Why acquisitions over brokerage?

So it seems that acquisitions is glorified over brokerage (and when I say brokerage I mean jll, cbre, c&w institutional teams). I genuinely don’t have answer so I’d appreciate anyones take. Compensation wise it seems that you can make more im brokerage and early on as well. Is this incorrect? Is it the type of job in particular that’s less enjoyable?

 

Hypothetically an analyst on a brokerage team has unlimited potential, however, an acquisitions associate at a REPE will have a much higher base. Here’s the usual

Senior Analyst/Associate at a brokerage:

$65-70k base

20% bonus

$10-20k Deal tips

$90-110k all in

Associate at REPE

$100k base

20% bonus

$120-150k all in

If the brokerage team does a ton of volume, those deal tips can put you higher than REPE associates but it’s few and far in between

 

I work on an institutional team and the base and bonus are standard across all of the top brokerages. The only variable are the deal tips. On god you did not out earn a REPE associate this year.I'm sure when the market was hot, brokers out earned REPE associates but it's very cyclical. At least the REPEs cash flow in times like these whereas brokers get fucked because there is no deal flow.

I should also note that the figures are for first year associates/senior analysts. So like 1.5-2 prior YOE

 

Are these accurate? Or are you accounting for a MCOL place and not an NY/SF?

Becauseeeee... if you are referencing top markets, that pay is booty and everyone knows it. Again, if your OP refers to all markets (HCOL included), you will see analysts/senior analysts on brokerage teams taking home $150k-$200k+

Source: myself, analyst on NY brokerage team

 

It comes down to preference and risk profile for a career. In brokerage you can make millions in a year if you do really high volume of institutional assets, or you could make literally $0 in a given year if no deals close. A lot of agents leave brokerage within the first 2 years because they make so little money and don't have parents/ a partner/ savings to get them through that time. If you can tough it out, and with a little luck, you can make hundreds of thousands regularly once you establish yourself and make connections with groups. Meanwhile, in acquisitions you are paid a high salary as a base and paid a healthy bonus from the beginning. You won't find too many acquisitions roles making less than $85k-95k in their first year and usually more than that. Acquisitions will make $200k+ once they hit the VP level all in and potentially much more if they get carry, but they will have a high baseline of income to lean on for a majority of their career. 

If you are ok with the risk of making potentially no money for a year or longer, and also perfectly fine with making cold calls and getting rejected when reaching out to sellers, then brokerage can be extremely lucrative. There are also roles like lemickey described where you are the support staff to brokers and make a decent amount themselves, but not the "big money". A ton of people also prefer acquisitions over brokerage because a lot of people go into finance because they want to be the one investing and not being the middle man in investments. 

 

Are these support staff roles to brokers just "Executive Assistant/Brokerage Assistant" job titles? Can you please list any other job titles these roles might be called?

Working in brokerage on a good team is my goal ideally in DSF or IS but don't think that's reality right now. So maybe one of these support staff roles would be better to target with current macro state? Only thing is when I see those job descriptions most of the time it wants 1-3 years experience as an executive assistant in a corporate environment, which I do not have 

 

I've seen "financial analyst" as the person who is the support staff on brokerage teams who does the actual modeling for deals. "Executive assistant" will more often than not just be the person who schedules meetings and takes calls for brokers...think a secretary type role. Support staff is typically associated with the people on the team in marketing or finance (who makes the books look pretty and the ones who make the models). Brokerage in general is going to be in pain because of the slow down in deals and without the fee generation there are going to be layoffs and hiring freezes of salaried positions. 

 

You want an "Analyst" / "Financial Analyst" role.

Other roles are going to be more geared towards admin or marketing.

If you're seeing the job reqs as admin experience, you're not looking at the right jobs.  Analyst roles are usually available with 0 YOE if you have some financial acumen and network your way in (my former institutional IS team regularly hired analysts as their first job out of college, we'd just give them a very simple modeling test in the interview to make sure they grasped the most basic concepts, and then the rest was based on personality fit).  If they do post prerequisites, it will be along the lines of financial modeling experience, finance/econ major, etc.

If you want to break in, I'd suggest networking with anybody in the industry you can.  Even if they aren't a broker, they'll likely have at least a couple they are friendly with and can refer you to.  Get an informational interview with them / coffee chat / brief intro phone call so you can be on their radar next time they want to hire, and repeat as much as possible.  Brokerage analyst roles don't have a very high barrier to entry in terms of skills or pedigree - you just have to be persistent and get lucky.

 

By support staff, him and I are referring to “production analysts”. On the debt side, there are called capital markets analysts and on the sales side these are called investment sales analysts.

The job description should specifically reference that you are supporting a broker and managing transactions. Otherwise it will be back office admin stuff

 

People think acquisitions is more analytical than brokerage, but in reality its only a slight difference... both jobs eventually become mostly sales and relationship driven at higher levels.  

Brokerage = "let me sell your deal" / "you should buy this deal from me", Acquisitions = "you should pick me as the buyer" / "you should pick me to invest with" ... its kind of the same thing either way, and you'll spend more time on the phone/networking than modeling once you progress in either role.

The only reason I'd say acquisitions is a bit more analytical is because you're modeling partnership level returns and usually doing some asset management / reporting work too.  Good experience to have.  Brokerage is more fun IMO but higher risk (no salary at higher levels).   People will argue at length here which career path makes more but its way too varied to come up with usable data points, and there's tons of people making a killing in either role at non "prestigious" shops or cities never discussed on this forum.  

 

I would say that it is because in the long term, acquisitions as a group makes more money than brokers do.  If you buy something, you take on risk.  Real estate owners/operators/developers get paid commensurately to the risk they take.  Or that is the theory, at least.  Brokers are middlemen, squeezing out a margin on business done, and don't have any skin in the game.  For every wildly successful broker out there, there are many more people on the ownership side who have done as well or better.  You don't hear about it because brokers are incentivized to trumpet or even exaggerate their success, and owners often aren't.

Lets say I buy a marketed asset for $100mm.  Maybe the IS broker makes a million dollars on that transaction, which is great for them.  I guarantee you that my underwriting projects that I will make vastly, vastly more than $1mm at the end of my hold period (call it five years).  And sure, I might run into macro headwinds like we have in the last 9 months, or botch my execution, and end up making almost nothing for all my time and effort, while the broker walks away with their million with no risk.  But that is the trade-off, and assuming I'm competent at my job, my upside is multiples of that of the broker.  Hence, more people want to be in that space, because no one thinks of themselves as incompetent.

 

Here is why you are wrong.

$100mm acquisition

$20mm equity

2.0x multiple - $20 mm profits

2&20 PE fund - $20mm*20% = $4mm of promote

$1mm/$4mm = 25%.

Do you have 25% carried interest? That MD probably has 10-15% and “makes” $600k on that deal. On the back end. If every other deal goes great.

You make $1mm as a broker, it’s like being paid 25% carried interest on a 2x multiple deal, up front, with no capital at risk.

Deal by deal, brokerage takes the cake.

 

sk8247365

Here is why you are wrong.

$100mm acquisition

$20mm equity

2.0x multiple - $20 mm profits

2&20 PE fund - $20mm*20% = $4mm of promote

$1mm/$4mm = 25%.

Do you have 25% carried interest? That MD probably has 10-15% and "makes" $600k on that deal. On the back end. If every other deal goes great.

You make $1mm as a broker, it's like being paid 25% carried interest on a 2x multiple deal, up front, with no capital at risk.

Deal by deal, brokerage takes the cake.

Just wanted to point out that a broker is definitely NOT making $1mm on a $100mm sale.  The total commission is probably closer to $500k than it is to $1mm, and then the brokerage takes about a 50% cut of that off the top.  I've never seen a 100 bps commission on a $100mm sale.  Also a lot of top brokers work in teams of 2-3 producers + 2-3 support staff, so after the brokerage takes the 50% cut there are a lot of splits among them.  

 
sk8247365

Here is why you are wrong.

$100mm acquisition

$20mm equity

2.0x multiple - $20 mm profits

2&20 PE fund - $20mm*20% = $4mm of promote

$1mm/$4mm = 25%.

Do you have 25% carried interest? That MD probably has 10-15% and "makes" $600k on that deal. On the back end. If every other deal goes great.

You make $1mm as a broker, it's like being paid 25% carried interest on a 2x multiple deal, up front, with no capital at risk.

Deal by deal, brokerage takes the cake.

This isn't comparing apples to apples, though.  Sure, the MD "only" makes $600k on that deal.  But the broker closing the $100mm transaction also has associated costs.  He's got his split with his firm, so slice a huge chunk of that off the top.  He's got a team who also share in that revenue, or get paid out of it.  All of a sudden, that $1mm is looking more like 200-300k at best.  And as a reminder, being the lead on a brokerage team that is pulling down even an occasional $100mm deal means you are in rarefied company.  That's way up at the top of the brokerage pyramid, the kind of role that equates to having 25% carry at a PE firm.

 

Acquisitions is more intellectually stimulating. You are hunting for the perfect deal, not just begging for any listing you can get. You are modeling all kinds of scenarios and sensitivities, not just maxing out every variable to its most rosy. You are quarterbacking due diligence and determining how to negotiate around all the things you find, brokers typically just review leases. You are communicating with equity partners, lenders, brokers, and the seller, all in different ways, whereas brokers are more so playing a one note song over and over... 

 
Most Helpful
VolatilitySmile

Acquisitions is more intellectually stimulating. You are hunting for the perfect deal, not just begging for any listing you can get. You are modeling all kinds of scenarios and sensitivities, not just maxing out every variable to its most rosy. You are quarterbacking due diligence and determining how to negotiate around all the things you find, brokers typically just review leases. You are communicating with equity partners, lenders, brokers, and the seller, all in different ways, whereas brokers are more so playing a one note song over and over... 

This is a very romanticized take on acquisitions.  In reality, "hunting for the perfect deal" is just underwriting dozens of very similar deals every week, week after week, 99% of the time either not making an offer or having your offer rejected.  It's a grind with a lot of effort that feels wasted until your bosses finally decide to overpay for something to deploy capital.

Due dilligence and onboarding a property isn't fun.  It's tedious.  Brokers get to wash their hands of all those gritty details once contracts are signed and close.

Working with equity partners/lenders etc to structure the deal is the fun part, I'll give you that, but only the top people really get to make those decisions.  

I'm not trying to be anti-acquisitions or anything, just want to give an alternate view to those who are job hunting since this forum overwhelmingly treats acquisitions as the holy grail of RE jobs (and influenced me to pursue it tbh).  I've been on both sides and the grass isn't much greener either way, and both jobs have a ton of similarity in that lower level = lots of modeling, upper level = lots of sales and relationship building. 

 

I would agree.

Our underwriting pre-LOI is always quick and dirty. Churn through the deal very fast to see if the pricing guidance makes sense. If we get whack pricing guidance we won't even bid. If pricing guidance is a bit high, we're submitting an LOI at a number we feel comfortable with.

Prior to joining acquisitions I thought it would be rigorous "underwriting" but quickly realized it's a numbers game. We rip through so many deals just on the surface. No heading into the next 12 months it will be an interesting time I think because structure will be very important. The hairy deals are always the most interesting because (using boomer language) you find the most efficient way to "skin the cat".

 

I used to be in brokerage, started out as a broker not an analyst. Used to think being an analyst or senior analyst on a top team was great. Now a few years in, on the acqusitions side finally I see these analysts and they’re smart but what are they really learning. All the OMs are way unrealistic, making crazy assumptions year 1 to justify some made up cap rate they tell you is the going in rate when actual is much lower. So really what are they learning, how to underwrite wrong and not make realistic assumptions? Their goal is to sell the building but I’ve seen from small unknown team to top institutional teams at CBRE, etc make stupid assumptions and throw out factors to make the deal work like they’re easy (like rezoning for example when it’s not guaranteed and could take a year). I’m sure they’re seeing a lot of deals, but are they really learning the right way when they’re peddling ridiculous assumptions to get a deal to work and saying you can do xyz that is not reality. 

 

Do brokers really still put out ridiculous assumptions? Latest OMs ive been getting past 1 or 2 years are decent assumptions that are supportable.

Providing institutional grade CRE pitch decks and excel models at PCNKO.com
 

The same can be said for GPs and ownership groups if you are bidding in a property. You still have to win the bid and at the end of the day all you are doing is just tweaking your assumptions to make the deal work and win the bid. This happens way more often than not and it’s the exact thing you are saying brokers do. 
 

I agree, principals are being more disciplined generally and will use conservative assumptions, but at the end of the day there are mouths to feed and fees to collect. Acquisition fees and management fees to pay people. If you really want to win a deal you will just just stretch your assumptions to unrealistic numbers. It’s all just made up math at the end of the day….no one know how it’s going ti all pan out unless you are just clipping a 3-5% coupon.

 

The same can be said for GPs and ownership groups if you are bidding in a property. You still have to win the bid and at the end of the day all you are doing is just tweaking your assumptions to make the deal work and win the bid. This happens way more often than not and it's the exact thing you are saying brokers do. 

This is straight up wrong.  Brokers are not fiduciaries, and can lie to their hearts content.  Owners will have to support their numbers at some point, and if you knowingly give false diligence to a buyer, you can get fucked.

Obviously there are sleazeballs and liars in any industry, I don't make the claim it's unique to brokerage, but brokers don't have any accountability about it.  So yeah, if I'm selling a building, I can claim that my collections are 99% all day, but at some point I need to provide an arrears report, and if I falsify it, I'm at the very least giving my buyer the opportunity to walk without penalty.  Brokers can make that claim and then skip away scot free.  It isn't the same

I agree, principals are being more disciplined generally and will use conservative assumptions, but at the end of the day there are mouths to feed and fees to collect. Acquisition fees and management fees to pay people. If you really want to win a deal you will just just stretch your assumptions to unrealistic numbers. It's all just made up math at the end of the day….no one know how it's going ti all pan out unless you are just clipping a 3-5% coupon.

Ah, I see you meant that ownership will lie to their investors.  That seems more likely - of course, I'd still argue the same as above, that there are real consequences to habitual mendacity for an operator.  It's assumed to be part of the business for brokers; they thrive on selling that lie, because they don't have to risk sticking around to see the fallout.

 

On the GP side you have to live with those assumptions, the majority of brokers that focus on middle markets don't care they just want to say it's a decent cap rate. A lot are also not very sophisticated/intelligent and from what I've seen can't really answer questions/are not very put together outside of major brokerages. You can tell when they send emails without capital letters and are not organized.

But anyway, the brokers can say what they want and the majority just want a commission. The GP has to live with it when they have investors money in a deal and need to explain why xyz over the years of the investment. I'd say brokerage in general has a lot of shady characters (real estate in general).

 

Agree- but that is also what makes brokerage good training though. You learn to understand the drivers pretty quick when you’re reverse engineering them to tell a story over and over and over.

 

Lots of good points here. However…People forget that brokers don’t assume any risk and get paid at closing. On to the next. Principals assume risk and therefore can get fucked if bad assumptions are made or if a market tanks (covid). As someone did mentioned before me, it’s personal preference.

At the moment. I enjoy brokerage greatly. But I am still relatively new(ish).

 
Detective Kimball

Lots of good points here. However…People forget that brokers don't assume any risk and get paid at closing. On to the next. Principals assume risk and therefore can get fucked if bad assumptions are made or if a market tanks (covid). As someone did mentioned before me, it's personal preference.

At the moment. I enjoy brokerage greatly. But I am still relatively new(ish).

I mean technically, when owners feel pain, brokers feel pain, because reduced volume means fewer commissions.

That being said, as far as potential compensation goes, it isn't "personal preference".  The ceiling on comp is vastly higher if you're on the sponsor side rather than the brokerage side.  Will some exceptionally successful brokers out-earn some of their ownership counterparts?  Of course.  It's not 100% one or the other.  But in most cases across the curve of "seniority" or success, people on the ownership side will be making, or be worth, multiples of what their broker counterparts do.

And for what it's worth, it is perfectly fine to be uncomfortable taking on the risk that developers and owners take.  Not everyone wants that.  Some people are better salesmen than others,  and not everyone has the same risk tolerance.  But it's actively disingenuous to imply that top brokers and top developers/owners/sponsors are making the same amount of money

 

Most of my comment wasn't in relation to comp, so I should've stayed on topic. However, if the market goes down and owners need to dispose the brokers in turn make money off the transactions. We make money when the market goes up, and when the market goes down. Unfortunately the reduced volume we are seeing now is definitely impacting both sides. Especially brokerage. 

Disclaimer: I am not saying one is better than the other due to the fact that they are two different animals. 

 

 I hope you aren't trying to suggest that brokerage is better for riding out downturns? if the market tanks then transaction volume tanks and thus brokerage revenue tanks

 

 I hope you aren't trying to suggest that brokerage is better for riding out downturns? if the market tanks then transaction volume tanks and thus brokerage revenue tanks

Don't be ridiculous.  Of course brokers get paid bank in a market downturn!  Plus brokerage firms are well known for making sure they come out of pocket to keep on talented staff even if they're not bringing in new business, it's one of the industries known for employer loyalty!

 

I work in IS and have been for close to 5 years now.  I have been wanting to make the switch for one main reason: conviction.  I feel that I don't have any in IS.  When I am preparing BOVs my assumptions are to make the client give us the listing.  It is very much beg for forgiveness if we are wrong on values.  I don't have a fiduciary responsibility to my client necessarily.  I act ethically of course but at the end of the day we are chasing a fee and that's it.  I feel like brokers are the used car salesmen of the industry.  I think that the majority of people that get into real estate to be an investor, not to hock other people's shit.

 

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