PART 2: Increasing RE Industry's Cash Compensation, Collectively

I'm back... seem's like I created a s**** storm on here. Let's put this to bed once and for all.

If you are new, I wrote this piece: https://www.wallstreetoasis.com/forum/real-estate…

If you are in RE or aspiring to be in RE, please read this thread to understand the industry. I've collected my knowledge, thoughts, and data from others. 

So you want to work in RE PE or you work in RE PE and are looking for the jobs that pay the most or maybe don't pay the most but have a great lifestyle. Either way, people can't get a hold of what is causing the bifurcation in the industry when it comes to pay. Most importantly, referencing my original post, I was previously wondering why we are at a larger discount to PE (answered later). RE has been around forever, but the growth in the asset class has been explosive the past 5-10 years, so let's dive in.

First and foremost, if you want to maximize pay in RE PE, you should work in a transactional role. Asset management is a great career and more of a lifestyle career track with better hours but OK pay for a comparable role. Transactional jobs are capital markets and/or acquisitions/dispositions roles on the REPE side. Additionally, you want to work at an allocator or LP, not an operator or developer. Nothing wrong with working at an operator or developer but their compensation is skewed towards receiving carried interest as they are the GP in the deal and much less cash compensation relative to the LP side. You learn a ton about RE in development, so use that knowledge to do your own thing if you would like to. If your goal is to have a higher cash compensation package and still get a solid carry package, pick an LP or a fund that invests in RE but partners with local operators and developers. These firms / roles are more finance and deal structure oriented than anything else, as the operator or developer handles most of the AM / PM activities and your role is more investment management than asset management (i.e. reporting to your LPs, managing portfolio-level decisions, financings, etc.).

So how much can you make? It is pretty standard to make $220k - $275k (HCOL cities only; if you're not in HCOL, I'm sure you can do simple COL math to figure out what the discount is) as a first year associate at these LP shops. If you end up at a megafund, congrats, they pay around $300k+ for a first year associate (practically no discount to traditional PE). But most of you won't and that is fine. They typically hire from REIB / REGAL IB teams, and few times from like an Eastdil. According to recruiters and my firm, market for VP1 at non megafund shops are around $400k cash comp with $200k annualized carry (e.g. $2M carry over 10 year fund life).

Is $220k - $275k enough for a first year associate? How does it compare to PE? Well look at the PE compensation report by Heidrick:https://www.heidrick.com/-/media/heidrickcom/publ…

A section of the report shows compensation by recent fund aum and we can reference the associate pay for this thread; traditional PE comp according to the survey is actually pretty in-line with all the companies I have spoken to or data points I've heard from my buddies who have accepted jobs at other RE PE shops. There was so much speculation on my original thread - people talking about labor supply and demand economics, how PE you can scale and RE PE can't scale, etc. I was right from the beginning. The fund's have the same unit economics at these LP shops in RE as they do in traditional PE. Where I was wrong is that  - It's the fund size that differs. Yes, PE can raise funds quicker and larger while RE has a tougher time raising those same funds unless you're at a large shop. But when you do direct asset deals in RE, they are also smaller check sizes.. because as obvious as it is, they aren't companies and you're essentially trading fixed income for a single building. Certain firms (like the megafunds and some upper MM) have started to do platform investments / invest in RE operating companies and those roles pay well and deploy larger check sizes (keep your eyes out for these opportunities), therefore they can run lean with larger fund sizes. That ties back to cash comp.

There are a lot of firms that pay well, so don't say that there aren't. You can search up the firms that pay well (a ton of threads on this website where other people have chimed in) and I can gaurantee if they are in a HCOL market, they are paying in the range I mentioned for a transactional role at an LP shop. I also know this because I've spoken to recruiters and got direct quotes in the past. They aren't just carlyles or BXs either, there are actually a ton of shops with at least $1B+ in AUM and imo, that should be your minimum AUM criteria if you are targeting firms to work at.

Is this enough money? Or do you still want the glamorized, traditional PE-type of money? They get paid about 10-30% more. Have you seen what guys in PE look like? Just go ask them for a coffee chat. They are in their mid 20s but look 35 and haven't seen the inside of a chick's apartment in years (sorry - my friends are in PE and no this doesn't apply to all). Not to trash on them but this archetype on Wall Street earns money and only money - they make a lot which is well deserved but they can't nourish the other side of life, such as their social life or health. At the end of the day, what is the point of having so much money but no free time? Aren't you suppose to make money so you can spend it and enjoy it? I understand people have answers like oh I want my kids to go this school and I want this house and I want that car and I want etc. etc. Well kudos to you and good luck but most people realize that they just want time so they can sleep, exercise, socialize. This is why there is so much turnover in traditional PE and people exit to corp finance or some cushy job like IR, for example.

If you are lost as a student or young professional, I hope I gave you some guidance to making more cash if you desire. There isn't a seat for everyone at these type of shops / jobs but not everyone is hungry to chase them in RE. So there won't be an issue for the people that do want to pursue these higher-paying LP jobs that pay you well and don't work you over 60 hrs a week. You can honestly make a killing in RE and if you join the industry today you will be timing the growth as it becomes more institutionalized. As mentioned, you will be able to workout, sleep, take care of yourself, see family, friends, date, etc.

Remember this is a low barrier to entry industry and that is why there are so many small firms. You can start your own firm and do a deal with a small amount of money. That is why the industry is so saturated at the bottom and kids are wondering why they are paid less when they are simply working for smaller firms. At the end of the day, modeling a 50 unit garden class C apartment in buttfuck nowhere doesn't take a genius to figure out. But if you work at a bigger shop and you're working on larger deals that require you to model layers of different types of capital and require you to learn the legal side of transactions, you will be compensated very well. Your goal is to learn so that you can leverage it into 1) higher paying institutional RE job 2) climb the ladder at your current company and receive carry or equity 3) create your own firm 4) invest your own money. That is what makes this industry unique - you can literallly take your experience and choose wildly different paths which you can't do in traditional IB / PE

Everyone is arguing about what RE is but no one realizes that RE is what you make it to be. There is a playing field for all kinds of players and the money is there.

There are typos everywhere in this thread and I don't care, I'm writing this in bed with my eyes half open. Don't be a weasel and fold to some pale, malnourished, twig from an ivy league (again sorry but its true) who told you that choosing RE over traditional finance was a mistake on this forum. 


Goodnight.


 

How would you maximize comp as a first year associate? I just passed a case study for a $75-100B AUM firm and speaking with HR soon. It's in NYC, but the recruiter refused to give a salary range (she says they're "competitive"). As an analyst at the offer stage, I made HR give me a number first then asked for more ontop of it.

 

Nothing yet, still waiting to speak to HR. I have two YOE. I told the recruiter months ago that my expectations were ~$250k all in and for less than $180k, I might as well stay my current firm. She wasn't offended by the number.

 

Anyone here work at a bank or insurance company on the lending team? How are your pay / hours? I feel like that area could be a potential hidden gem.

I personally believe that anyone working over 60 hours a week is being robbed of their life. Literally no point in putting yourself through that except for those first two years out of college.

I’ve done IB and currently work at a REPE fund that sometimes has long hours (but pays $275k). I almost quit earlier this year because I was consistently working weekends. It’s just not worth it - go live your life and understand that $350k is still ultimately nothing 

 

Yes, 50-60 hours for the most part but pay is below average and comp progression is slow even if you’re a high performer. Top originators can make 7 figures at my company, but the money is certainly not shared with the juniors.

 

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