Why does everyone want to be an analyst not a broker making way more money?
It seems everyone wants to be an analyst and not a broker. Am I missing something?
A broker often makes over an analysts entire salary in one deal. It appears a good broker with a top 5 shop in most major markets is making 250-1,500,000 a year. Mediocre ones are still pulling over 100k. On the other hand analyst starts out at around 60k all in and maybe goes up to $140k all in if you are lucky but typically stays under 100k even at associate level (outside new york). True or am I under estimating analysts pay?
because the majority of brokers that enter the business make jack shit
You are not underestimating analyst's pay, you are grossly underestimating the difficulty of being a successful CRE broker. An analyst role is a stepping stone to many other positions in real estate, including a brokerage role.
Having success as a broker is extremely difficult for many reasons, the first being that no seller worth his salt will list a property with you unless you demonstrate some sort of advantage or track record over the countless other brokers competing for their business. Secondly, no reputable shop that is generating commissions that, in your words, "makes over an analysts entire salary in one deal", is going to hire someone to a producer role and put their reputation and resources on the line unless that person has a demonstrable mastery of the business and their product type and has had time in the industry to build a rolodex. Those two facts alone are a pretty huge barrier of entry into the world of large-deal CRE brokerage, not to mention the personality requirements and potential initial financial strains.
So (generally) in order to even get a crack at brokerage with one of the big players, you have to do your time and learn the business another way, which is where the analyst role comes in. That is not to say that their aren't the rare few Hyper-Type-A guys that rise from the bottom of a Marcus and Millichap sweatshop to become the next Glen Kunofsky or whatever, but those cases are very rare.
I also bet you would be surprised by how many of these "successful brokers" are still struggling to pay off their draws despite all the "dealz" they are doing. Brokerage, especially in the beginning, can have some long dry patches, and as a young broker those steady $2000 every other Friday analyst checks can start to look good. Not to mention that as a young guy splitting deals with more senior brokers, a $4 million dollar deal can potentially wind up netting you like $10 grand after splitting with the other side, the company, and your team.
TL:DR: There are far fewer brokers pulling in 250,000+ than their are analysts making $70,000, and there is a reason for that.
I was an office broker at a major shop in a mid market. It was fucking awful because it didn't fit my personality at all.
Now I work at a development shop, and while my income potential this specific year is lower than my theoretical commission potential, it's also guaranteed, I still have the option for a performance-based bonus, I have equity in every deal, and I'm learning the ropes so that I can go out and run my own company in 10-15 years. Plus, my theoretical long-term wealth potential in development is significantly higher than brokerage.
Wall Street Comp Structure - Banker vs Broker (Originally Posted: 02/04/2009)
http://blogs.wsj.com/deals/2009/02/04/wall-street-bonuses-its-every-man…
Interesting article how brokers/traders are paid FAAAR better than bankers when you compare how much money they make for the firm. They mentioned that in an acquisition a 100% retention bonus is industry standard. So you made $1 million for the bank, you get a $1 million retention bonus. They also noted that UBS paid as much as 260% of revenue production. Then compare an M&A banker that brings in $75 million for their bank and they get a $5-10 million comp.
I have a few theories...
1- its far easier to be an all-star trader (logistically, not easier as in requires less talent). When you come in on the ground level, there is opportunity for a trader to quickly start making enormous money for the firm. Whereas a banker, will most likely not have any capability of sourcing business and generating revenue (fees) until he's close to the MD level. This has facilitated traders rising through the ranks extremely quickly by making enormous profits, inherently front-loading the firm's management with traders/ex-traders. 2- the logistics of trading is such that (and correct me if I'm wrong) a trader can generate profits with little supporting staff (relative to IBD). While an MD banker needs an army of analysts, associates, and VPs to support his deals and see them through to fruition. This basic difference in the structure of these 2 divisions allows S&T profits to be attributed mainly to the traders generating the profits, while IBD has significantly more overhead. 3- traders generate revenues basically through their own competence, and while IBD bankers may do the same, there is a significant weight associated to the brand/goodwill of their bank. While a banker at Goldman Sachs TMT have his own relationships, there is no doubt the Goldman name helps snag some of those whale clients. Traders however are generating profits which are for the most part in no way using the banks name as a catalyst (outside of leverage they wouldnt otherwise be able to get and a bankroll they obviously can't sustain themselves). This is demonstrated (IMO) by the large proportion of all-star traders who end up starting up a HF or defecting to go to work for a HF. Compare that to the relatively small proportion of all-star bankers who end up opening up their own shop.Anyone care to weigh in?
Generally, different strokes for different folks.
Specifically:
The odds of you surviving 3-5 years in brokerage are less than 10%. During your first 3-5 years you will be making peanuts relative to your analyst counterparts.
If you do survive you either had a stroke of luck (e.g. landed a massive deal in your first couple years that even after splits allowed you to pay off your draw; or opened a new office for a big name shop in a tertiary market and benefit from inbound business,) or had wealthy/well-connected parents that: paid for your education; delivered you deals from their business associates; flat out paid your bills those first 3-5 years; or trusted you some money
The average to above average broker with 10 years in the business is maybe making around $150k/yr after all splits are paid; there are a lot of mouths to feed. Sure, there are brokers making $500K+ a year, but they've either been in the business for 20+ years, benefited from #2, or likely both. Keep in mind many top producing brokers started in other areas (development, PM, acquisitions, etc.) and jumped to brokerage in the latter years of their career to benefit from their relationships without having to take on as much risk as development, for example.
Learning the hard skills of the real estate business by starting as a analyst will open up more opportunities for you than will being a broker. While some development/investment shops like the brokerage types due to their b dev skills/connections, many place much more emphasis on knowing the hard skills. It's a lot harder to learn a proforma when you're 40 than when you're 20.
Brokerage earnings potential pale in comparison to that of an investor because as an investor you can use leverage and scale. Did someone say passive income? You could argue that a broker could do the same by starting his own firm, but let's be honest, the days of the dudes running with corporate deals out of their garage is quickly coming to an end with the amount of industry consolidation (CW, JLL, CBRE) going on. Plus, corporate controls continue to become more stringent creating the need for execs to bring big names to the table, if for nothing other than optics. Likewise, most brokers view starting their own brokerage as a waste of time because they like (or need?) the infrastructure and name of a big shop to bring in deals.
This isn't to completely bash on brokerage as a career choice or as an entry point into CRE. I know many brokers who make good money and enjoy a ton of flexibility - they love their lives. Even further, if you are young, want to be in CRE, and brokerage is the only opportunity staring you in the face then you'd be dumb not to take it. That's what I did (without #2) and after a couple years I made the switch to development.
When life gives you lemons.
Because analyzing stuff is more rewarding than lying to people for a living.
There are many reasons to choose an analyst role over being a broker. For me, the biggest reason was the skills developed in each role. In brokerage, you develop the skills a salesman. What I find in my firm is that most of the brokers are severely lacking in analytical and mathematical skills. They see the basic numbers on an OM (cap rate, IRR, etc.) and if it looks like there's a chance it could work they'll pitch it to our equities team. We then do the underwriting and rip it to shreds and they go back to the drawing board to look for something else to throw this way.
I know that part of this is just brokers trying to make deals- throw 10 OMs at the wall and see which one sticks. But once in a while they'll get defensive and try to justify their pitch. This is when you truly see the difference in skill sets between brokers and analysts. After we pull up the rent roll and financials and walk them through the reasons why the asset is a pos, you see a change in their facial expression and demeanor as they realize they have no damn clue what they're talking about when it comes to financials and analytics.
I will say this- good brokers have a solid understanding of their market. In some of these secondary and tertiary markets it's difficult to be an expert for a shop out of state, this is when a good broker can be the difference between a buying a good asset and a complete fuck up.