Can someone tell me the truth on CRE Brokerage profitability potential

Hi guys,

I just landed a brokerage internship at a top shop in a secondary market for next summer (I'll be a rising junior). I've been reading a lot of threads on this site recently about profitability within the brokerage side of CRE and it seems to be all over the place in terms of salary/potential commissions that could be earn. Most people on this site look down on CRE because they don't think it's "high brow" finance. Which is might be why they are downgrading the potential profitability upside in real estate.

Most people are saying that's it near impossible to reach 7 figures in brokerage. However, I know for a fact that everyone on good teams in Primary Markets (NYC, LA, SF, CHI) can easily touch that 10 years into the business if not sooner. I don't see why working hard and networking correctly couldn't lead to this success.

Why is everyone downgrading brokerage profitability?

Cheers,

Comments (16)

Most Helpful
Dec 3, 2019
Jwarnert:

I've been reading a lot of threads on this site recently about profitability within the brokerage side of CRE and it seems to be all over the place in terms of salary/potential commissions that could be earn.

That's because brokerage income is all over the place - even year to year with the same team or even same person. It's almost entirely deal, and thus commission, dependent. There's no way to ballpark comp like with entry to mid level acquisitions or development.

Jwarnert:

Most people on this site look down on CRE because they don't think it's "high brow" finance. Which is might be why they are downgrading the potential profitability upside in real estate.

Maybe highschool wall street superstars do, but the real estate forum has been growing right along with the industry this cycle. Real estate is hardly the red headed step child of the industry and I believe the RE forum is the second most popular on this website, after only the banking forum. Jonathan Gray is the heir apparent of Blackstone. We're taking over.

Jwarnert:

Why is everyone downgrading brokerage profitability?

I think you are taking the wrong message from what you are reading. No one denies that top brokers absolutely kill it. What people accurately point out is that you may not make a commission for 12 months after you become a broker. This has nothing to do with long term earning potential in the role.

    • 9
Dec 3, 2019
Jwarnert:

Most people are saying that's it near impossible to reach 7 figures in brokerage. However, I know for a fact that everyone on good teams in Primary Markets (NYC, LA, SF, CHI) can easily touch that 10 years into the business if not sooner. I don't see why working hard and networking correctly couldn't lead to this success.

I assume this is the real crux of the question, given the title of the post.

You are absolutely correct that networking and grinding can lead to success. But as @CRE touched on, brokerage is an extremely volatile business unless you are a true superstar. Even in that case there is volatility, except that you aren't touching real lows, just relative ones.

That being said, assuming that "everyone on good teams can touch 7 figures" is sadly misguided. I mean, yes, it is possible that with ten years of experience, someone on the Harmon & Spies team could crack 7 figures in a good year, if only because of the favorable splits. But that wouldn't be a regular occurrence, that's a rainmaking year for that person.

I think the consensus on brokerage is that if you are really willing to grind and put in long weeks (including the kind of after-work networking that is so crucial) then you can absolutely succeed. My own thoughts on the future of CRE brokerage notwithstanding, that doesn't mean that this is an easy or sure path to making 7 figures a year. That is a number relatively few brokers reach even in good years. And beyond that, it means enduring 2-3 years at least of making very little and working your ass off for the privilege.

    • 1
Dec 3, 2019
Jwarnert:

everyone on good teams in Primary Markets (NYC, LA, SF, CHI) can easily touch that 10 years into the business if not sooner

What @CRE and @Ozymandia said above are completely accurate.

Elaborating on the sentence above a bit more: easily is a drastic understatement. It is not easy, it's incredibly difficult. The goal of a broker is to make it appear easy because that's how people get to trust them more.

10 years into the business has survivor bias in of itself. Most people wash out of brokerage because they want to be in more control and/ or have a more stable income (move to the ownership side- aka REPE/ Development) or because their personality isn't cut out for brokerage (mine isn't).

It's a grind. You'll see many former military/ former athletes in brokerage because they're great at putting their heads down and putting in the work. Got voice mails from 20 follow up calls this morning? No matter, knock out 20 more after lunch. Lost out on a deal to your competition? No matter, keep up with that person and see if you can get the next deal. If that is your type of attitude you can be successful. If you chase the money only it'll be a difficult road.

Income is volatile. The last several years we've been on an upswing in the markets. You see some insane income. Some will have insane income on the downturn too. If you are interested in it and love to grind away, by all means go be the best damn broker you can be.

"The three most harmful addictions are heroin, carbohydrates, and a monthly salary." - Nassim Taleb

    • 4
Dec 3, 2019

If I lived a life close to the brokerage falsehoods portrayed on this forum, the buy-side would feel so sorry for me that I'd never have to negotiate a fee agreement. Yet I find myself doing it on every deal...

FYI - for every team of hitters (usually like 3 dudes making over $1mm) there are about 20 people under them making it happen. If you want to do legit work, you have to earn it. Unless the team is macro and nichey in nature, you'll have to go to a primary market.

Dec 3, 2019

Someone at HFF told me average commission produced per broker pre-merger) was ~$700k before splits, house take, etc... Let's say house takes 50% and broker keeps 70-75% of remainder, that is $250k take-home net pay.

I had heard that a growing problem was a lot of new Directors making less than they earned as an associate even 2-3 years after switching to production considering a well compensated associate can make $150k+ all-in because they get a small piece of so many deals plus a base salary and year-end bonus. Obviously compensation structure varies wildly from firm to firm.

    • 1
Dec 3, 2019

That's typical across the spectrum, and just a bullet that must be bit. Your MD can make this infinitely more difficult if they're a dick. The good ones will staff you in a more hands on roll as that date comes to fruition, and continue to do so with the scraps. Lots of attrition during the associate to production switch -- lot of MSRE candidates pop up. Make sure there's a lane for you, or make a switch while you're still young/valuable and pray everyone stops buying each other (looking at you HFF). RIP HFF.

Young guys - this should be a HUGE item during the interview process, flush out your path before you lock yourself into an MD. You will forever be a "XX's Guy", that can be good and also terrible.

    • 1
Dec 3, 2019

Get that split in writing - I got fucked this way running tons of tours and answering all investor questions while getting 2% or less of commission.

    • 1
Dec 3, 2019

"Well figure out splits after it closes"

MD/VP proceed to ignore any work that happened before it went U/C.

Funniest
Dec 4, 2019
logisdics:

"Well figure out splits after it closes"

Too soon..

[I look out the window with a thousand-yard stare as Fortunate Son plays and a squadron of Hueys flies overhead]

    • 2
Dec 3, 2019

I have heard the same exact figures, albeit mostly geared towards primary markets.

"The three most harmful addictions are heroin, carbohydrates, and a monthly salary." - Nassim Taleb

Dec 3, 2019

We had a fairly low level guy who has been in the industry over a decade close like $3.5mm in gross fees last year. His typical year is probably never more than $400k gross though.

Dec 5, 2019

Tax man gets paid

Dec 5, 2019
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