Developer Carry/Promote

Just curious how much money one can actually expect to make in development. I know the big money is made by starting your own shop but curious how much you can expect to make if you stay as an employee at a larger developer.

Ex. You are VP at a large regional developer (multiple $50mm+ developments being built / sold each year), what would a VP expect to make in Carry assuming GP IRR's of 50%+ on each deal? Or 75%+ each deal, any math backup would be appreciated as well.

I know the holy grail is starting your own firm and doing your own deals but wondering how much you can make while still having the security of being an employee at a larger firm.

Comments (49)

  • Analyst 1 in RE - Comm
Nov 27, 2021 - 2:20pm

I just started working in development, so please don't listen to me. But I find it hard to believe that you could go any higher than 600k or so even as an MD at one of the larger developers like Hines, Related, Greystar, etc. Would also appreciate color on this from folks who are high up in such firms or who leveraged their experience at such national development platforms to land in positions of financial success. Obviously, comp that consists of carry / promote can vary significantly with economic conditions and other external factors, but would be great to hear about the potential earnings that could be achieved.

Nov 27, 2021 - 3:12pm

cre01010101

I find it hard to believe that you could go any higher than 600k or so even as an MD at one of the larger developers like Hines, Related, Greystar, etc. 

So I can confidently say that is a vastly low underestimate of what an MD/EVP will make at Hines, Related, Greystar, etc..... no way those are not $1 million near guaranteed each year, with spikes much higher via long-term comp payout. 

$600k all-in top for MD/EVP may be appropriate for secondary/tertiary market officer of an institutional/corporate developer, but even that feels low tbh. 

Nov 27, 2021 - 6:18pm

I think I'm terms of base it would never get above $300-400k but with carry/promoted interest I think could easily clear $1mm in a year where you have 1-2 big sales. I get that it is variable but assuming my example of the Developer achieving a 50% IRR I would be curious to know how that return flows through to the partners, execs and VP's at the firm. What is the typical % of promote a VP can expect to get (I think it's like 1-3%) and what does that equate to in dollars if the project delivers a 50% IRR to the developer.

Nov 27, 2021 - 7:14pm

I may be wrong on this, but I always thought most of deals are set percentages of "carry pool", so like if you are set to get 5%, then you get 5% of whatever flows into the bucket, be it $1 million, $10 million, whatever. How much makes it to that pool certainly is impacted by the IRR of the deal.... but when it comes to this stuff... you can't eat IRR, it's dollars that matter. So the real question you are asking... how much money hits the pool vs. goes to the owner(s) of the firm? Like is that an 80/20 split or what, I'd love to know if there are "standards" but I'm skeptical they exist. 

As a note (and this may be limited to the major markets for sure)... I really doubt $300-400k is the tops for the base salary (I'll admit, I'm even considering my own comp package in making that statement). But, there is no doubt tradeoffs between amount of promote/profit participation one gets with bonus/incentive comp (whether short-term or long-term). Like I've heard MDs at BB i-banks can have like $300k bases, but get total payments of like $5 million in a year all based on their unit/team's P/L. As I said somewhere on this thread (below I think lol), my impression is institutional real estate developers and equity firms are more the 1/3, 1/3, 1/3 model and not like the traditional IB/PE world in that respect (love more people to chime in on this with details). 

Nov 28, 2021 - 12:26pm

I just started working in development, so please don't listen to me. But I find it hard to believe that you could go any higher than 600k or so even as an MD at one of the larger developers like Hines, Related, Greystar, etc. Would also appreciate color on this from folks who are high up in such firms or who leveraged their experience at such national development platforms to land in positions of financial success. Obviously, comp that consists of carry / promote can vary significantly with economic conditions and other external factors, but would be great to hear about the potential earnings that could be achieved.

If you're a senior employee at a mid size firm you can easily hit those numbers, let alone if you are playing in one of the bigger sandboxes (Hines, CIM, Related, etc).

I also have to add, and this cannot be stressed enough, that real estate isn't a business that people get into expecting to earn generational wealth while working for someone else.  It's one of the few industries with a sane risk/reward structure, so being a W2 employee and not taking on risk means you'll (almost certainly) never see a nine figure sum in your bank account or anything like that.  People who want that, spend their time learning the business and networking, and then do their own deals, which can be insanely profitable.  But you can certainly make $1mm+ a year if you end up in a senior role at a big shop.

Nov 27, 2021 - 3:10pm

Trying to estimate "promote math" is fuzzy as hell, as so much goes into structure and terms especially when setting employee payback terms based on such promote/carry. So, I'm just going to ignore that question. Focus on pay range/potentials as I know them, as I do work in a firm somewhat like you describe (well, larger and int'l) but the economics for the development teams, and leaders are probably similar. Note, this clearly can adjust based on market (as the deal sizes should also) BUT.... smaller secondary city developer may actually make "more" from promotes (higher returns can happen) BUT less in salary and normal bonuses (at least that is what I would expect). So, as like all things... this stuff can vary a TON.

Here is my answer...

If you are the MD/EVP (head of office/region as it were) at a major developer, I'd guess your total cash comp will easily exceed $1 million annually on an average basis. I'd guess a base of $300k min (prob $500k average) with 50 to 100% annual bonus plus long-term comp (which could be carry/promote, stock grants/options, deferred cash comp, etc... basically whatever fits the structure of the firm and its deals). So, if a bunch of "really good" deals sell in a year, I'd be they could crack $2 million (or tons more if via a very leveraged GP structure and the waterfall hits), and in years where not much happens, maybe make $600k or so. 

If you drop back one level to VP/SVP level (project executive type, maybe "market officer" for sub-market, smaller market, property type, etc.).... I'd say total comp of $400k to $750k is more reasonable (this is clearly a large range, but literally, I think it could easily span that year to year and market to market). Director level will be something less, but potentially not much less as substantially in base (frankly this will vary tons by firm, some ramp up the base more for title/level promotions, others its participation in carry other LT-comp). Still, I think at most firms, Director is first level to get into the serious long-term comp pool (some may open to managers or even associates on their projects, but I think that is rare at the corporate/institutional development shops tbh). 

So, that those are "beliefs" on the matter. I personally know of "MD/EVP" types scoring out $5 million dollar paydays based on participation/carry of deals/portfolios. I know a guy personally (he is almost retired) who has over a $40 million net worth being a SMD for a kinda unknown developer/equity shop (he did like 45 years career with this firm) and they had some big hits. I am basing the director/VP and then by projection the MD/EVP (note this likely extends to corporate/platform wide roles as well) on my own comp and details/guesses I have on those above me. I will say, a lot can vary firm by firm, and I think I am erring on the conservative side tbh, but that is for "big" name shops. If you tier down... I'm sure it all scales in proportion. 

Final caveat, these are my guesses/feelings on the matters.... I don't walk up to the MDs/EVPs in my firm and ask how much they make! Still, this stuff is NOT that secret or hard to figure out. And fuckers do brag when they leave or get other jobs.... so the longer you are in the industry, the less mystery will exist. 

Final final caveat... some of the MD/EVPs (even at "big" firms) actually do have to invest some of their own money for their stakes (which get promoted/bonused for sure) and even some will have to sign personally on notes with the company... when that happens... the returns magnify as they should.

To note, I am not convinced that "striking out on your own" will make you richer than getting to a top level at a major development firm.... the pay is more "spread out" for sure but if you do invest that (like in mutual funds)... I think you can end the day higher up RELATIVE to risk. Will you become a $100 million person??? Prob not unless you make CEO or something like that!  

Nov 27, 2021 - 6:22pm

What are typical terms negotiated in a promote agreement/contract that a company would offer to a VP level hire? Everyone says development is the exit op and pay gets really good as you move up but nobody shines a light or doesn't know actual numbers. I'm just trying to gauge some actual numbers by using the example in my post. Obviously it's highly variable and can range based on how the deals perform

Nov 27, 2021 - 7:02pm

So I am not trying to evade your question, but I don't work for a firm that awards carry/promote (in part because we rarely have structured equity models with JVs and waterfalls) instead uses other forms of long-term comp like deferred cash and stock grants, and frankly I'd be guessing at how firms award incentive comp based on payouts to the GP from carry/promotes. 

I will pass along something a mentor of mine shared, and say it "could" be helpful. He basically described the pay packages the "top" types get (more the MD/EVP) at institutional investment firms (was not direct at developers, but seems would be meaningful for large corporate/institutional developer types), as 1/3 salary, 1/3 bonus, 1/3 long-term comp (which is where carry/promote comes in). Personally, I think at the more "highly leveraged" developer shops it's more like 1/3 salary, and 2/3 long-term or even 1/4 salary and 3/4 long-term.  So put this to numbers.... $300k base, $300 annual bonus, and $300 long-term value (annual contribution of value, not payout, that comes when cash comes from the deals/fund at exit, so could be like 5 years at once or 1.5m in theory).

The awarding of "percentages" of a carry bucket is very arbitrary, and frankly more irrelevant than you may realize. What matters is how the firm assigns cash to the employee award bucket... that will be subject to its own "promote/waterfall" structure totally independent of the one that determines how much the devco keeps. It will likely have a "perf" requirement above and beyond return of frim capital/costs (which will likely include all the salaries, travel, meals, etc. of team) net of developer fees charged to the deal (those might get shared, but usually just cover costs like salaries). 

Wish I had better data on this (I am hoping someone replies with more detail!), just from what I know its pretty hard to standardize. I'll also note that "carry/promote" that comes as a term of an employment contract is not always carry/promote in the sense that you literally get awarded shares/units of promoted class of the GP entity. It is just a means of calculating a cash payout/bonus. If are a "partner" and have some stake/at-risk capital, then you may 100% get the real deal promote, but that is not what is being described most of the time. If you can't sell your interest, and your "ownership" of it is contingent on your sustained employment (it almost always is), its just a form of a bonus (and many are "revocable" at employer discretion if you read the fine print). So, if you aren't getting "real" carry/promote (in the ownership sense), whatever the "deal" is just some fun fiction to decide your bonus when the deal sells and the developer firm gets the big pot of cash. 

Nov 28, 2021 - 3:19pm

So, from my personal experience (current firm for sure and others I've worked with and those I'm generally aware of)... acquisition is a "stage" of a project, not a function that gets split up (the reason "acq" and "am" are departments at investment mngt shops mainly comes from having multiple funds/mandates/sep. accounts so it makes most sense to centralize those functions and then "firewall" the fund managers to avoid conflicts of interest... in devcos, I've never heard of such as an issue existing). 

Usually I think "acquisitions" is an "assignment", meaning you are on that as all or part of your time allocation as needed/directed to do so. I do know firms that have a senior person (like Director or VP level) who is responsible for acquisitions for given market/region, and has no direct project management assignments as a result. I also know of analysts/associates who are tied to those people and then not assigned to any current projects. But, I really don't know if pay is structured that differently for these type of people (I'm pretty sure the analysts/associates are not compensated any differently, just the standard pay scale + bonus), the senior people's pay will be more unique to them regardless if focused on a task like acquisitions vs. proj. mngt or whatever. Again, this can be different for every firm, so if someone knows of a different means, explain it (I'd be curious).

Also worth noting, I really have know idea how you could even do acquisitions of development project without the full engagement of the development team. Entitlements, design, pre-construction, even leasing/sales, all get started before land closing lots of the time (and frankly need to be part of due diligence). So while someone may be a lead "scout/negotiator" or "modeler/analyst"... a full team would need to be there from day one. It's not like an "acq team" would buy some land and then throw it over to a dev team. I can't see that ever being the case.  

Nov 28, 2021 - 7:48am

So many variables, but if you are dead set on being a W-2 employee and are incredibly gifted, then you might want to look at a large REIT that does their own development and aim for the top. The head of development at a large REIT is going to pull in $2M+ including stock awards. This would mean getting some development experience then getting an MBA and climbing the ranks, likely putting in many years before getting to the top.

Nov 28, 2021 - 11:31am

I don't think I'm dead set on being a W-2 employee but I think a lot of people don't totally understand the risks and work it takes to branch out on your own. You need $500k+ of liquid money to fund predev spend on 1 deal. You will be personally signing guarantees on your first few deals as well and if for whatever reason (even something outside your control like the pandemic) happens and your deal doesn't hit you could be left with absolutely nothing. This is especially daunting if you have a family to provide for. This is before getting into all the work that you will have to do yourself that an MD or VP would be able to pass down to lower level employees to handle. I'm not sure I will want to be doing analyst/associate/development manager & VP work all by myself. You might make 3x as much money doing your own deal but you probably have 3x as much work you have to do as well.

Nov 28, 2021 - 11:40am

I would second the above comment. Size/scale of the operation matters a lot, but REITs (and any publicly traded entity) can bonus via stock grants, stock options, and even advantaged employee stock purchase programs that can be very lucrative over time. This is how tech firms payout so much, via stock grant (of course tech stocks have been known to shoot up more often than REITs/REOCs so hence the differences in reported earnings very often). 

Nov 28, 2021 - 1:06pm

I would assume that at a VP level, your carry would be something in the 100-200k range. You are probably making 200k base + 200k bonus, so a couple hundred thousand in carry that vests over time would make sense (that is ~ my split, but I'm at a debt fund).

On your question on the math: normal conventions is that carried interest is paid as a % of IRR over a hurdle rate.

As an example: 20% over a 25% hurdle. IRR is 35%, so carry is (35%-25%)*20%=2%. Then the 2% will get split by the carry participants.

The thing about carried interest is that not all deals pay/hit the hurdles. Some deals you strike out, some deals hit grand slams. Getting carry at the fund or corporate level (as stock/equity awards) can help smooth that out

Nov 28, 2021 - 3:28pm

Not sure it is easy to say blanket which side pays more. The jobs and return hurdles are diffferent.

If you are in development, you are looking for 20+% returns. But if you only make a 25%, then your carry is only say 20% on that 5%, so 1% to share.

I'm at a debt fund. Our hurdle is 6%. We are currently returning a 15%, so the carry pool is 15% of 9%, or 1.35% to share. 

If the equity amounts were all equal (and they rarely are because debt/equity funds tend to be much larger than development funds), I could get paid more because on a risk adjusted return, I did better.

It could also work the other way. The developer makes a 40% return and gets a larger promote so there is more $ to share there.

But as all investment professionals say, past performance is not an indicator of future performance. Hard to gauge how you will come out in a vacuum when every deal is different.

Most Helpful
Nov 28, 2021 - 9:18pm

So.... first just an observation... I have no idea on how figure out who is a "top 20 developer" so I'll just go with "big name" for working purposes... There are fund raising rankings (PERE 100) and AUM rankings (IREI 150), so I guess you can make a list of "top 20" asset managers...

Anyway.. development pay/promotes are going to be deal centric a lot of the time... so the "firm" is not really the object to obsess over to figure out pay structures (it does matter, but a small boutique developer can be just as competitive as a "big name" in all reality... don't see this correlation with firm size in practice). 

Investment managers can and of course do also pay based on profits to the firm... which have much more to do with size of AUM then general fund profitability in all reality (thus... size matters in this case for sure, a mega fund can pay more than a boutique by nature). BUT, size also has the disadvantage of diminishing returns to scale if profit doesn't magnify evenly... thus.... it is very possible for a senior person at a much smaller "REPE" type to out earn their "mega fund" peers (at least for a given year, or cycle for a fund). This is the classic 1% of the bigger pie vs. 5% of the smaller dilemma.... it's not always a given that the bigger shop people win more. 

Personally, this discussion is fun.. but really misses the point.... how much you make is partly due to what type of shop you work at, but really has a lot more to do with your own performance, ability to execute, network/politic, etc.... So, some are best suited for "mega" developers and investment managers... others really will max total potential at smaller, regional shops that are really "no names" (at least in the WSO sense of it).

It would probably shock the WSO world if they realized how many VPs at unheard of companies in cities like Tampa or Phoenix with only bachelor's degrees from the local state U are making between $500k and $1 million on the regular. This is one reason real estate is so unique, you can be a "no name" and out earn "big names" who may 10x for their degrees! This is very not true (at least on any legit relative basis) with the general world of I-banking, private equity, and hedge funds (I guess is potentially true for HFs, more luck anyway).

Nov 30, 2021 - 2:45pm

I'll chime in because, hey why not beat it over the head here. But the money is in the equity. Fortunately, or unfortunately, being a W2 employee, you will top out around $500-$750k in real estate finance / development unless you hit senior management and than you can move higher. The only times (usually) you get above 500-750 are if you are in a sales roles focused role, such as loan originations or acquisitions where volume plays a part. Or a commissioned area of real estate such as brokerage. With that said, to hit the big payday you need to own or have some equity. Most people might hate to hear this, but employees are pretty replaceable. You can also find another person to asset manage your asset or do the underwriting etc. This means salaries will generally be compressed, albeit in our industry, they are extremely high. 

Dec 13, 2021 - 11:01am

This is not a straightforward topic and so many considerations/variables. My few cents and considerations on reading this thread, and currently working for a firm providing carry.

  1. Good luck hitting 50% IRR on the regular. you might smash it out of the park on one or two deals and hit that at the LP/GP level but rarely the project level.
  2. Development deals take time and there is a correlation between profit amount and time invested. So its actually about how many deals you are buying a year and their horizons rather than selling if you're setting yourself up for the long term. Might be 3-5years before that first pay out.
  3. How much skin in the game does your company have? Are you 100% owner developer? or Co-investing 10% with a silent partner (bank/PE firm) as the other 90% (FYI this is how most mega deals are structured)
    1. if your project makes a 50m profit, then as the investment manager you're only taking home 5m at the GP+LP level (plus fees) which is then for distribution amongst those entitled for carry.
  4. And who is entitled to carry? At most institutional developers there will be a lot of people drinking from the same cup and some taking bigger sips than others.
  5. All of a sudden that 5m profit split between 10-20 people is starting to look pretty skinny
  6. How were you granted equity? Unlikely you got it for free and thus probably have an company loan with a chunky interest rate, essentially your personal hurdle rate) which will come off the balance of your distribution.
  7. Is your project a one off or part of a fund? If it's a fund, pretty likely (but not always) that the returns are pooled and you need to achieve say 15% hurdle at the fund level. So you smash your project, but then another guys tanks and as the deals are cross collateralized, and your profit gets hit taking another chunk out of your carry.

I could go on.

In summary, carry is a bit of a lottery ticket.

Yes it has the potential to bring in some mega pay days, but the number of people taking home multi milions of dollars a year is small, and often only seen by those who have climbed very high up the ladder and thus usually been with their firm for decades.

Dec 13, 2021 - 7:06pm

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