Promote from $500k to literally $0 - what do those who have been through a RE downturn recommend?

Background: I work at a small developer in a high cost of life city, I have circa 5 years of experience and am in an investment role. We develop commercial space, traditionally in JV's with PE funds and have roughly 20 deals (circa $2b). We put in 5% - 10% equity and have a different promote structure on each deal. Roughly speaking we get 10% over a 10% and 20% over a 15%. We aren't a brand name yet as we are a relatively new firm but we have managed to get some tier 1 PE capital / high profile deals so there's lots of momentum. I am getting great experience across investment / AM and Dev in my role and the people at the top of the company are excellent.  

Our pay structure is market base + 25% bonus + 3-4% of promote in the deals we work on. Up until a year ago, things were looking pretty good - my promote was valued at roughly $500k and looked pretty promising. Now with interest rates, valuations, construction costs and some tax changes in our markets I would value the promote at $0k if being honest. I wouldn't even say that any of our deals are underperforming business plan wise - it's mostly just due to massive shifts in valuation yields (we own a lot of offices) and interest rates (fully unhedged on most deals). 

I would love to hear from those who have been through similar downturns in the past:

  • How did you make decisions about staying at / leaving your firm in moments when promote / LTIP looked like it was out of the money? Did it pay off? 
  • Would it be obtuse to try to renegotiate my comp structure given how far out of the money our promote is? 

Thanks! 

 

A promote is a bonus. You get a bonus for outperforming, it's not a promise of x dollars.

What exactly did you think a promote was?

"Here you go kiddo, I've made no money but have 500k because I'm feeling generous"

I mean, the whole concept of a "bonus" is so far from its original intent that it's kinda hard to blame people for not understanding the concept.  Look at any of the comp threads that get posted - lots of talk about "guaranteed" bonuses, which is just another word for salary!  

More to the point, very few people, especially juniors, truly understand the concept of risk.  I get the feeling people will finally understand what their job really entails when it starts hitting their comp, and not firm-wide returns.  Which is good.

OP - if you tried to renegotiate with me because you're promote wasn't in the money, I'd laugh in your face.  Next time, take a smaller salary but guaranteed money.  Risk vs reward: it's an important lesson to learn.

 
Most Helpful

I will admit the word bonus today is really just a means to communicate deferred compensation at larger firms.  I think I've received an actual bonus maybe 25% of the time, i.e. where the boss pulled me aside individually and thanked me for work, highlighted how our team was performing economically, and let me know he was stroking me a cheque.

Setting that aside, welcome to the real estate game!  We play for promote cheques to create our wealth.  That's a double edged sword and you, and many others, are beginning to realize what the other side of that sword feels like.  But it's all in the game.

So either that's a fit for you, you chalk up this round to a missed opportunity, and move on.  Or it isn't a fit for you long-term and you seek some more corporate position at a larger firm or leave real estate Sponsorship all together.  It's not for everyone, so I get it.

P.S. Yes, would be offensive to try to renegotiate your compensation because your promote didn't hit.  You are already being paid a market base salary.  This is just the way it goes when you're a Sponsor.  Can always go off and join a LP.

 

Development is a dollar cost averaging business. Anyone merchant building that thinks they know what deals are going to hit and which won't are full of shit - it's a long game business and you need to have a lot of resilience to keep pushing forward in head winds, then hope that you have more winners than losers. If your firm has a lot of those deals coming out of the ground the dev fees should feed your salary and bonus until the next cycle starts. Don't forgot that there is real money made by owners here.If you believe in the shop strap in for bumpy ride the next few years. My bet is that the projects that will come out of the ashes of this downturn will be home runs, and if you can stick around until those sell that's when your promote will be worth something.My advice being in a similar situation.

Career Advancement Opportunities

May 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Lazard Freres No 98.8%
  • Goldman Sachs 18 98.3%
  • Harris Williams & Co. New 97.7%
  • JPMorgan Chase 04 97.1%

Overall Employee Satisfaction

May 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

May 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

May 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (21) $373
  • Associates (91) $259
  • 3rd+ Year Analyst (14) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (68) $168
  • 1st Year Analyst (205) $159
  • Intern/Summer Analyst (146) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Betsy Massar's picture
Betsy Massar
99.0
3
BankonBanking's picture
BankonBanking
99.0
4
Secyh62's picture
Secyh62
99.0
5
dosk17's picture
dosk17
98.9
6
kanon's picture
kanon
98.9
7
CompBanker's picture
CompBanker
98.9
8
GameTheory's picture
GameTheory
98.9
9
numi's picture
numi
98.8
10
DrApeman's picture
DrApeman
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”