Which roles in CRE has the most upside opportunity in 2023?
My firm recently downsized, and I'm trying to determine a next move. Within multi/mixed use, I have 3.5 yrs of Agency/Balance sheet debt lending, 3 yrs in acquisitions/dispositions, and most recently 1 yr of development.
Acquisitions - I imagine headwinds for 2023. Could have opportunity is acquire on the cheap for sponsors that need saving. Agree/general thoughts?
Development - Deals are difficult to pencil. Unless a deal is U/C I don't foresee many more job opportunities. Will this improve?
Brokerage
- Office Tenant Rep. An extraordinary amount of lease will be expiring in 2023 (partly bc tenants signed 3 year leases in 2020). Could there be a lot of opportunity here?
- Office/Retail Leasing - I imagine this will continue to be difficult.
- Investment Sales - Similar to Acquisitions.
Other areas that I'm unfamiliar with.
- Loan Workouts/Distressed?
- CMBS or CLO
Thanks.
Would think more long-term if I were you and just look at roles you enjoy, no point of taking something just for the sake of job stability if you are going to hate it.
2023 is going to be a rough year in my opinion. Rates, cost of construction, and a potential of reduced demand due to a recession are all on the horizon.
With that said, if you're looking for a job and stability, then loan workouts, special servicing, etc will be ramping up. But as the person above said, having a job and being happy are two different things.
I am particularly concerned about job security as well and unfortunately not much we can do. I am in acquisitions, but we are a cyclical business like most industries. We had a decade of amazing growth and now we have to accept the chance of a downturn.
Why would loan workouts be stable compared to the rest? Is it because it is more salary-based?
As rates are rising, many properties will be underwater as far as values go. Hard to refi and hard to sell. Special servicing and workouts will beef up their divisions to try to clear bad loans/assets off the books.
In a higher interest rate environment, there aren't a whole lot of Real Estate deals that make sense. My opinion is this:
The FED continues to raise rates in efforts to combat inflation and squash the "frothiness" of the capital markets in general. Unlike '08, I don't believe RE or CRE to be at the center of the problem. However, with an affordability crisis in the real estate market, the government is going to find ways to incentivize developers to work through the "tough times" and create more supply.
Over the past few years, the narrative to unlocking value in Real Estate is by pushing rents and increasing your topline revenues. I think we will see a migration towards other "value creation" plays through creating operational efficiencies. The government has already rolled out incentives like this in the Inflation Reduction Act in the form of Tax Credits. Rather than new cabinets, flooring, fixtures, and countertops, I think that there will be more value in investing in upgraded HVAC systems, water-efficient fixtures, solar, and overall investments in operational cost savings. After all, you can only raise workforce housing rents so high.
Much like the principle of spending 7k a unit to increase rents by $250/unit. What if you spent 7k/unit on positioning your asset to decrease operational costs by $250/unit?
The crazy part is that you can finance 100% of the eligible costs through a C-Pace loan, claim all the tax credits, and increase cashflows through the efficiencies created. All this with no out-of-pocket expenses. All of these upgrades are financed at 100% LTC at low fixed interest rates over a 30-yr term. This, in my opinion, will be a solution for many owners/developers seeking higher leverage points that are not otherwise accessible.
If you could find a way to educate owners/developers on how to take advantage of government programs, reap the tax incentive rewards, and increase the cash flow of their assets - all while increasing the longevity of the asset itself - you would be positioned to do very well during the times where deals "don't pencil" otherwise.
Facilitating the operational playbook of how this is done would win you a lot of business over 2023 and the years to come.
Thoughts?
This is a valid perspective. The inflation reduction act has a ton of incentives as you stated before. I need to dig in more, but I think there are incentives for simply developing an energy efficient unit above a certain classification. However, in terms of operation savings... that seems tough to pull out $250/unit in savings with HVAC, water-efficiency, solar, etc. Many of these operational savings would be absorbed by the tenant and wont move the needle much for them. Am I making sense?
You are spot on with educating oneself with government programs and tax incentives. There is a lot to be understood from the Inflation reduction act and value for developers.
You've been in the industry for 7+ years, it sounds like... you really shouldn't be focusing on where the opportunity is for the next 12 months. This is a field that rewards people with horizons that go out longer than a few years. Business is cyclical; if you have your choice of jobs, take the one you enjoy doing the most, because you'll have the most success in that part of real estate. If you don't, take what you can get and live to fight another day.
Careers aren't made in a year. Think longer term
So, first, this is a very good question that I think anyone on or about to be on the job market (or forced on to the job market, as seems the OP's case) should be thinking about.... what is best in today's market (i.e. acknowledging that things have shifted, potentially very significantly). So here are my general thoughts (note, this is for general audience, not really meant as direct advice to OP, they have enough YOE to make a personal call).
- When the capital markets are in turmoil (which is def the case today), transactions will be scant and hard to execute, and developments hard to start/execute.... thus don't expect tons of hiring in those areas (and yeah, layoffs are def a risk factor). SO... if you see this as your long-term area (i.e. acquisitions, cap markets, lending, development, etc.), you may need to detour for some time.
- Leasing markets are somewhat independent but can get hurt by recession (office market feeling it already with all the WFH and now tech slump stuff), so leasing brokerage also likely to slow. BUT... there will still be deals, so not an area to ignore.
- Asset management, and all the functional areas that support it (i.e. appraisal/valuation, prop. management, investor relations, etc.), must still occur! In fact, there is often more to do here and more needs and even opportunity for value creation. Back in '08 times, a lot of acq people became defacto if not outright asset managers or support to AM by need (and need/desire to keep a job). A lot of 'distress' assets (like on lending and structured finance side) require more 'asset mngt' work... so jobs in special servicing, workouts, etc. increase (a lot of brokers/originators may land or get transferred here). Thus on net, it's harder to manage assets thus more people will be tasked to do it, all else equal.
- Distressed/opportunistic investing becomes popular again, and if this follows like what happened post-08 and during those few months of covid 2020, there will be a lot of attempts and efforts to buy distressed deals (loans, properties, dev deals, you name it). This could be a good place to seek jobs, and clearly, many people will get shifted there as firms shift strategy, even if very short-lived.
- Of course, there is a big difference currently that confounds this period with 08 or even covid, that is of course rising interest rates, tightening fed policy, and general level of inflation. "This time is different" (I think they are all different), so the natural advantages of buying stuff with cheap debt and liquid equity (i.e. what made the private equity firms so rich this last decade) will be harder to execute (this was the play in post 08 world for sure). Now, if big recession hits, will rates fall and the fed retreat? I'm sure, but that may not be the experience of 2023 (I mean nobody knows!). So the winning "players" this time may look totally different, and thus the job opportunities may shift too! (i.e. firms with massive cash and long hold periods are probably in best shape, like SWFs)
All that is just market condition talk, and can change rapidly, and also probably varies quite a bit by market and property type. As to strategy to follow for finding "best opportunity" or most "upside" as the OP lays out.... Here my general thoughts....
- A legit RE job is better than no job and even one in some other random field. So, if you need to do prop mngt, loan servicing, appraisal, etc. to make a paycheck, no shame in that game! If it's like 08, you can pivot back in a few years and just explain that was your "temp" job to pay the bills (i know tons of people who did this). Alternatively, you can wait tables or drive for uber while being an active "hunter" or do random "consulting" (this works better for some, but many it's just a fancy way of saying "unemployed"), and then be picky in job hunting and "wait it out"... to be honest... I'd personally go the other route if I had to (I think anyway), but I can understand/respect the other, very personal (I'm waiting to have my next Uber driver tell me they are also a commercial broker, its gonna happen!).
- For some, getting more or less forced out of one's path/field may end up leading to a big shift that is permanent and actually looks better long-term (like don't measure what happens for a year or two)... this happened to A LOT of people in 08 given the protracted nature and extreme impact to CRE and banking (this is very much my story tbh). So, perhaps you should take the time to be humble and reassess, and maybe you will be better off doing something that will not be what you thought was ideal at first (i.e. don't concern yourself with what WSO would find..... prestigious...)
- There will be opportunities for new modes of business, property types, deal types, etc. So, keep your eye out for shifting trends and get ahead of one now. Several of the above commentators have alluded to this, and its a good thought. WeWork and co-working were born out of the excess sublease space market of 08 and the need for small startups and solo operators to need cheap/flexible space..... If Adam N had not been such a well... him.... it probably would have worked out (and I'm sure it is and will for others). Look for stuff like that, and if it fits your interests and skills... consider doing it!
- Bottom line.... do something, stay busy, keep networking/engaged, learning (maybe good time to go back to school if that fits long term plans), and consider things you may never had. These 'cycles' happen and will happen again and again, no reason to give up!
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