Have been reading through a lot of the threads on here and learning more about CRE. I came from a target school and went straight into investment banking thinking that had the best risk-adjusted return over the long term compared to other fields where you can make high 6 / low 7 figures. It seems like you start really low in CRE compared to other finance roles, but it ramps up quickly into the 200's and 300's a few years in, and much more if you earn carry or invest in deals. Some might disagree, but I consider that to be a ton of money for someone with less than 10 years of professional experience.
So my question is what is the catch here? High attrition, boring / repetitive work, or just high barriers to entry? Does the job and skillset change over time (like in banking)? Is the best paying work cyclical and carry a higher risk of losing your job if you under perform?
There is definitely a lack of modernization in CRE. I work at a debt shop in South Florida and have received, at most, one or two deals that were completely ready to go out the door after receiving them. Some of the financial statements that I receive looked like a 5-year old created them. You quickly realize that half the leases are expired, they account for reimbursements on the P&L, but not the rent roll, they sent you a trailing-9, instead of a T-12 and can't tell you how much money they put into the property, since purchase. In due-diligence, such a litany of issues arise, that I doubt technology could ever replace CRE professionals.
I mean, to some extent, there is some 'truth' in all of these points. Real estate is competitive, meaning more people and dollars chasing a limited number of deals/opportunities, thus there will be winners and losers from time to time. Is this different from the I-banking/finance world? Not as much as some people think.
Real estate is really specialized, that is the 'catch'. You specialize in markets, asset type, deal type, and function type (in your own career). Property doesn't have a 'ticker' symbol you can key into a bloomberg terminal and get all the details and then trade with a click. Even a simple plain vanilla real estate transaction is like a complicated M&A deal by comparison to a stock trade or even basic business lending.
I know real estate people that literally specialize in one asset class in one small sub-market of a city, and make a whole career out of it. I have a really good friend who ran a large development for a major corp that spanned three decades (it has a theme park on it everyone would know and has maybe been to once). He started young, did all the entitlements, ran it through a few mergers and sales of his parent company. Then retired with a pension, and got rehired as a consultant who still makes six figures in fees (plus bonus commissions because he is a broker when some of the remaining parcels sell). Why? Because he knows the details of the properties, the deals made decades ago with the county on entitlements, etc.
That is the real benefit of real estate, its micro-specific and that allows for specialization and information asymmetry. Really difficult in finance, and even illegal if called 'insider trading', but that is everyday in real estate.
The final point is that few b-schools have professors who know anything about real estate. The finance faculty actually 'look down' on real estate as an asset class and career. Some literally think studying real estate just means 'selling houses', yet it's the biggest asset class by far when you include value of mortgages and derivatives on mortgages.
So many graduate knowing nothing about a field that requires specialized knowledge to work within. In my opinion, this is the definition of a 'market inefficiency' and one that has given me and many of those on here and else where a very rewarding career to date.
Is there risk of 'blow out'? Of course, but I don't if that different from corp fin/IB/PE/HF, etc. If you use a lot of leverage (and RE can let you do that), you take more risk. But that is really just the case of leverage, not really real estate.
hell yeah brother
Got it. So it sounds like it's highly specialized, with niche sub-specializations across the board, and generally not as well studied or explored in higher ed (top undergrads + business schools). Would you say there's still a lot of opportunity over the next 20-30 years (i.e. would you tell a family member graduating this year to explore a career in CRE)?
Absolutely, the fractured/niche nature of the asset class makes it relatively more immune to automation and commodification than general banking and finance (like, who wants to bet how long wealth advisory will be around as a major career field?).
There is always turnover and retirement, in fact, the industry is kinda overweighted to older people right now. Markets shift, that is nothing new, so long as the country keeps growing (something you can't just take for granted these days), there will be demand. Housing is massively under supplied right now and will be for years. A lot of office and retail properties are getting old and functionally obsolescent (property does deteriorate with time after all) and will need to be redeveloped, rehabbed, or re-positioned.
Plus, from an investment standpoint, real assets are likely to be more valuable in the recovery, so likely more investment allocations.
This is an interesting question. This COVID situation made me think of a possible career path in biotech research I could have taken and now work on a product that could save the world. Except I shut that down early because I’m sadden by killing animals, and I’ll have to kill a lot of them in biotech. But in general, I think biotech has a lot of potential to helps us do what most of us all want: to live forever healthy.
I see the low hanging fruit in CRE dependent on continued population growth. Do people from around the world, especially people with options, want to come here for the American life, the rule of law and opportunities to improve ones socio-economic status? Without sustained long term population growth, I would pump the breaks on a real estate career. So you have to assume that.
Biotech, we all want to stay alive.
Ok that’s the external factors. Then it comes down to what are you good at and what you enjoy (generally it’s the same).
Anecdotally, I used to attend UC Berkeley Haas’ (an amazing school) real estate night as a first year analyst as a “professional.” In 2007 there were many MBA students interested in CRE. In fact, there was a 20+ page resume book. Fast forward and the number of students interested in CRE is a lot smaller. The opportunity costs of going into real estate is high. If you can get possibly $1mm in stock options for working for a mid-stage venture backed company that if they have a successful exit, you’ll get that, then the opportunity costs are high. You’re in Florence in the Renaissance (say if you live in SF). You won’t even stiff ownership of a real estate company unless you are really that important. You might have to start the company but that is very risky (see my comment about someone giving you $100).
So, unless I have a real estate company I want my kids to continue on, I’m totally open to whatever they want to do. In fact I purchased Sim City (Something I played) for my 5 year old daughter last night and I’ve been showing her my floor plans, and she seems to have a lot of interest. So she might be a chip of the old block like dad. We’ll see.
If your family friend has a good combo of visual-spatial intelligence, good grasp of cause and effect, is good at numbers (not complicated math but comfortable), and has original thinking (something I look for), then they could find a promising career in several fields, including CRE.
this might be the best description of the real estate industry I’ve ever read. kudos sir.
In my career there were big opportunity costs of going into and sticking with real estate. I live in SF, and over the past 15 years of working, we’ve seen the rise of FANG and other tech start ups. It seems the easiest money over this stretch of time is working at the mid-stage of a solidly venture backed company and getting shares. That was and is the highest risk adjusted ROI as a non-principal - as a normal worker. This does not even take into account the free beer, ping pong tables, 24 hr Vegas trip after a milestone perks of working for a successful start up or mid-stage start up. Early stage seems more lucrative but also risky as countless companies go belly up, with their backers saying unicorn or bust. 2008 there was the Zynga shirts, for example.
Real estate generally stayed the same. While a beneficiary of the broader economic recovery, and a shitty industry to be in during the Great Recession, it is a great place to be for someone with a “builder” mentality. When I say “builder” I mean someone who can bust ass and also be sort of patient. Because real estate is tangible, on the buyside, 2-5 deals a year x 5 years can add up to big $$$ for you and/or your employer.
In that sense we are part venture capitalist and also entrepreneur, as we might be categorized as a finance sector, we are creating value through our operations. I look at each project or acquisition as a company (ranging from something small like $5mm to larger tens to hundreds of millions).
Ever heard the adage “you give a real estate guy $100 and you get $5 a year (5% cap)” and “you give a tech company $1 and you “could” get $100”?
Anyway slow and steady. Build it up. The reason why it normally requires you to pay your dues in your career in real estate is who’s going to give you that $100 to make $5 if you don’t have any experience? You can give a crazy techie $1 and see what happens.
Although I did not get the sense of this in the really mega REPE/development shops I worked at, for the certain someone, real estate represents the opportunity to impact your past/present/future. I mentioned it here before, you can literally impact your 2nd grade teacher with your project in your hometown. To me, going full circle is a big part of job satisfaction. Knowing that your past gave you great insight on finding a solution today, that one day your grandchildren will see your work, is awesome.
I’m too much of a Luddite with an adoration for history to really love the constant “we disrupt everything” mantra of tech. There are rules / laws that one must follow in real estate and creativity is generally between the laws of the law (building codes, zoning, physics, etc) and the parameters of what is financeable.
Lastly, I would like to return to my home state (Hawaii) and frankly there is more of a real estate/brick n mortar based economy there than tech at the moment (we’re trying to diversify).
Actually one more thing: I for some stroke of luck, always worked in the top group in whatever company. The group that got the most attention and had the most at stake for the company. Within tech, being a CPA with a liberal arts education, I’m maybe close to being important but really probably I’m not. Closest thing I could do to sniff importance is being in a growth role (head of growth) while the engineers make the product. Maybe fin tech. Anyways I’m talking about stuff I hardly know about but the point is given my skill set, I’m a finance guy working in a sector of finance so I at least have a chance to work in the most important group of the company. That helps your job satisfaction.
Therefore the “catch” is how real estate fits you. If it fits you more than make the sacrifice and pay your dues and stick with it.
There are in fact huge opportunity costs in RE going forward, and not just compared to tech.
No one seems to talk about how no one retires from RE. There's effectively no turnover in the carry stack, to call it something. These principals retire when they die or when their kids take over. So it's extremely difficult to go from mid-tier in a firm to the top, and since there's little room for innovation, it's almost impossible to distinguish yourself. (Ok, you can find a deal and bring it to your principals -- that's a meme at this point.)
So the entire game is starting something yourself unless you just want to chill making $300k/year somewhere. Yes, there are outliers that we all hear about, but those are called outliers for a reason. Real estate pays principals very well, and everyone else lags behind finance and tech peers. Even coming out of a top b-school with experience in the field, you're highly underpaid compared to consulting and finance roles, and only comparable with some quasi-tech PM roles.
Most deals and funds turnover every 5 to 10 years for liquidity purposes and the perpetual life funds change management over time. I guess I'm not sure why you think there is "no turnover in the carry stack", I mean the promotes get funded and then reset all the time. I think it is way easier (on a strict relative basis) to get in on the 'action' in the real estate world than in hedge funds or PE. Getting from mid-tier to top is difficult everywhere, by the nature of the fact that there is typically a 10 to 1 ration of mid-tiers to top spots. But, RE is easier to 'break away' and start a new venture/do a deal, the fact that assets are so fractured by nature makes it much easier than other fields. This fact is really a major positive.
Consider tech, it really concentrates into 'winner take all' buckets as there is only so much 'shelf' space for new tech in the consumer and business world. There are literally 100s of 'one-off' firms and real estate 'deal doers' in every town nobody has heard of.
People do get promoted beyond $300k (I am assuming you are meaning base + bonus + equity) all the time, but it does take time. Not sure what you are bench marking to, but I think RE is relatively better in this probability than most of general finance and corp fin. Sure, the BB I-banks and large PE shops are different, but those opportunities are really difficult to get, even with a top tier MBA. RE by comparison is far more open to people willing to work hard.
I don't think this is fully accurate.
No, you're never going to be handed 50% of the carry of a fund. I'm not sure in what industry that is true in, anyway. Finance? Sure, you could make partner at Goldman, but that's just guaranteeing you a couple million a year. Tech? Definitely not. All of these places require a founder's position to achieve true high net worth.
The difference is in what experience gets you. In real estate, being with a developer for 10 years means that when you finally do that first development deal on your own, you have a network of lenders, brokers, contractors, etc who you've worked with for years. Even if you're not particularly financeable, once you find that deal that pencils, you know who to turn to and they'll be there. And if you succeed in one deal, well... congrats. You own 100% of your own company, and it gets a LOT easier from there. It's basically the only industry in which that kind of organic growth into your own shop is even remotely possible. Senior bankers don't, with extremely rare exceptions, start their own banks. Sure, tech guys can do their own thing, but it's generally an entirely new idea, which isn't quite the same thing.
Moreover, in my experience, real estate professionals are fairly supportive of one another. It's such a big field that no one can dominate. I know plenty of folks who have split off, and given their former boss 20% of the new venture (or whatever) in return for access to back office staff, equity, and guarantees. Everyone wins that way.
And as far as the basic premise of "retirement" goes... how many senior bankers at JPM do you see voluntarily giving up their huge bonuses and cushy jobs? Not many; they have to be forced out one way or another. Especially since 2008, when so many folks saw massive value wiped out, "retirement" isn't a thing. And that's across all fields, which is one of the many complaints Millenials have against the Boomer generation, who aren't respecting the implicit social contract and stepping aside. To say this is particularly bad in CRE is disingenuous, except maybe in the sense that because many companies are privately held, all the upside is held by the same few people/families for many years at a time.
But as I'm always harping on, that means all the risk is too. Three years ago employees would have killed for a piece of Stanley Chera's carry (RIP). Nowadays? My guess is if I told the average mid or senior exec at Crown that they could buy into that carry at it's market value, they'd run screaming. High upside means high downside.
I think there's a huge variance depending what sort of place you work at. There's small / mid-sized developers that pay peanuts for effectively much of the same work that bigger PE shops do, but the PE shops pay much better.
For example, I started my career as a financial analyst for a pretty big developer, but only got paid $30k/year. Then I moved to a mid-sized property owner, where they owned mid-sized shopping centers anchored by movie theatres and grocery stores. $36k/year. I went to b-school and went to work for a real estate PE fund attached to an investment bank for $120k + typical bank bonuses. Later worked for a big financial conglomerate, and got paid $250k base + nice bonuses.
So it all depends. The work didn't change all that much. As an analyst it was 100% spreadsheet jockeying, and at later career stages it was more about deal management and deal sourcing. But the variance in salaries was huge depending on the type of company and seniority.
The developer and the shopping center owner basically seemed to think financial analysis was not so needed. It was their capital that they felt added all the value, and we employees were part of the expenses that they needed to trim and squeeze to maximize profit. The PE shop saw employees as team members that were driving value, because the capital was OPM.
But of course if you REALLY want to make $ you need to go independent and either put together and syndicate your own deals or launch a real estate business (eg. be a developer, start a PE shop or holding company, or start your own brokerage agency). It's really hard to make a lot of money in real estate working for someone else, unless it's a mega PE shop.
Also if you really want to be in real estate, I'd recommend MRED over MBA. MBA gives you more of a broad background and thus flexibility, but an MRED goes much deeper.
Some of the other threads on here suggest programs like the MRE(D) from, for example, NYU are not that valuable for people with zero experience. Seems like online opinions are pretty split on this one. On the one hand, the MRE(D) seems to just be a better option given the cost - you could do it part time and even if you went full time it seems cheaper than going to a top 10 MBA program where you'll likely walk out with a great network + $150K in loans. I've also heard zero experience + MRE(D) usually results in a job and comp that's roughly equal to what you could get with an undergrad and good networking (i.e., there's no premium in comp, just better access to opportunities).
If you're not getting a similar premium in compensation for the advanced degree, then it seems like the right path without any CRE experience is to try to network your way into a decent role (associate?) and if that fails then contemplate some type of masters to pivot.
To address the prompt:
Whats the catch? Takes a long time to get any level of expertise. This means a few things: tons of old guys still in the business, and tons of specialization.
Job/skillset change over time? I doubt it. I have less than 5 years experience but the founder still works his way through the proforma / valuation / development plan the same way that my boss does, which is the same way the broker does. Only difference is that we use pen's/excel, and he uses a pencil
Best paying work? The best money in CRE is to have your own company typically. In that sense, you need to have balls/experience to break out on your own. Obviously to do that successfully takes some time given how slow it can be to develop your foundation of knowledge, not to mention the stress involved w/ running a business.
IMO, there are 3 types of CRE jobs: (I) folks who build things (construction & architects) (II) folks who manage projects/teams (sheep herders/managers) (III) dealmakers / network providers (brokers/old white guys)
Good exit ops, I heard you can be president after RE Development.
Correction: Delete "RE Development" and replace with "Licensing RE Company name for a company that rarely ever developed properties and overpaid on hotel properties"
You have a typo. Replace "RE Development" with "being born son of a rich real estate developer" Please fix.
There's no catch here. CRE is not a good industry for you. Don't explore...
Forreal - what's with all these burnt out IB guys (def smarter than all of us) inquiring about CRE... Go away - our fathers are in RE, we won't be pushed out by you nerds.