typically get free percentages tacked on to your comp and the opportunity to put your own money in, which is where the potential skyrockets.
I can’t stress this enough - if your goal is to have the biggest W2, development will probably annoy you compared to your peers. But if you see yourself as learning a skillset, establishing connections, and building a track record, the opportunities are endless in your 40s and above. Development employees who work on the principal side may be lower paid all things considered, but actual development principals certainly are not.
That’s not for everyone and that’s ok, but I know if I had to be a wage slave for the rest of my life I’d jump off a building.
This is pretty simple. Developers get paid to take risk. They put in money to assemble or entitle development sites. They put up guarantees that they'll finish construction. They take market risk on lease up. We get paid a fee to cover overhead during all this, but the promote/carry is where the real money is, and that's paid because of all the risk mentioned above (plus a lot more obviously).
If you don't actually take any risk, then of course you won't get paid a lot. If you work for an institutional developer, why would they pay you like you work at a hedge fund (I mean, I always wonder why hedge fund analysts get paid a lot, too, but that's a separate story)? Moreover, all these reports you're reading... do they include carry? Because that's a big portion of a developer's salary, often, but may not be captured by those reports - and that's going to be a bigger dollar amount than an asset manager or acquisitions person will get.
Look, development is a highly entrepreneurial business. You really shouldn't be doing it if you're goal is to make millions of dollars as a W2 employee. If you want to learn a diverse skillset and eventually translate that into your own deals, it's one of the MOST lucrative jobs you can have, across any industry. If the idea is to truck along and bank your biweekly salary, year end bonus, and maybe a couple basis points of carry... well, those jobs certainly exist but they are fewer and further between than in other real estate roles, let alone finance or consulting.
Great responses, thank you both. I probably didn't phrase "put own money into deals" well. I am fine putting money into deals eventually. But that is different than starting your own shop. Since being on the dev side, I have a greater appreciation for the guarantee risk, cost overruns risk, and capital needs of starting your own shop, where I understand the upside becomes unlimited. But not coming from money, I need to first get those big carry pops to have enough capital to roll back into deals, which I would be happy to do as opportunities arise.
You also make a good point about carry, I wonder with these comp surveys how often that is not included, as from my understanding in a good year, once you are senior, promote can increase cash comp 50-100% and how you really build wealth.
All good points - getting paid handsomely in development is typically tied to being at the MD or executive level and/or taking risk by investing projects which some companies offer.
I've been in your shoes..I was three years in development and wondering if I pivot because I was concerned about pay and my future prospects. I'm now 10 years in I'm currently happy with my compensation.
Let me offer some practical advice....if you don't have money to put at risk, position yourself. Here's an alternative way to position yourself.
Let's say you are a Development Manager. Your KPIs are most likely tied to the development budget and overall development schedule. This in effect gives you little leverage. Why? well everyone and their dog in development knows that there are budget busts and delays that can be out of your control. Someone might say well that's why you have contingency...contingency is typically cut thin or optimistic in an effort to make deals pencil. How do you create a KPI for yourself that doesn't put you in a shitty negotiating position?
Be a problem solver...add immense value through project correspondence and document everything. When the time comes to ask for a raise create a portfolio of your most valuable correspondencies and be prepared to talk through how you achieved cost savings, value engineered, and efficiently executed tasks at an advanced level. To tie everything to the budget and schedule is a disservice to the Development Manager role and everyone in development knows there is much more complexity to the role. For example you might have VE'd X but you got whammied with a change order that no one on the project team could have foresaw. You might have efficiently saved time by executing your tasks and managing your project team through the process..but the city had significant turnover at the staff level delaying your comment review process. There can be two sides to the coin. Hope this helps.
Completely agree with this comment. When I was working for an institutional developer, I reported to 3 DM's. I hated all 3, but I will say that not only were they very good at their jobs, but they each had a unique skill that made them very valuable to the company and basically were"un-layoffable." DM #1 was the firm's financial modeling wizard. She built all the models from scratch i.e. each individual development project proforma, cash flow projections for the firm as a whole, construction schedule projection, waterfall schedules for all the LP's, etc...She would get looped in on all meetings with major LP's in case something needed to be modeled out. DM #2 couldn't model for shit, but she was very good at creating presentations. So anytime a presentation with LP's was needed, she was the go to. Lastly DM #3 was not a finance person and was okay at putting together presentations, but she was the most experienced. She drove projects forward and was very involved in VE process with engineers/architects and always thinking about how to reduce cost and solve problems. When rates rose and the SVP of Development got laid off, all 3 remained.
Why'd you dislike (hate) them?
Exactly you brand yourself based off of your problem solving capabilities. I like how you admit you didn’t get along with them lol why didn’t you get along with them?
Appreciate the feedback on ways to make yourself more valuable.
To the OP, anyone else have similar experience that as a mid-level W2, does dev. pay lower than other principal roles?
Generally yes. But it makes sense - development fees, while they appear large - are not nearly as large as PE like fees. Therefore - there is less money to go around & pay overhead. So cash comp is less until a promote payout. Part of why PE pay is so good is because the business scales so well for fee income. The same # of people it takes to manage $250M can manage $2B. Development doesn’t scale as well from a fee perspective because once a project finishes, so does its fee
I have never heard of someone making a big payout working in development and I know a lot of MDs and execs in the business. Everyone has golden handcuffs and what we're suppose to be 5 year holds are turning into forever holds in which they'll never see a payout. It's all smoke and mirrors. PE you get carry along with a great base and most funds have an end date. Yes you're working more but you're getting paid A LOT more. Development pay is shit and being able to start your own shop is not an excuse for being well underpaid. You can start your own PE shop as well.
Lol. Sure. You can also be the next CEO of JP Morgan, win a billion dollar Powerball, or invent a time machine and invest in Facebook stock.
Or, you know, you could just acknowledge that it's a lot easier to do your own development deals than it is to build a PE platform.
Pretty sure my MD would disagree with you. Here is the thing - development pay is different. You can get carry, but you also can get a portion of the fee income. So you get current cash in lieu of carry. Sure it’s worse tax treatment, but it’s different.
I am at a developer. I receive base; bonus; and carry in specific individual deals. With that said, the higher up people receive a portion of fees each month (paid at year end). They will get pieces of property management fees, construction management fees, development fees, and most importantly - leasing commissions (which is where the money really is). A fund MD may get $10M worth of carry, but a development MD may get the same paid out in cash over 10 years due to fee income.
Meanwhile, I personally know more who have made it big than I could possibly remember with any accuracy, whether that's millionaires before they're 30, ten million to their name before they're 40, or fifty million to their name at 60 and could retire but stay in because they love it. None of them achieved this through $750k salaries or whatever, but through the big payouts that you have never heard of.
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