Vault Guide To Real Estate Careers
Vault Guide To Real Estate Careers
For those hoping to climb the ladder of success, [Vaults] insights are priceless. Money magazine The best place on the web to prepare for a job search. Fortune [Vault guides] make for excellent starting points for job hunters and should be purchased by academic libraries for their career sections [and] university career centers. Library Journal The granddaddy of worker sites. US News and World Report A killer app. The New York Times One of Forbes 33 Favorite Sites Forbes To get the unvarnished scoop, check out Vault. SmartMoney Magazine Vault has a wealth of information about major employers and job-searching strategies as well as comments from workers about their experiences at specific companies. The Washington Post A key reference for those who want to know what it takes to get hired by a law firm and what to expect once they get there. New York Law Journal Vault [provides] the skinny on working conditions at all kinds of companies from current and former employees. USA Today
VAULT GUIDE TO
Copyright 2009 by Vault.com, Inc. All rights reserved. All information in this book is subject to change without notice. Vault makes no claims as to the accuracy and reliability of the information contained within and disclaims all warranties. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, for any purpose, without the express written permission of Vault.com, Inc. Vault and the Vault logo are trademarks of Vault.com, Inc. For information about permission to reproduce selections from this book, contact Vault.com, Inc., 75 Varick Street, 8th Floor, New York, NY 10013, (212) 366-4212. Library of Congress CIP Data is available. ISBN 13 : 978-1-58131-709-1 Printed in the United States of America
Acknowledgments
From Brett Hamilton: My appreciation to several groups: (1) those who provided input into updating this guide; (2) my former real estate classmates and professors from Wharton; and (3) those with whom Ive had the pleasure to work and learn from over my real estate career to date. Regarding the latter, I would like to specifically thank Lynn Sedway and the team from CB Richard Ellis, and my former colleagues from Trammell Crow, especially the Los Angeles outpost Greg Peterson, Harry Lake, Nadeim Massa and Brooks Cook. From Raul Saavedra: There are few thank yous I must distribute. First, I need to thank my wife, Jennifer, who let me disappear on the weekends to get this done. Next, I need to thank the interview subjects who made themselves available to my endless questions. Also, I want to thank my former classmates and the real estate faculty at Kellogg, who took the time to proofread and offer invaluable suggestions for the book. Finally, I can't forget the staff at Vault who were flexible and taught me a great deal about writing especially the incomparable Marcy Lerner.
Table of Contents
INTRODUCTION THE SCOOP
Chapter 1
1 3
5
Industry Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 What is Real Estate? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 History of Real Estate in the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 Industry Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Chapter 2
Building Your Real Estate Foundation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Understanding Real Estate Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 Segmenting the Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 Classification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 Real Estate Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
ON THE JOB
Chapter 3
21
23
Real Estate Job Search Basics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23 Unconventional Recruiting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23 Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Customized for: Alex ([email protected])
Chapter 4
29
Residential Real Estate Agents/Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29 The Scoop . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29 On the Job . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30 Getting Hired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
vii
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31 A Day in the Life of a Residential Real Estate Agent . . . . . . . . . . . . . . . . . . . . . .34
Chapter 5
35
Commercial Real Estate Brokerage - Tenant Representation . . . . . . . . . . . . . . . . .35 The Scoop . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35 On the Job . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36 Getting Hired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37 A Day in the Life of a Commercial Sales Agent . . . . . . . . . . . . . . . . . . . . . . . . . .38
Chapter 6
41
Commercial Real Estate Brokerage - Leasing Agent . . . . . . . . . . . . . . . . . . . . . . .41 The Scoop . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41 On the Job . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42 Getting Hired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42 A Day in the Life of a Leasing Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
Chapter 7
45
Investment Sales Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45 The Scoop . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45 On the Job . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46 Getting Hired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
Customized for: Alex ([email protected])
Chapter 8
Mortgage-Backed Securities Originators & Ratings Agencies . . . . . . . . . . . . . . . . . . . The Scoop . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51 On the Job . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52 Getting Hired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
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Chapter 9
57
Real Estate Appraisal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57 The Scoop . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57 On the Job . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60 Getting Hired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60 A Day in the Life of a Junior Appraiser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chapter 10
63
Property Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63 The Scoop . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63 On the Job . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64 Getting Hired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64 A Day in the Life of an Assistant Property Manager . . . . . . . . . . . . . . . . . . . . . . . . .
Chapter 11
69
Real Estate Advisory/Private Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69 The Scoop . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69 On the Job . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70 Getting Hired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71 A Day in the Life of an Associate at a Private Equity Fund . . . . . . . . . . . . . . . . . .72
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Chapter 12
75
Real Estate Investment Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75 The Scoop . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75 On the Job . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76 Getting Hired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77 A Day in the Life of an Associate at an Investment Bank . . . . . . . . . . . . . . . . . . .78
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Chapter 13
81
Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81 The Scoop . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81 On the Job . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .83 Getting Hired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .83 A Day in the Life of an Associate at a Development Company . . . . . . . . . . . . . . . .84
Conclusion
87
APPENDIX
Schools with Real Estate Programs
89
91
Sample Periodicals Real Estate Employers Full Service Commercial (Property Management, Leasing, Investment Brokerage) Development REITs
92 93
94 95 97
Apartment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .99 Investors and Advisory Firms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .100 Real Estate Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .102
105 109
Introduction
Real estate is big money and big business. The real estate industry is home to some of the wealthiest businesspeople on the planet: Donald Trump, Sam Zell and Donald Bren. Yet the industry also touches each one of us, whether you're looking for a new apartment with a backyard or checking out the new "big box" store that's opening up in your city. Over the last 10 years, the domestic real estate industry has experienced a dramatic rise and decline. Real estate may be a cyclical game, but there are some major career opportunities available for the determined. Read this guide and you'll learn more about the hottest careers in the business, from real estate brokerage to property management to real estate finance.
THE
SCOOP
Industry Overview
Chapter 1
The values of urban properties skyrocketed. By 1920, 50 percent of Americas population lived in cities. This urban density created opportunities for real estate development as housing, office buildings, industrial facilities, hotels and retail centers were constructed to meet the demands of city dwellers. Skyrocketing property values and associated costs began pushing people and businesses outside the city, just as advances in transportation made living outside the city easier. Suburbs, communities just outside urban centers, began to spread. Developers made these planned communities attractive by building along the transportation routes so people could easily commute to their jobs in the cities. Technological advances influenced the building boom of the 1920s. Communities were wired for electricity, and new machines such as elevators helped meet additional demand for space and allowed the construction of ever-taller buildings. Planned communities began taking shape in the suburbs, while skyscrapers changed the way the cities looked. One hundred buildings higher than 25 stories were constructed in this decade, most of them in New York City, with Chicago a distant second. The Great Depression crippled most industries including real estate. Values dipped below debt levels, causing a collapse. The federal government put the domestic financial markets through a major overhaul and was shrewd enough to include real estate financing as part of the New Deal programs. The Federal Housing Administration (FHA) was created in 1930 to provide mortgage insurance, lowering the risk on real estate loans and making lending more palatable for savings and loans and banks. The government also created the Federal Home Loan Bank System (FHLB) to supervise and regulate local banks. In 1938, the Federal National Mortgage Association (FNMA or Fannie Mae) was created to provide a secondary mortgage market as well as to lure investment capital in the mortgage market, and continues to play a very important role in supplying capital to the mortgage market today. These New Deal programs ultimately made the real estate finance market more sophisticated and secure. America and the real estate industry slowly climbed out of the Depression only to fall headlong into World War II. Development was put on hold during the war, but once the GIs returned from overseas, another era of prosperity began. A tremendous amount of demand for housing emerged virtually overnight. By 1946, new housing construction quadrupled to over 500,000 homes. In the postwar period, a white picket fence and peaceful green lawn proved very appealing. Two-thirds of the 15 million homes built in the 1950s were in the suburbs. The decade was also a period of expansion for the highways, which provided access to more areas by car and truck. This enabled all types of real estate (e.g., hotels, industrial and retail centers) to be located further outside the city. Hotel chains like Holiday Inn started popping up along roadways across the country. The suburban shopping mall also became popular in this era.
As the suburbs grew, the cities slumped. By 1960, many urban centers hadnt seen new office building development in 30 years. The decay of Americas urban areas didnt go unnoticed. In 1965, community activism and political pressure led to the creation of a cabinet position focused on improving urban housing what today is known as the Department of Housing and Urban Development (HUD). The 1970s were marked as a period of "stagflation" (stagnant economic growth with monetary inflation). Inflation drove speculation and rising prices in real estate even though fundamentals languished. The speculative rally in real estate values peaked by the late-1970s and led into the recession of the early 1980s. As the economy recovered, the government changed the tax law, creating tax shelters in real estate, such as increasing depreciation deductions, which resulted in a building boom across asset classes. Loose bank lending helped to finance the boom. In 1986, tax reform eliminated some tax advantages of owning real estate and construction fell off. Through the early 1990s, the industry battled oversupply, a recession, lending cutbacks and bank failures. Over the next decade, growth service and technology industries helped demand catch up with supply. New buildings once again began to sprout by the turn of the century, and residential housing began running on all cylinders as more buyers entered the market due to both newfound access to financing (thanks to the boom in securitization) and speculation. Home builders ramped up supply. Around 2006, most U.S. residential markets peaked and began to collapse. In 2007, the commercial real estate market peaked and fell in step with declining economic fundamentals. The credit crisis ensued. Today, the real estate industry faces challenges after the boom fueled by loose lenders and overzealous buyers, but in due time real estate will rebound and continue to be one of the most dynamic industries in the American economy. People may divest their stocks, but they always need a place to live, work and shop. (To read more about the history of real estate, read Real Estate Development: Principles and Process by Mike Miles, Gayle Berens and Marc A. Weiss.)
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INDUSTRY TRENDS
The real estate business employs close to five million people across fields like construction, brokerage, leasing, mortgage banking, property management, real estate appraisals and real estate development. Opportunities abound for candidates to earn staggering income levels. Additionally, those who work in this sector often enjoy greater flexibility in job responsibilities than in other industries. There can be drawbacks, though, in the form of low paying entry-level positions, competitive coworkers and long hours when starting out. Furthermore, once youre established, relocation can be detrimental to your career, as this industry is often geographyspecific. The real estate sector is largely dependent on the economy; small shifts can impact trends significantly. For example, expansion in the technology industry helped boost the real estate industry in the 1990s. There was more demand for space both commercial and residential and asset values skyrocketed. The subsequent technology bust had a dramatic effect on some parts of the sector. Commercial firms that focused on office and retail development projects found the market glutted with available space. Rents fell and vacancies rose, a double hit to the bottom line of real estate owners. The residential real estate market is also affected by economic swings. Unemployment and interest rates impact both consumer confidence and buying power. More recently, aggressive lending and buying contributed to the residential industry to boom and bust in a matter of years. The collapse in residential real estate led the general economic decline from 2007 to 2009. Commercial real estate fundamentals deteriorated in step. The downturn has led us to a phase of deleveraging and pricing rationalization. While default and foreclosure have become household words, the shift occurring in real estate does leave some bright spots. Commercial owners have refocused on the operating side of buildings, looking for ways to reduce costs. Home prices have fallen, in some cases over 30 percent in a few years, which has put the price of homes in reach of new credit-worthy buyers. Construction cost inflation has tempered, and well-capitalized investors are seeking to take advantage of distressed pricing opportunities.
Customized for: Alex ([email protected])
Still, the job market at present is one of the toughest in almost two decades, according to many industry professionals. Many real estate companies have recently shed jobs and are looking to keep costs low to ride out the downturn. Candidates must be determined and creative to stay involved in the industry despite the near-term outlook. Some areas that may prove resilient include asset management, workouts and refinancing.
Vault Guide to Real Estate Careers Building Your Real Estate Foundation
area with similar characteristics. Bear in mind that no two properties are alike, so when valuing a property using the sales approach you must adjust for differences between the properties.
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Vault Guide to Real Estate Careers Building Your Real Estate Foundation
property. Assume the market cap rate for industrial facilities is 10 percent. To arrive at the value of the building, divide NOI by the cap rate. In our example, the value of the building would be:
Value =
= $5,000,000
The yield capitalization form uses a longer time horizon. It involves calculating a discounted cash flow to arrive a property value.
Value = NOI year n = NOI year n + 1 + residual value (1+discount rate)n (1+discount rate)n+1 (1+discount rate)n+1
In the example above, the numerator represents the cash flows that the building generates today and in the coming years, which theoretically provides a value for the asset. Note, that there is also a future residual value listed in the formula. The discount rate reflects the cost of capital. Your client may provide this cost, or you may have to estimate the discount rate based on similar transactions and knowledge of the market. The discount rate is necessary because it allows you to bring all the future cash flows back to today's dollars or present value (PV). The discount rate factors in the opportunity cost of money or the return that you could expect elsewhere with the cash flows. The exponent "n" in the denominator represents the period or number of years in the future that you would receive that cash flow. The DCF is calculated based on a stated number of years and adds up the PVs. At some point in the future cash flows you have a residual value because it is assumed the property is eventually sold. The residual value is calculated by taking the NOI of the year after the assumed time horizon and then dividing that year's NOI by an assumed cap rate. Some investors use different time periods when calculating the DCF but 10 years is the generally accepted period to value an asset. The DCF is normally used for income-producing property, while a single-family house is typically valued by the sales comparison approach. Although there are different ways to value real estate, there are a few common variables such as location, the property's condition and market supply/demand that make real estate valuable regardless of the asset type. There is a popular industry saying, "The three most important things in real estate are location, location, location." You simply cannot underestimate the importance of location. While you can restore and upgrade a property as much as you want, there is no substitute for being located close to: transportation, good schools, attractive retail and an aesthetically pleasing area. While location is important, keeping the property in good working order also creates value because it lessens the need to make improvements or contribute capital to the property. In addition,
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Vault Guide to Real Estate Careers Building Your Real Estate Foundation
fundamental macroeconomics plays a major role in real estate values. For example, when interest rates offered by lenders are low, people will rush to buy a house to take advantage of the low financing costs. If this new market demand is greater than the market supply, property prices will increase.
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Vault Guide to Real Estate Careers Building Your Real Estate Foundation
The preceding example involved a house, but the concept of equity and debt introduced is also applicable to buying an office building, hotel or warehouse property. However, for these commercial properties there may be multiple equity contributors in a purchase. With multiple equity contributors, a joint venture agreement will be made to spell out the way to split the equity contributions and distributions (commonly referred to as the equity waterfall). In addition, there may be multiple lenders. A lender, such as a bank, typically provides the senior loan, and occasionally another mezzanine lender will provide another loan but require a higher interest rate due to the higher risk. In principle, real estate sponsorship is no different than other forms of finance lenders expect to be repaid and compensated for risk, while those who contribute equity are not guaranteed a return on their investment.
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Vault Guide to Real Estate Careers Building Your Real Estate Foundation
Debt service coverage ratio (DSCR) estimates the ability of a property to make its debt payments. The ratio is calculated as net operating income divided by debt service payments over the same period. A ratio greater than 1.0 indicates that debt payments can be sustained while a ratio less than 1.0 indicates that debt payments cannot be sustained. Of course, just because a property falls below a 1.0 DSCR does not necessarily mean that the property will default since the owner can kick in additional money. However, lenders on commercial properties often require that a DSCR be maintained (e.g., 1.2) or the property will be in breech of debt covenants and in technical default.
Mortgage Brokers
Companies or individuals may hire a mortgage broker to find the best financing fit for the mortgage transaction. The transaction could involve a property purchase or refinancing assets that the client already owns. Mortgage brokers, intermediaries between real estate buyers and lenders, are valuable resources throughout the lending negotiations. They use a network of banks and other real estate lenders to find the best financing deal for their clients, and often this means finding the most cost-effective loan. However, there is a cost for using such a broker, typically calculated as a negotiated percentage (e.g., 1 percent) of the transaction value. In commercial real estate, some borrowers will circumvent mortgage brokers and approach lenders directly to save broker costs.
Calculating Mortgages
Customized for: Alex ([email protected])
Most lenders and residential real estate brokers post easy-to-use mortgage calculators on their websites. Additionally, Microsoft's Excel and Hewlett-Packard have a mortgage calculation feature. The calculators are a great resource for projecting potential mortgage payments.
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Vault Guide to Real Estate Careers Building Your Real Estate Foundation
CLASSIFICATION
The following section focuses on commercial real estate because residential relies less on a formal classification system and more on amenities (e.g., number of bedrooms and baths). Since each commercial real estate asset is different, classification systems were created to label commercial real estate properties. If you plan on working in commercial real estate, you will need to become familiar with this terminology. Some of the main drivers of classification include architectural significance, location, construction quality, maintenance, amenities, and technology infrastructure. There are no hard and fast rules.
Office buildings
Office buildings use a system of classes that range from A to D, where A is highest quality and D is lowest. There is a direct correlation between property classification and the cost to lease space rents are higher per square foot in A properties and lower in D properties. Class A properties, sometimes called trophy buildings, typically have excellent access to transportation, state-of-the-art technology, high-end finishes, contemporary design, strong management and additional amenities, such as fitness facilities, white tablecloth restaurants, parking and convenient stores. Class B
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Vault Guide to Real Estate Careers Building Your Real Estate Foundation
properties have good locations and solid management but typically display lesser quality construction and fewer amenities. Class C properties are dated buildings with a noticeable lack of upkeep and amenities. Class D properties are older buildings in sore need of renovation.
Strip commercial refers to a collection of smaller stores usually aligned as part of the same structure (a strip center) and may not have a centralized management or theme. National and local retailers with smaller space needs are typical tenants (e.g., quick-service eateries, coffee shops, dry cleaners and general merchants). Freestanding stores are meant for one user and located near major shopping centers or along major thoroughfares. Typically, tenants like Walmart, Home Depot or Costco may occupy a large freestanding store (so-called big box retail), while tenants like Starbucks or Chilis Grill & Bar may occupy a smaller freestanding store (referred to as a pad site when located in the parking lot of a larger retail center).
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Vault Guide to Real Estate Careers Building Your Real Estate Foundation
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Vault Guide to Real Estate Careers Building Your Real Estate Foundation
They were anything but an overnight sensation. REITs had to adhere to certain restrictions; initially they were allowed to own property but not manage it. This kept Wall Street money away because investors didnt like the idea of having third parties managing the assets. Nonetheless, REITs experienced a period of growth in the early 1970s until a recession hit in the middle of the decade. The REIT market was relatively quiet until the late 1980s, when a series of events changed the marketplace. The Tax Reform Act of 1986 had a major impact, enabling REITs to operate and manage most types of income-producing commercial properties. The act also eliminated tax-motivated paper losses through depreciation deductions for most individual investors. This removal of real estates tax-favored status, combined with the effect of the savings and loan crisis as well as overbuilding, led to a real estate slump in the late 1980s. Ironically, REITs benefited from the dip in the real estate economy for two reasons. First, more REITs were formed than ever before due to many private real estate companies struggling to survive in an environment where raising capital was difficult. Forming a REIT allowed access to public capital. Second, many investors were gambling on the real estate market. They thought it had bottomed out and wanted to get on board before the market rebounded.
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Vault Guide to Real Estate Careers Building Your Real Estate Foundation
Defining REITs
There are three main types of REITs: equity, mortgage and hybrid. Equity REITs develop, manage and invest in and own properties. Revenue from equity REITs comes principally from the rents charged in the buildings owned by the REITs. Mortgage REITs center around property mortgages. These REITs loan money to people or companies that buy real estate. Mortgage REITs also purchase existing mortgages or mortgage-backed securities. Instead of owning property, they generate their revenue from interest on these loans. Hybrid REITs invest in both properties and mortgages. They have the characteristics of both equity and mortgage REITs, hence the name. In principle, the main benefits of REITs are liquidity for the real estate investor and a single level of taxation. Unlike most corporations, REITs are not taxed on the dividends paid to shareholders. The drawback with this practice is that since virtually all earnings are paid to shareholders, there is a limited amount of available cash left over. Therefore, REITs must constantly pursue capital for operations. REITs have transformed the real estate industry and will continue to evolve. Before them, the industry lacked liquidity and values were less transparent. Now theyre subject to complex tax laws and like other public companies, public REITs are bound by SEC guidelines. In order for a corporation or trust to qualify as a REIT, it must comply with certain provisions within the Internal Revenue Code. As required by the Tax Code, a REIT must:
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Be a corporation, business trust or similar association; Be managed by a board of directors or trustees; Have shares that are fully transferable; Have a minimum of 100 shareholders; Have no more than 50 percent of the shares held by five or fewer individuals during the last half of each taxable year; Invest at least 75 percent of the total assets in real estate assets; Derive at least 75 percent of gross income from rents, real property or interest on mortgages on real property; Derive no more than 30 percent of gross income from the sale of real property held for less than four years, securities held for less than one year or certain prohibited transactions; and Pay dividends of at least 95 percent of REIT taxable income.
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Vault Guide to Real Estate Careers Building Your Real Estate Foundation
For more information visit the NAREIT at www.nareit.org or call them at 800-3NAREIT. Additionally, analysts are a great resource, such as Green Street Advisors (www.greenstreetadvisors.com), which is devoted to tracking REIT performance. The chart on the next page lists some of the higher profile REITs.
Major Reits
Company
Liberty Property Trust Equity Office Residential AMB Duke Realty Boston Properties Simon Property Group
Property Focus
Office Apartment Industrial Mixed Office Regional Malls
Website
libertyproperty.com eqr.com amb.com dukereality.com bostonproperties.com simon.com
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ON THE
JOB
UNCONVENTIONAL RECRUITING
Two things set real estate apart from other industries when it comes to hiring practices. The first is the lack of conventional recruiting. The second is the focus on personality. Real estate companies typically dont head to campuses or job fairs to recruit undergraduates and graduates, nor do they post openings on job boards. The job market is opening up a bit, but most firms still rely on personal relationships to fill openings. Leslie Boudreaux, a recruiter at Kforce who has placed candidates in the real estate industry, advises, Our real estate clients look for someone with three traits: a Rolodex, quantitative experience and excellent interpersonal skills. The Rolodex is necessary because you will be expected to access your network to get deals done. Quantitative experience is important because real estate companies do not want to train someone. Therefore, they look for someone who already has proven himself quantitatively ideally, at a competitor. Finally, the person should be polished, intelligent, gregarious and sharp. She adds, Overall, I would say the bulk of hiring within the industry is word of mouth, so individuals looking for work should reach out to as many people in the industry as possible. Since most companies dont follow conventional recruiting processes, you need to be aggressive in your job search. There are opportunities. Just be prepared to do a lot of networking to uncover them.
A networking plan
Create a plan of attack to get the job you want. First, learn as much as you can about the company or companies of your choice, as well as the local real estate market. The best way to get a handle on the market, frankly, is to read local business publications real estate markets, by definition, are quite localized. Some of these publications include job listings but at the very least, youll get a grasp on the major players in your local market; some of these publications include job listings as well. Some good websites, such as Globe Street (www.globest.com), also offer marketspecific information. Another website, Selectleaders (www.selectleaders.com), is a nationwide job board focused entirely on the real estate industry. See the Appendix for a listing of other helpful websites. Undergraduates who are interested in real estate should take advantage of resources available on campus. Many universities offer real estate concentrations and classes and may even have a real estate club. This is a great introduction to the industry and will make you attractive to employers. If your campus has no real estate activities, take a few accounting and finance classes; a firm grasp on fundamental finance concepts is essential to a career in the real estate industry. If possible, become
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Vault Guide to Real Estate Careers Real Estate Job Search Basics
familiar with a software program called Argus, which is a financial tool for real estate projects. A solid knowledge of financial modeling in Excel and Argus will give you a leg up for many entry-level brokerage and analyst positions. Finally, join local chapters of real estate organizations such as Urban Land Institute (ULI) or National Association of Industrial and Office Properties (NAIOP). ULI even has a Young Leaders group for young professionals in the industry with specialized programs that will not only expose you to peers but also to more senior industry professionals.
EDUCATION
One possible educational route into real estate is to get an MBA at an institution with a specific real estate program. Some of the best programs according to U.S. News & World Report rankings are The Wharton School at University of Pennsylvania, University of California-Berkeleys Haas Business School, MITs Sloan School of Management, University of Wisconsin-Madison and Ohio State Universitys Fisher School of Business. These schools also have strong real estate clubs that produce annual conferences and other activities. Non-MBA real estate masters programs are also an option, such as the Cornell University Program in Real Estate or University of Southern Californias School of Policy, Planning and Development. While advanced degrees have gained greater recognition in the industry in recent years, many senior real estate professionals you encounter today do not have such degrees and, instead, learned by doing.
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Vault Guide to Real Estate Careers Real Estate Job Search Basics
the capital side of the business are reserved for the elite, MBAs should pursue these positions because many of them possess the necessary qualities for these roles. Employers look for a variety of skill sets. It is difficult to narrow it to just a few things, he says. Some positions are very quantitative while others emphasize strong interpersonal skills. Having a combination of both is a competitive advantage. In general, I tell all my students to look for roles that speak to their skill sets. It is going to be hard enough to get the interview, so dont blow it by going after a job that probably doesnt fit your background. MBAs should do their homework on the types of roles out there and match your background and interest with the best fit. However, you still want to shoot for the sky and leverage your MBA. Job seekers shouldnt be shy about using their contacts. This industry is very tough for outsiders or newcomers to break into and students should be ready to accept that, he advises. Get in the hunt as soon as possible and network, network, network. Using alums or anyone else you know in the industry is something I always recommend. When you have the interview, be prepared to talk about the local market or any other in which the company operates. If its a public firm, check The Wall Street Journal for the scuttlebutt. Also, be certain theyll welcome your MBA. In the interview you will most likely be asked about why you are interested in real estate and a few technical questions, Pagliari warns. Be ready to describe a cap rate and market specifics like rental rates and general economic conditions. To MBA students just starting a real estate program who know they want to enter the industry, he stresses, Dont rely on simply taking real estate classes, especially if you have no prior real estate experience. You need to demonstrate passion by joining a real estate club or getting active in real estate-related activities at school. Do whatever it takes to be able to demonstrate your enthusiasm for the industry, he adds. If it takes starting a real estate club or being the driving force behind an event, then so be it.
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The professor also advises individuals who are evaluating MBA programs that offer real estate curriculums to: make sure the professors have some practical experience and the curriculum will give you a skill set that will meet your end goal. Dont sacrifice the overall MBA experience for a school that simply offers a strong real estate curriculum and is lacking in other areas. For MBA students who are interested in real estate but whose programs do not offer real estate classes, Pagliari offers a solution. Classes related to finance and economic principles that help you price risks are very useful, he says, noting
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Vault Guide to Real Estate Careers Real Estate Job Search Basics
that the ability to price risk is a strong differentiating factor. Pagliari also recommends taking business law classes because there are many legal issues involved in the industry. Which is why you should not be surprised to find so many attorneys in the business, he says. I was a career switcher and was repeatedly asked in interviews about why I was interested in real estate, says Rich Monopoli, a recent graduate from business school. Many of the interviewers wanted an explanation of how my background tied to my interest in real estate. I cant emphasize enough how important it is to be prepared to answer the question of why you are interested in real estate.
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Vault Guide to Real Estate Careers Real Estate Job Search Basics
WHAT TO EXPECT
Over five million people in the United States work in real estate fields such as construction, mortgage banking, property management, real estate appraisals, brokerage and leasing and development. In addition, many others are engaged in corporate property and in real estate lending in commercial banks, savings and loans, and insurance companies. Real estate companies tend to be lean and keep overhead low. That means entrylevel salaries are low; in many cases, theyre based on commission. However, if you prove yourself, there are few industries that ultimately pay as well. Although careers in real estate are varied, there are some common qualities that will help you succeed. Industry professionals are often entrepreneurial by nature and attentive to detail. Employers will take note if youre analytical, creative and charismatic as well as a good negotiator. You may also want to contact a recruiter that specializes in real estate to get some additional ideas. Two top recruiting firms are Whitney Group (www.whitneygroup.com) and the Advisory Group (www.fplassociates.com.)
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THE SCOOP
Residential real estate agents help buyers and sellers in the process of selling or renting residential property. Some agents work with buyers, helping them find places to live and negotiating with sellers. Other agents work with the sellers. Agents rarely represent both buyers and sellers since this is perceived as a conflict of interest. For property rentals, almost all agents represent property owners. There are close to 500,000 real estate brokers and agents in the United States. Agents are usually independent sales professionals who contract their services to sponsoring real estate brokers in exchange for a commission-sharing agreement. The commission on a home sale varies by market but is roughly 5 to 6 percent of the sale price. This commission is split four ways among the sellers agent, buyers agent and the sponsoring brokers with whom each agent is associated. Many agents work solely on commission and dont get much in the way of benefits. Agents are expected to cover most of the overhead necessary to perform their jobs. In order to sell real estate services, you must be a licensed professional in the state where you do business. Most states require you to be at least 18 years old and a high school graduate, to pass a written exam, and to have completed a minimum number of classroom hours. Some states waive the classroom requirements for active attorneys or offer correspondence course credit options in lieu of the classroom hour requirement. The license fee depends on the state but expect to pay between $100 to $300 for the initial exam/registration and $500 for the classes. Although there are different organizations through which you can receive your classroom instruction, the state government issues and oversees licenses. If you visit the National Association of Realtors website at www.realtor.org, you can find information about residential real estate as well as licensing requirements for each state and locations of authorized real estate classes. In many states, two types of licenses may be obtained: real estate salesperson and real estate broker. The names of each position can vary by state. Generally, a salesperson license has fewer education requirements, has a shorter written exam, and must be associated with a licensed broker. An entry-level agent begins as a salesperson to gain experience before becoming a broker. A broker license has more education and/or experience requirements and may have a tougher license examination. This industry attracts all types of personalities. Theres a potpourri of career switchers, from lawyers to housewives, who end up in residential real estate. If you like being your own boss and interacting with people, being a realtor can be very rewarding.
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ON THE JOB
Real estate agents generally focus on buying and selling (or renting) homes or land for building residential developments on behalf of another party. The job involves matching a clients home wish list with houses available in the marketplace, or to sell the clients house in a timely manner at his or her asking price. Agents make most of their paycheck from commissions. To be a good agent you need a thick skin, strong interpersonal/networking skills and a good sense of finance. The need to find clients and properties to sell or rent through cold calls, constant schmoozing and mass mailings tends to discourage some from residential realty. Hours are flexible to a point. Many people like to househunt after work or on weekends, so if you cherish those times, this job isnt for you. Also, because youre not on a set schedule, you need to be disciplined about getting your work done. You should have at least a basic knack for figures and calculation youll be working with a variety of budgets, mortgage rates and other figures. If youre not a math whiz, dont worry: While it helps to be analytical, its much more important to be dedicated, organized and have a talent for schmoozing.
The Workday
If youre sick of being held to a schedule, then residential real estate may be the field for you. You set your own hours, and have no need to stop into the office except to file paperwork or maybe for the occasional staff meeting. At the same time, your time may not be as flexible as you might imagine. Open houses when a property for sale is shown to the general public are invariably held on evenings or weekends. Your clients may be unable to see properties during the traditional workweek as well. Residential real estate agents are responsible for a variety of tasks. Some days are reserved for marketing homes for sale. Others are spent making networking calls and advertising for new clients. Even after a sales contract is signed, the work of the agent is not done. Agents must organize a final home inspection prior to closing, to make sure that the home is in good working order and that all the work the buyer asked to be done prior to the closing has, in fact, been done. Agents must communicate between the buyer and the seller to make sure all this work occurs in a timely and orderly fashion.
Training
If youre looking to residential realty for thorough training, youre going to be disappointed. Only the largest residential real estate brokers offer formal training programs. For everyone else, training comes on the job. To pick up the tools of the trade, be aggressive about asking questions and shadowing senior agents, suggests
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Nellie MacDiarmid McCarthy, a licensed sales agent with Century 21 Sussex and Reilly in Chicago. Developing a relationship with a mentor is one of the better ways to learn. Shadow him or her at open houses and showings. As you become more senior, the only changes in your day-to-day role may be management responsibility and/or mentoring a new agent. Essentially, the job will stay the same. The top dogs in the business get a lot of name recognition and perks from their brokers. At this point, youll have business come to you because your name is so well known. Many top agents invest in real estate themselves; some agents leave their brokers to start their own agencies. On the one hand, residential real estate is an exquisitely flexible field. Realtors can set their own hours, but to satisfy clients scheduling needs, many find themselves working between 50 and 60 hours a week, especially when they are first learning the business and establishing themselves in the real estate community. Good agents need to be organized, knowing enough about each phase of the buying and selling process to keep things moving smoothly (and legally). Handling clients is also vitally important. People get very emotional when buying or selling a house, and are often very nervous about the large sums of money spent or acquired. Because of these emotional factors, managing clients and their expectations is a crucial responsibility for the successful realtor.
COMPENSATION
Since agents work on commission rather than on salary, its difficult to predict compensation. The gross commission on the home sale is divided between the broker representing the seller and the broker representing the buyer. As mentioned before, the gross commission is roughly 5 or 6 percent of the sale price in most markets. The brokers then divide their shares with the agent(s) involved in the transaction. Agents have different commission agreements with their sponsoring brokers (effectively, their employers). As a new agent, expect at least a 50/50 commission split with your broker. As the agent, you would expect to make half of the commission paid to your brokerage, while your sponsoring broker will collect the other half. As you gain seniority, you can negotiate for a higher commission split and other privileges. Many brokers have a tiered commission split in place based on volume. For example, a broker may pay better splits once an agent gets past $100,000 in gross commissions. Of course, this all depends on pre-negotiated agreements and company policy so ask before you take that job! One thing to consider is that it takes a while to start making money. You can look at it in phases, McCarthy adds. First you have to build your client base then you have to wait for the closing. Hit the ground running hard and use your network of friends.
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Many realtors suggest you enter the profession with six months of savings to guard against the initial slow months. Often theres a system in place so agents can pay their bills while they wait for commissions. Brokers will pay agents a draw, which is an interest free loan the broker expects to be repaid from the agents commission. Draws are negotiable but are reconciled every quarter. If the agent falls too far behind in paying back the draw, then he or she will be expected to repay the draw or may even be released from the brokerage. If youre good at this job and work full time, you can expect to make up to $80,000 in your first year and more than $100,000 as you gain experience. Remember that youre making a commission based on the sale price of the house. Average home prices will influence your commission. Therefore, if youre working in a market where homes are expensive you will make more money than if you sell the same amount of property in a less expensive market. Also, keep in mind agents are independent contractors and not employees, so they arent entitled to benefits.
Getting Paid
Assume you are the agent representing the seller in a transaction where the house is sold for $1,000,000. Further assume that the gross sales commission was 5 percent, or $50,000, and will be split equally between your sponsoring broker and the broker representing the buyer. Therefore, each broker receives $25,000. From this point on we arent concerned about the broker or the agent who represented the buyer in the transaction just your $25,000. Assume your pre-negotiated split arrangement with your sponsoring broker gives you 70 percent. So, the net commission of $25,000 will be split such that you receive $17,500 and the sponsoring broker gets $7,500. Not a bad payday! At this pace, though, the agent must average a closing every two months, or six a year, to make a six-figure income.
GETTING HIRED
There arent many barriers to becoming a real estate agent, largely due to the minimal investment made on the part of the sponsoring broker. Essentially, youre given a desk and phone and left to your own devices to find potential buyers and sellers and learn other aspects of the business. It helps if you already have your license, but most brokers will let you on board with the understanding that youll have one in the near future. Sometimes you can negotiate the cost of the class and exam into your
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hiring package. Be sure to ask in the interview if the sponsoring broker subsidizes the real estate exam fee. Brokers look for energetic, self-confident and independent individuals. It will help your cause if you have a working idea of whats involved in buying or selling a home. Become familiar with how interest rates impact home buying, the health of the local real estate market and what it takes to get a mortgage. Also, heading into an interview with a business plan for acquiring clients should impress your potential sponsor. Honest people who possess strong marketing skills do well in this industry. Note that some brokers dont require you to have a college education, others do. It depends on the firm. Theres a lot of turnover in this business, so beware of potentially apathetic employers. Make sure theyll work with you to help you learn the business. Talk to other brokers at the company you are considering. Ask them candid questions about how the broker treats their agents; ask specifically about employee turnover. Ask is how the broker handles leads or referrals. Some brokers dont have an equitable system in place to distribute leads or referrals to the sales agents, so only favored agents get business while everyone else is left to fend for himself. Finally, be sure to ask about reimbursable expenses. In the course of marketing properties or entertaining, you will be spending money, so you should ask the company about its reimbursement policy.
Questions to ask
What kind of training do you offer? What are the commission splits? What is the average tenure of your agents? How do you distribute leads or referrals among agents? Will I be reimbursed for expenses related to my real estate license?
Questions to expect
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Do you have your license? How long are you prepared to work making no or very little money? Why do you want to be a real estate agent? How do you expect to find clients? How are your organization skills? How strong are your interpersonal skills?
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5:30 p.m.: Check email and voicemail one more time. Put out fires and check commissions for the past year to see how your sales compare to those of your coworkers. 6:00 p.m.: Make sure everything is set for your upcoming home tours. Open up prospect list, record the closed deal and see what deals you expect to close in the near future. 7:00 p.m.: End of the day. Co-worker who gave the high five reminds you that you promised to buy drinks once your deal closed.
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THE SCOOP
Commercial property brokerage offices employ sales associates who market office buildings, hotels and many other types of commercial real estate for third party interests. Commercial real estate sales people usually specialize in a particular property type, such as apartments, retail, office buildings, hotels, shopping centers or industrial buildings. Most of the large commercial brokerage companies in the U.S. produce a great deal of local market data and research in order to service sophisticated clients making multimillion-dollar investment decisions. Like residential agents, sales associates must be licensed and have a sponsoring broker to conduct transactions. The salesperson license a commercial broker holds is the same one residential agents use. There are two types of commercial real estate sales associates: those who represent landlords and those who represent tenants. There is some overlap between the roles, but there are also key differences that you should consider before pursuing these careers. This chapter covers tenant representation; Chapter 6 covers work for the landlord.
ON THE JOB
A tenant representation agent, commonly known as a tenant rep, represents companies and other corporate clients looking to lease or buy either a portion of a property or an entire real estate asset. A large part of this job involves business development. Since tenant reps are often responsible for building their own book of business, prospecting for new clients is a big part of the job. Like residential agents, tenant reps are left to their own devices to find prospects. Although theres some direction by the broker and senior tenant reps in the office, for the most part youre cold-calling tenants or companies. First, you need to give the person on the other end of the phone a compelling reason to meet with you then you must pitch the business. Its a tough sell. Tenant representation is very competitive, even cutthroat. Youre not only competing against outside reps but those inside your office. In fact, some tenant rep brokers think the competition inside is worse than outside the shops. Often there are disputes about who is entitled to chase what business. Ultimately, the senior brokers tend to win. Deal protocol is important to consider when youre selecting brokers because often there are disputes are common among tenant reps.
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Vault Guide to Real Estate Careers Commercial Real Estate Brokerage Tenant Representation
When the time comes for one of his or her clients to buy, sell or lease, the tenant rep finds a list of choices in the market, then handles the accompanying negotiations. Tenant reps usually work in teams to spread the work. Often the team is composed of one senior and one junior broker. The junior broker will make the cold calls and set up meetings with prospective clients. At the meetings the senior broker will take the lead and try to win the business. Once the process begins, the junior broker will do the legwork for market alternatives and examine options with the senior broker. All possible alternatives are presented to the client for review. The senior broker generally handles the lease or sale negotiations. This mutually beneficial system gives the senior broker a cold caller and provides a training platform for the junior broker. Junior brokers should expect to work at least 50 to 60 hours per week; senior brokers hours fluctuate based on deal flow. Once junior brokers have surpassed certain earning requirements, theyre promoted to senior brokers. They still make cold calls to get leads, though not nearly as often as junior brokers. The company relies on its senior brokers to win business and handle transactions from start to finish. Sometimes senior brokers help create and execute management policy, and even have equity at smaller firms.
COMPENSATION
Like residential agents, many commercial sales associates operate on commission and split commissions with the managing broker. Some firms pay base salaries, but this practice is not common. The commission structure differs based on property type and is determined by a formula more complex than the simple split used for residential brokers. This formula typically depends on seniority, base pay and the size of the transaction. For instance, the commission could be stated as $.80 per square foot per year. On a 10-year lease transaction for 10,000 square feet the gross commission calculation would be $.80 times 10,000 (square feet) times 10 (years) or $80,000. Not a bad payout. But wait a minute! This pie has yet to be divided. The tenant representative still has to give the managing broker his or her share and then split the rest among the team. At the end of the day, the split may look something like the following: you give 50 percent to the managing broker and split the remaining net amount with your teammate(s) evenly. In our example, that yields $20,000 each to the senior and junior broker. Note that the sales cycle is long, so it can take a while to get paid, sometimes as long as a year. The norm is that building owners pay half of the commission upon lease signing and the remainder when the tenant moves in. Commissions vary by geography and product type, so the above example should not be considered of the norm for all areas. For example, the commission in New York may be higher than it would be in Washington, D.C.
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Vault Guide to Real Estate Careers Commercial Real Estate Brokerage Tenant Representation
Tenant representation can be very rewarding, but does have its risks. Remember, no individual can control the economy. Some deals dont materialize. When the economy is in bad shape, companies are less active in the market and you may have few to no commissions! Your client may pull the plug on the deal at any time, leaving you with nothing for your time and hard work. Make no mistake; tenant representatives are usually risk takers who like big payoffs.
GETTING HIRED
One major difference between residential agents and commercial brokers is the sophistication of the client. In commercial real estate you are calling on senior management the CEO, CFO or COO of a company. These people are used to making major decisions and prefer to have a lot of information beforehand. Also, executives expect immediate answers to their questions. Strong presentation skills and dependability are a must. If you are switching careers, it helps if you have a sales background. Expect to be asked why youre interested in real estate and why youd be successful in sales. This field is similar in some ways to residential real estate sales, but harder to break into. Commercial real estate is normally a less emotional transaction than residential; it is more of a business decision. If clients are dissatisfied with tenant reps, they find it easy to fire them. Unfortunately, this happens more than you might care to believe. The corporate community is small, however, so doing a good job for one senior manager will invariably lead to more business.
Questions to ask
Is there a training program? Will I be expected to team up with a senior broker? How do you handle commission disputes among brokers? Do you restrict the areas or the companies that your brokers are allowed to call on? How many of the senior brokers started as junior brokers at this company? How long does it usually take to become a junior broker and what are the criteria for advancement?
Questions to expect
Why are you interested in real estate? Why will you be successful in sales? (Be ready to demonstrate this with examples.) How do you feel about making cold calls? Can you give me an example of a time you exhibited strong teamwork skills?
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Vault Guide to Real Estate Careers Commercial Real Estate Brokerage Tenant Representation
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Vault Guide to Real Estate Careers Commercial Real Estate Brokerage Tenant Representation
5:30 p.m.: One last meeting with partner to recap the day. Discuss any problems and come up with solutions. Make follow-up phone calls together to leasing agents or clients. Gossip about the days market activity. Set a meeting time for the next day. 6:15 p.m.: Finally get to your mail (in this business, you get a lot). Receive a written response to a request for a proposal from a building. Make a copy for partner and review the details. Hand another copy to the analyst to run the numbers associated with the deal.
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THE SCOOP
The leasing agent position is the flip side of commercial real estate brokerage the complement to the tenant rep. These agents lease space at a property for a thirdparty company, an owner or a REIT. The leasing agent is employed by the owner as an intermediary to show and lease vacant space and negotiate leases for existing tenants wanting to renew. Many owners expect monthly reports on tenants in the market for space, companies that have toured the building, competitive rents and explanations for why tenants chose another building instead of yours.
ON THE JOB
A big part of the leasing agent position entails collecting as much information on the local market as possible and concisely conveying that data to the owner of the building. He or she relies on the agent to obtain a fair market lease as well as to represent ownership when showing the building. Consequently, the leasing agent has to know everything happening at the building and in the surrounding market. Leasing agents should also be familiar with the history of both. They should also be able to recite the names of every tenant residing in the building and when their leases expire. Good leasing agents are very organized and give thorough building tours. Leasing agents must be social. Good agents are in regular contact with their tenants and carefully monitor lease expirations in their buildings. In order to get the market information you need, you must constantly network with your peers. Tenant representatives are said to control 90 to 95 percent of the marketplace. That means good leasing agents form relationships with the top tenant reps. Leasing agents are generally given a budget for entertaining the brokerage community so they can effectively gather information on whos looking for space and market their companys buildings. Because of this, leasing agents can develop reputations as great party throwers and for their marketing creativity. While this is fun, some brokers tire of the entertaining, especially when it doesnt translate into deals. Leasing agents often lease more than one building and work in teams like tenant representatives. Additionally, there are some that moonlight as tenant rep brokers or act as consultants on building purchases. Some owners discourage this practice because of conflict of interest concerns. The natural progression is to move from junior to senior leasing agent. The difference between these two roles is more leasing responsibility. Instead of representing just leasing one property, senior agents handle leasing for multiple buildings. Theyre also
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Vault Guide to Real Estate Careers Commercial Real Estate Brokerage Leasing Agent
responsible for helping to win more business securing leasing assignments from owners. Very successful leasing agents are generally opportunistic and, after being in the business for a while, develop a network of owners who prefer to work with them. They become familiar with which assets different owners look for and try to identify buildings that meet these criteria. If they identify an opportunity and the owner buys the building, theyre entitled to a commission on the sale. The best agents sometimes receive equity in the company for which they work.
COMPENSATION
Unlike tenant representatives, leasing agents generally get a salary in addition to a performance-based commission. While this may not be as lucrative as tenant representation, there isnt as much emphasis on prospecting for clients. Although less risky than tenant representation, theres still unpredictability associated with this role. A good agent may potentially lease himself out of a job. Once the building is occupied, your responsibilities dwindle. Additionally, leasing contracts with owners are short term (and void if the property is sold). Owners can be demanding and are constantly feeling out competing leasing companies. If, for whatever reason, youre removed from a building, you can only hope your company has another building for you to lease.
GETTING HIRED
Good tenant representatives must be extremely presentable, a multitasker and aggressive (in a tactful way), advises Mitch Loveman, senior vice president at Transwestern Commercial Services. You represent the building, so you must carry yourself very well. The good leasing agents know their building and their competition, and have a strong working relationship with the real estate community. Leasing agents must have a salesperson license. Most firms require a college education and an understanding of basic finance. Expect to be asked about your organizational and interpersonal skills. Furthermore, dont be surprised if youre asked market-specific questions relating to competitors, vacancy, lease rates and the owners property portfolio. Be sure to ask about the propertys marketing plan, how the leasing team interacts on a daily basis and career progression. Having prior sales experience can be a big plus. If you can demonstrate that youre comfortable presenting and that you are an effective communicator, youll do well in this position.
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Vault Guide to Real Estate Careers Commercial Real Estate Brokerage Leasing Agent
Questions to ask
What is your property/portfolio goal? Do you expect growth or contraction in your portfolio? What is your strategy to reach that goal? What is your property's competitive advantage? Please describe your current leasing team's structure, their responsibilities and how each team member interacts.
Questions to expect
Do you have your real estate salesperson's license? How much finance did you take in college? How much finance related work experience do you have? How are your organizational skills? Can you provide an example of a project you worked on that demonstrates strong organizational skills Are you comfortable making presentations? Do you have experience making presentations? What is the vacancy rate in __________? (Insert the market in which you interviewing.) What are market lease rates? Who do you consider my competitors?
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Vault Guide to Real Estate Careers Commercial Real Estate Brokerage Leasing Agent
wants to chat about market conditions and competitive buildings. He asks if youd be interested in leasing the building if he pulls the trigger. 10:30 a.m.: Make calls on some tenants that may be looking for space. Respond to some e-mails. 11:15 a.m.: Senior broker grabs you to drive together to an opening event for a newly renovated building; the owner wants to get some attention for leasing. Free lunch and even few prizes, but no luck this time. Schmooze with other brokers. 12:45 p.m.: Back in the office. Put together lease terms requested by an existing tenant for a renewal. 1:15 p.m.: Daydream about getting some big leases closed to get some cash flow. 1:30 p.m.: Find out that one prospective tenant goes to a competitive building. Really want to find out what the terms were. Call your friend at the other brokerage that closed the deal. He doesnt tell you exactly but offers hints. 2:00 p.m.: Senior broker stops by to discuss your email with sensitivities from earlier. You call the building owner together to see if hell bend any on rent to get the deal across the finish line. No dice; hold firm for now. 3:00 p.m.: Head off to walk through some tenants in one of the buildings you represent. Youre happy to schedule two almost back to back. Neither seems ready to pull the trigger. 4:30 p.m.: Back in the office. Remember that theres a real estate event at a nearby bar at 6 p.m. Respond to emails. 4:45 p.m.: Discuss the upcoming lease expirations that you identified in the morning with the senior broker. Make some calls to try and setup meetings; leave messages. 5:30 p.m.: Senior broker calls on his way home to say that he got word that a modest lease deal you helped on is going to close and lease signing will be tomorrow. Cheers to commissions.
5:45 p.m.: Close up shop and head to happy hour. Put on your social hat.
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THE SCOOP
The investment sales broker represents a real estate investor looking to buy, sell or finance a real estate asset. These brokers work with all real estate asset classes apartments, office buildings, industrial, hotel and others. Investors hire these brokers to provide strategic advice, market knowledge and access to capital. Note that many owners, such as REITs, have their own acquisition and disposition groups and often handle some investment broker functions in house rather than hire a third party. Investment sales brokers deal with more complicated issues than residential or commercial brokers. The clients are very sophisticated and the finance involved can be complex. Brokers should understand how differing levels of equity and debt impact a purchase decision and the asset's return. For example, if the loan-to-value on the debt diminishes, the buyer will want to understand the impact on forecasted returns. Good investment sales brokers will also work with the buyer to determine if there are additional financing vehicles available, such as mezzanine debt. Most of the people in this business have a balance of analytical and people skills, therefore, good investment brokers are personable and understand how analytical issues such as finance impact clients.
ON THE JOB
Marketing makes up a large part of this business. Brokers are always pitching real estate investors for assignments. They identify opportunities by networking with investors and anyone else that may provide leads. They dont make as many cold calls as tenant reps, but its still part of the business. You must be aggressive. Once a broker identifies a seller or investor to represent, he must still convince them hes worthy of the assignment. This job involves making a lot of presentations to potential clients, entertaining investors, and endless number crunching. Typically, an owner interviews multiple brokers for an assignment. Like other brokers, they distinguish themselves with their market knowledge and their track record.
Customized for: Alex ([email protected])
Once a broker gets an assignment, he needs to execute the sale, purchase or financing. The sale of an asset involves putting together detailed property information that will help an investor make an educated decision. The marketing materials include pictures of the property, financial analyses and information about the local market. In a property purchase, the broker helps the investor digest the marketing information and provides a frame of reference for similar transactions. The broker may have to determine which financial structure meets the investors goals when the deal involves financing an asset.
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Investment sales brokers tend to work in small teams covering specific regions and/or asset classes. Those new to the field come in as associates. The associate is the junior person on the team and is responsible for putting together marketing materials, generating financial analysis and any other paperwork linked to the deal. Above the associate is a vice president, who is expected to bring in business, supervise the transactions and handle the majority of client contact. The managing director heads the office and is the ultimate decision maker, responsible for managing all of the transactions as well as the office.
COMPENSATION
Investment sales brokers are high-profile operators in the real estate industry and can make attractive incomes. Although some do get paid a salary, most earn the bulk of their income from commissions. Some do not receive a salary and are compensated only by commissions truly a sink or swim situation. In this situation, brokers recommend that a newbie have enough money put aside to survive up to a year since it can take that long before you begin to pocket enough commissions. Be sure to research how the firm that you are interviewing with handles compensation. In todays market, the total commission is roughly 1 to 2 percent of the total sales price (e.g., $30,000,000 sale with a 2 percent commission has a gross commission of $600,000). The commission percentage is negotiated between the owner and buyer and their respective brokers, so it varies depending on the deal. Unlike residential real estate, the commission is not paid entirely by the seller. For example, in the sale of a large industrial park, the seller and the buyer may each pay their respective brokers 1 percent of the sale price (or $300,000 each). Commissions are then split between the company and your brokerage team (the split can depend on you/your teams production but begins at 50/50 for at least one major brokerage company). So, the money earned by your team for the sale would be $150,000. Not a bad payday when considering your team may be only a few professionals.
GETTING HIRED
Customized for: Alex ([email protected])
Getting a job as an investment sales broker without prior real estate experience is difficult. You need to have a strong balance of quantitative and qualitative skills to help you win business, and these qualities are often the reason that candidates are hired. Since investment brokers need a strong understanding of valuation, a candidate that has experience with valuing assets has an edge. As one insider captured it, being successful at this job requires three things: knowledge of real estate fundamentals, salesmanship and persistence. As for interviews, be prepared to answer questions on valuation and on what investors look for in a property. Also be prepared to discuss the different asset classes in your local market and recent sales information, such as cap rates and prices per square
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foot. Those with a quantitative background in real estate will probably have an interview focused more on fit. Expect to be asked how your background will benefit the team. In the case of at least one major firm, you will be asked to take a personality test after your interview(s). All in all, make sure you can answer the technical questions and are extremely presentable. If you know you want to be in the business, but dont have the requisite skill set, you can always start in another facet of the industry. For example, commercial leasing brokers have been known to break into this field after establishing themselves as top performers. Alternatively, some commercial brokerages have salaried analyst positions where you will perform most of the analytical and research work in support the investment brokers. Namely, just get some real estate experience, preferably on the quantitative or sales side. If you feel you have the requisite skills to be an investment sales broker, contact some of the firms listed in this guide (see the Appendix). Eastdil (www.eastdil.com) and Marcus & Millichap (www.marcusmillichap.com) are two respected investment brokers with offices across the country. Also, large real estate firms such as CB Richard Ellis and Cushman Wakefield have investment sales groups in major markets. Finally, many large real estate markets will have local investment brokerage companies; keep youre eye out for who is advertising commercial property for sale around your city.
Questions to ask
How does the investment team disseminate work? Will I be joining an existing brokerage team or helping expand into a new submarket/asset class? What is the background of the team members? How does the firm help integrate new hires? What is the training process?
Questions to expect
What is your background with real estate valuation? What would you value [sample building] in our market? Are you familiar with Argus and Excel? Provide examples of financial modeling. How would you approach marketing a property for sale? What are rents, vacancy, absorption and cap rates in this market? Sell me this building.
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2:00 p.m.: Check in with the associate and make sure marketing literature and financial analysis will get done today. 2:15 p.m.: Have a conference call with a client to discuss the status of a property purchase. The client is concerned about overpaying for the property. Assure him his offer is in line with market comparables and the property is worth the price. 3:00 p.m.: Review materials the associate prepared. After checking the documents, return emails and see how the financial markets did that day.
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4:00 p.m.: A colleague from another city calls to discuss the condition of your local market. He has a client who may be interested in buying a property in the area and wants to discuss the possibility of partnering on the deal. Tell him you will speak with your managing director about it and get back to him. 4:30 p.m.: Drop in on the managing director to tell him about the partnering opportunity. He instructs you to negotiate the commission splits up front and make sure to get everything in writing. 5:00 p.m.: Direct the associate to package the marketing information and financial analysis for your property sale in a book, and send it out to a list of probable buyers. 5:15 p.m.: Hit the phones one last time to return phone calls, trying to catch some colleagues in another market where a client may be interested in buying real estate. 6:00 p.m.: End of the day. Realizing your deal flow is small, schedule a meeting for later that week with the team to discuss new business initiatives.
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THE SCOOP
Lenders or debt-holders, such as banks, have the option to carry real estate debt on their balance sheet or to pool and sell some of their mortgages to investors. Some banks make a business of only originating, packaging and selling the loans. These originators of mortgage-backed securities (MBS) are generally larger banks such as Bank of America, Morgan Stanley and JP Morgan Chase. MBS may be secured by different types of real estate, including both residential and commercial properties. Note that the terms of the mortgages do not change, so the property owner of record continues paying the same principal and interest. Before they pool their mortgages and issue the MBS, the originators must rate the debt much like is done in the bond market. The rating gives the potential buyer an idea of the risk associated with the debt and ultimately impacts the cost of securities. Job opportunities exist with both originators and the rating agencies. Lets focus on the commercial mortgage-backed securities (CMBS) market and the third-party agencies hired to rate the debt. CMBS are secured by loans with commercial properties. Investors that buy CMBS purchase an undivided interest in a group of commercial mortgages. The agencies are hired by the issuer to provide an objective rating of the debt in exchange for a service fee. The rating is based on a report that is part financial analysis and part market analysis. Typically, the CMBS issuer hires more than one rating agency so the buyer can evaluate multiple ratings. The CMBS market grew significantly from the 1990s to 2007, from roughly $10 billion to $230 billion in annual originations. Nonetheless, originations slowed dramatically in 2008 and 2009 due to the concerns about poor lending standards on prior issuances, especially vintages from 2004 to 2007. The MBS market may take time to recover so opportunities will be limited in the near term at both rating agencies and lenders. Still, MBS has become a vital component of real estate finance and is expected to return as a vibrant part of real estate finance.
Customized for: Alex ([email protected])
ON THE JOB
The work atmosphere at an originator or rating agency is team-oriented and focused on analysis of the CMBS offering. The originators are tasked with pooling mortgages, structuring deals and selling them. The rating agency is tasked with providing an impartial analysis to help validate the risk and return on MBS pools and tranches (segments) of those pools. Essentially, the rating agency verifies what the CMBS
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Vault Guide to Real Estate Careers Mortgage-Backed Securities Originators & Rating Agencies
issuer originally did by examining the creditworthiness of the properties and debtors behind the mortgages. Newcomers enter the MBS field as analysts. Their responsibilities include data entry and financial modeling. Supervising the analyst is the director, whose main role is to collect and streamline all documents. The director is also a fact checker, often writes the final rating report and oversees the underwriting by the analyst. At this level the client interaction begins. Next in the hierarchy is the senior director who supervises all the work being done by the director and executes any requests from the client. Right above the senior director is the managing director, who usually has the banking relationships. This persons principal role is to get new work and smooth out any problems. The group managing director is at the top of the heap in the office. Hes responsible for the business. Although some rating agencies are international, the workload is often based on geography. Therefore, if youre on the East Coast, the deals you work on will most likely involve East Coast properties. Likewise, international deals are done by foreign offices.
COMPENSATION
Agencies are paid a fee by CMBS issuers in return for their objective rating analysis. Each team member has the opportunity to make a bonus based on individual and group performance. As you ascend the hierarchy, the bonuses increase. An analyst makes roughly $50,000 per year plus a bonus. An associate/director makes roughly $90,000 to $140,000 per year plus a bonus. A senior director makes roughly $110,000-$160,000 per year plus a bonus. A managing director makes roughly $200,000 per year plus a bonus. The group managing director pulls in approximately $250,000 per year plus a sizable bonus.
GETTING HIRED
Customized for: Alex ([email protected])
As mentioned, originators are generally larger banks such as Bank of America, Morgan Stanley and JP Morgan Chase. The main players in the rating business are Standard & Poors, Moodys and Fitch Ratings. You dont need to have a real estate license to work in this field. The starting point is the analyst position; beyond this role it depends on the firm. You dont have to have a real estate background to get in at the ground floor, but it does separate you from other candidates, says an insider at a leading rating agency. We look for someone who is familiar with finance and, perhaps most importantly, we value interpersonal skills when filling an analyst position. This job has a reputation as a stepping stone to the investment side of the business.
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Vault Guide to Real Estate Careers Mortgage-Backed Securities Originators & Rating Agencies
In an interview, be ready to answer questions about the difference between equity and debt, the level of your Excel skills and why you want to work in real estate. An understanding of basic real estate terminology and fundamentals is necessary. Note that the volume of hiring will depend on the volume of new MBS issuance; look for an uptick in lending as a leading indicator.
Questions to ask
How is the team structured? What is the volume of transactions in the office? What is the level of turnover in the analyst/director position? What is the career path? What makes an analyst/director standout? How have you adjusted your business after the last downturn?
Questions to expect
What is the difference between equity and debt? Why are you interested in real estate? Explain how you would determine what is an appropriate cap rate? How much finance have you been exposed to (in school and/or your previous job)? How strong are your Excel skills? Provide an example of your financial modeling experience.
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Vault Guide to Real Estate Careers Mortgage-Backed Securities Originators & Rating Agencies
1:15 p.m.: Call borrower's CFO (chief financial officer) with questions about expense irregularities and source of "laundry income." 1:30 p.m.: Associate visits you and you go over both the Garden Lakes and Pacific Vistas deals. Open and tweak the computer models and change assumptions.
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Vault Guide to Real Estate Careers Mortgage-Backed Securities Originators & Rating Agencies
2:00 p.m.: With associate, stop by your supervising vice president's office to go over the two deals. We wait five minutes for him to finish a phone call with a borrower. 2:05 p.m.: Associate leads deal overview to VP, explaining that the company should lend no more than $7.5 million on Garden Lakes and could do the full $4 million on Pacific Vistas. 2:15 p.m.: VP makes changes to your model and assumptions. He calls broker on speakerphone and tells him of your intention to offer $7.65 million quote. The broker passes, telling you that three other lenders will give $8 million. 2:40 p.m.: VP calls the borrower's CFO on Pacific Vistas and tells him of your intention to issue a quote for $4 million with a low interest rate. The CFO verbally expresses interest. 3:00 p.m.: Draw up quote using a firm form sheet (WORD document). 3:30 p.m.: Take quote to associate for review, who edits and marks it up for change. 3:40 p.m.: Make changes to quote on Pacific Vistas. 4:00 p.m.: Associate reviews and authorizes you to email it out to the borrower. 4:05 p.m.: Issue the quote to the borrower via email. 4:10 p.m.: Open new package, review information and input model. 6:00 p.m.: The associate drops by, on her way out the door, to give you two new packages (a $10 million office building in Austin, TX and a $45 million portfolio of warehouses in New Jersey). 7:30 p.m.: Order dinner with other analysts. Eat in conference room with them. 9:00 p.m.: Shut down computer and order car service to take you home.
Customized for: Alex ([email protected])
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THE SCOOP
Real estate appraisal firms provide unbiased third-party estimates of a propertys most probable sales price. Appraisals are typically performed for property sale, purchase refinancing. Theyre also used for tax appeals, bankruptcy, dispute resolution and monitoring the value of a real estate portfolio. Appraisers usually work for full-service real estate companies, banks or appraisal firms. Full-service real estate firms like CB Richard Ellis (www.cbre.com) and Cushman and Wakefield (www.cushwake.com) have valuation departments. Large banks, like Bank One and Wells Fargo, have appraisers on staff. In addition, there are specialty groups with larger appraisal firms like American Appraisal Associates. There are also a number of boutique appraisal firms in local markets that are listed on the Appraisal Foundations website, which can be found at www.appraisalfoundation.org. Once the buyer and seller of the property agree on the price, the lender requires an appraisal prior to closing to justify the price the buyer, its debtor, agreed to pay. Appraisals provide an objective third-party opinion on the value of the asset (or, in this case, real estate) underlying the proposed transaction to the creditors, who will finance the asset. The creditor usually agrees to lend the buyer the lesser of a certain percentage of either the appraised amount or the negotiated purchase price. If the appraisal of the property is well below the negotiated price, the creditor can back out of the deal or change the financing structure. To perform a real estate appraisal in the U.S., you must be a licensed professional. Each state has its own real property appraiser regulatory program, which you must complete to become a licensed professional. Becoming a licensed professional in this field is much like becoming a real estate salesperson. You must complete several hours of education, pass a state exam and provide proof of relevant work experience. You dont need a college education to become licensed. In Illinois, for example, there are three license levels: associate real estate appraiser, certified residential appraiser and certified general appraiser. The initial administration fee runs from $225 to $300. You can find information on getting a license, taking the exam or locations of the required classroom instruction on your states appraisal licensing website. To obtain an associate license, you need to complete 75 classroom hours for the associate-level license. For a certified residential license, you need 200 hours and 2,500 hours (ANU, doe the author mean BETWEEN 200 and 2,500 hours?) of practical work experience. For a certified general license, you need 300 hours and 3,000 hours (ANU, again, does the author mean BETWEEN 300 and 3,000 hours?) of practical experience. At the end of classroom instruction, you have to pass a test before youre eligible to take the state license exam. An associate cant sign appraisal reports. Certified residential and general appraisers can sign off on appraisal reports, but only a general appraiser can work on residential and commercial assignments.
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Bear in mind that obtaining the more advanced licenses and designations can be expensive. For example, in Illinois, an associate can expect to pay $1,000 and up for other licenses and designations beyond the associate level. For more information about state-specific licensing requirements, you can contact the Appraisal Institute at (312) 335-4100 or visit their website at www.appraisalinstitute.org. Remember that they dont issue licenses, just certifications and general information. Many banks and real estate owners insist the appraisers they work with not only be licensed but designated professionals as well. Becoming a designated professional is harder than becoming a licensed professional; its time-consuming and requires a college education. There are several different certification organizations, each with their own criteria for certification. The Appraisal Institute (www.appraisalinstitute.org), one of the more respected licensing and certification organizations, issues the MAI and SRA designations. An MAI designation is for appraisers of residential, industrial and commercial properties, whereas SRA is for appraising residential real estate only. To receive your MAI designation you must: Hold a four-year college degree; Pass a 15-hour national USPAP course/exam and pass the Appraisal Institutes Business Practices and Ethics Course; Be a General Associate Member in good standing for at least 12 months prior to applying for MAI Designated Membership; Pass 14 instructional exams; Pass the Appraisal Institutes General Comprehensive Examination; Tally 4,500 hours of specialized work experience over at least a 36-month period; and Write a demonstration report.
To receive your SRA designation you must: Hold an associate degree or higher; Pass a 15-hour national USPAP course/exam and pass the Appraisal Institutes Business Practices and Ethics Course; Be a Residential Associate Member in good standing; Pass eight instructional exams; Pass the Appraisal Institutes General Comprehensive Examination; Tally 3,000 hours of specialized work experience over at least a 24-month period; and Write a demonstration report.
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Getting the MAI or SRA designation requires a lot of work but it may be worth it because you will be in higher demand, command higher fees and will be held in high regard by peers.
ON THE JOB
This real estate career path is less cyclical than other real estate careers because appraisals are needed in both up and down markets. Even when the real estate industry is slow, many owners refinance assuming interest rates are low or audit their portfolio. Refinancing and auditing both require appraisals of the existing assets. Appraisal is a trade-specific field. For some, the importance of information to the business may be a negative aspect of the career path. Clients expect detailed reports and writing the reports can be monotonous. Real estate appraisal is a very paperintensive business. The typical entry-level position in real estate appraisal involves a market research role. New hires are responsible for gathering market information for senior appraisers and help write reports that explain conclusions to the client. In this role, you spend a lot of time writing reports and doing research via the Internet and proprietary databases that house market information. A normal week is between 40 to 50 hours, but can go up to 60 hours. As you become more experienced, youll be expected to get an appraisal certification and will eventually be responsible for procuring new business. An appraiser interacts directly with the client, works with the market research associate to gather market comparables and local and general economic market conditions, does site inspections (which may translate into extensive travel), performs the valuation analysis and is responsible for the written report that presents the conclusions to the client. As an appraiser, youll learn about how the market values property as well as the concerns of the capital markets when investing in real estate. If you like real estate and finance, this is a great career to marry your two interests. Typically, a lending institution would ask an appraiser to value a property or portfolio of properties for which they have or will issue debt. Once the research and the analysis necessary for the appraisal are complete, this information will be put into a written report and submitted to the client. The report often has a summary of the local or regional economy and may include demographic information. The following is an example of the DCF method in practice.
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Youre hired to appraise a building using DCF that generates cash flow of $1,000,000 next year with five percent increase in cash flows for each of the next six years. The DCF will be for five years with a sale at the end of year five. The corresponding discount rate is 10 percent, and you expect the exit cap rate to be 9.0%. What is the value of the property? Plugging all the relevant information into the DCF formula and you get: DCF = $1,000,000+$1,050,00+$1,102,500+$1,157,625+$1,215,506+{$1,276,282*1/(1.105} (1.10)2 (1.10)3 (1.10)4 (1.10)5 0.9 (1.10)1 Value = $12,955,918
COMPENSATION
Appraisal is a service offered to lending institutions or investors for a per-project, predetermined fee. In a property purchase, the buyer will reimburse the financing institution for the fee upon submitting its loan application. Dont expect to make a lot of money early on; new hires earn roughly $40,000 a year. Experienced appraisers earn $75,000 per year and up into six figures, depending on designation status and experience level. As you learn the trade, youll become more valuable to your firm and will be paid more, so its in your best interest to get certified as an appraiser.
GETTING HIRED
In addition to performing the requisite valuation analysis, an appraisal involves writing a succinct report for the client. Thats why its important for a candidate to demonstrate strong writing skills. A working knowledge of finance is also important because valuation formulas like the DCF are based on financial concepts. I look for two things in new hires, writing skills and an understanding of finance, says Jules H. Marling IV, MAI and principal of Walden-Marling, Inc. an appraisal firm in Chicago. In an interview, I expect the candidate to demonstrate that he or she has this skill set. Make sure to review the different methods of valuing real estate. If youre a good writer and have an understanding of finance, you should do well. Expect questions about real estate valuation and whats happening with real estate values in your market (i.e., have an idea of local cap rates). Also be ready to explain basic finance principles like present value and discount rates. (See the real estate
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valuation sections in Chapter 3 and the Appendix, as well as The Vault Guide to Finance Interviews for more detail on valuation.) At some appraisal firms, there is a lack of advancement issue, Marling recommends. Candidates should make sure to ask about the career path. If you want more information on finance concepts, visit www.investopedia.com the site is free and a great resource.
Questions to ask
How is a typical engagement structured, and what are the specific duties of a young appraiser? What types of career development is offered? Does the company sponsor employees when they seek designations? What types of clients and what types of appraisal projects does the firm handle?
Questions to expect
What are the methods to value a real estate property? How would you value suchand-such property? What is your experience with/knowledge of ______ (residential, office, industrial, etc. what types of properties the appraiser specializes in) properties? What are some of the key drivers of value for this type of property? How would you come up with an appropriate cap rate? What is your experience with financial modeling, research, and report writing? Provide examples.
9:00 a.m.: Grab the digital camera, get in your car, and drive to the property. 9:20 a.m.: Arrive at the property. Since youre 10 minutes early you decide to take a quick drive around the immediate area to see what else is around. 9:30 a.m.: Pull up to the property as the senior appraiser is also pulling up. Get out of your cars and chat for a few minutes about details on the assignment. Its new appraisal for a bank looking to extend a loan on the 100,000-square-foot
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building. Go inside and meet the property manager, who takes you on a property tour. Jot notes furiously as the senior appraiser rattles questions and the property manager answers. Snap photos along the way. 12:00 p.m.: Tour over, you get back in your car. Meet the senior appraiser at a designated lunch spot on the way back to the office. Chat about the appraisal and last nights football game over lunch. 12:45 p.m.: Back in the office. Load the photos from your property tour, type your notes, and start a new engagement folder for this appraisal. 1:30 p.m.: Generate some standard maps that will be included in the report. Go online to print tax assessor information and other local jurisdiction information on the property, such as zoning. Pull up demographic and employment statistics for the area. 2:30 p.m.: Conduct research on other office building sales in the submarket. Start creating a matrix of potential comparable property sales with relevant information. 3:30 p.m.: Senior appraiser comes to your desk to ask for your help on assembling an industrial appraisal that needs to go out the door today. Put the research work on the office building aside for now. Perform quality control, help with formatting on the appraisal document, and help secretary print and bind materials to meet overnight mail deadline. 5:30 p.m.: Whew, done with that fire drill. Take 15 minutes to check the news and relax. Almost done for the day. 5:45 p.m.: Look at where you stand on the new office appraisal research. Flip through a prior office appraisal to make sure youre covering all of the bases for preliminary research. Jot down a to do list for tomorrow. 6:15 p.m.: Senior appraiser stops by to say hes headed home and that you should do the same. You close down your computer and head out the door five minutes behind him.
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Property Management
Chapter 10
THE SCOOP
Real estate owners commonly employ professional property managers either directly or through third-party management firms. Property managers are charged with the day-to-day management of real estate assets. They ensure that tenants are satisfied, the building is in good condition, rent is paid and that rents reflect market conditions. Property management provides a general introduction to real estate. As a property manager youll learn how to efficiently operate a real estate asset in this capacity. Property managers deal with issues relating to leasing, construction, tenant relations and market analysis. A good manager can save an owner a great deal of money by operating the asset efficiently and keeping the tenants happy. The property manager plays a crucial role in expense control; the owner relies on him to manage any and all operating expenses at the building. For instance, if there is construction work at the building, the property manager supervises the project, keeps close tabs on the progress and makes sure it doesnt go over budget. Property management also requires good interpersonal and analytical skills because tenants sometimes can be difficult and expect things to be resolved immediately. While leasing agents do much of the lease negotiations, property managers can be involved in the process as well. A salespersons license may therefore be required for the position.
ON THE JOB
The common entry-level point for this field is the position of assistant property manager (APM). APMs spend a good deal of the day fielding calls from tenants and owners. Theyre also charged with orchestrating any necessary repairs and dealing with vendors that provide services to the property. To top it off, they have the unpleasant task of making delinquency calls to tenants when they dont pay their rents. There is also administrative work such as assembling reports the property manager writes for owners as well as annual bid packages for any property work.
Customized for: Alex ([email protected])
APMs report to a property manager (PM). PMs deal directly with the owner on all issues and are ultimately responsible for the day-to-day performance of the asset. The owner relies on them to maximize the real estate assets net operating income. PMs report to a regional property manager (RPM). RPMs are usually in charge of an entire region and interact with multiple owners. If an owner does have multiple properties, the RPM would be the point of contact. Theyre expected to bring in business and negotiate service contracts. A typical day in property management might involve visiting one of your properties and talking on the phone with the owner, tenants and vendors. Property managers
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make sure accounts receivable (rent and other income brought in by the property) are in order. Many owners expect timely reporting, so youll also be gathering valuable market information that make up reports. This data may include rental rates in competitive buildings and lease rollover reports, which detail which leases are coming due at your property. PMs also write reports on rates of delinquency, rent patterns and reports on operations, which detail the physical condition of the property and the state of the budget.
COMPENSATION
Careers in property management are generally salaried positions that include benefits. An assistant property manager should expect to make $35,000 to $45,000 per year with a bonus based on individual performance and that of the asset(s). Property managers typically make a base salary of $50,000 to $100,000 per year (depending on the asset) and can expect an annual bonus. At properties where property managers handle lease renewals, owners sometimes pay commissions. This practice is not an industry standard but can be negotiated in the hiring package.
GETTING HIRED
There are a few qualities that employers look for in property managers, says Heather Battaglia Higgins, assistant vice president at InterState Commercial in Chicago. You must have strong people skills to handle both the tenants and the owners, be able to multitask, be willing to do administrative work and [you] must be comfortable with accounting. In the interview, be ready to answer questions about your written and oral communication skills, as well as your organizational skills. You may be presented with a hypothetical situation involving an angry tenant and asked how you would resolve the issue. Many employers require you to have a real estate license and a college education. In addition, some employers require that you have or obtain a property management designation. One of the more common designations is the certified property manager (CPM), as administered by the Institute of Real Estate Management (IREM). To become a CPM you must have a high school diploma, be at least 18 years old, have a real estate license and complete classroom instruction, pass the CPM certification exam, and have at least three years of relevant real estate experience. The CPM is specific to retail management. The cost of the application is $200, the cost of national IREM dues is roughly $475 and the cost of classroom instruction is roughly $3,000. If you would like to work with office and industrial properties, you should obtain a real property administrator (RPA) designation, as administered by the Building Owners &
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Managers Institute. To obain an RPA, you have to take six classes plus a brief ethics course and demonstrate three years of property management experience. You can earn an RPA via self-study; it should take about two years to complete and the classes and costs roughly $3,000. The program fee is $175 for a first designation program. Other types of designations also exist, but these have been more popular.
Questions to ask
What types of properties does the company manage? How many properties is an assistant property manager (or property manager) expected to work on? How many properties is a property manager expected to manage? If the property manager is a third-party manager: How are the owners with whom the company works?. If the property manager is a third-party manager: Are they very demanding micromanagers or are they hands off managers?
Questions to expect
Can you tell me about a project you completed that demonstrates strong organizational skills? Can you provide an example of a project or event that demonstrates strong people skills? Please describe how you would handle a client complaint. How strong is your understanding of basic accounting concepts?
Institute of Real Estate (www.irem.org) Building Owners and Managers Institute (www.bomiedu.org/index.html) Building Owners and Mangers Association (www.boma.org)
The larger full-service real estate firms, all have property management departments. Some of these include:
CB Richard Ellis (www.cbre.com) Cushman & Wakefield (www.cushwake.com) Jones Lang LaSalle (www.joneslanglasalle.com)
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11:00 a.m.: Property manager calls you to ask if youve looked into updating the emergency evacuation procedures and started arranging the practice evacuation drill in two months. You indicate that you have not started working on it but will get back to her this afternoon. You immediately turn your attention to it. 12:45 p.m.: All done with verifying the procedures. You send an email to all of your tenant office managers to alert them of the drill. Your co-worker that handles the buildings leasing stops by and asks you to grab lunch. You go with him for a bite outside since its a nice day.
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1:30 p.m.: Back at your desk. Respond to emails and check voicemail. Maintenance said theyve fixed the ventilation for the law firm. Look through expense paperwork to process. 2:00 p.m.: You take some expense approvals to property manager. After, you get briefed on the lobby improvement project. She gives you some documents to review. You head back to your desk and sort through the info. 3:00 p.m.: Contractor team shows up and you take them through the lobby, see what you can do to help them, and make sure theyll be ready to start in a few weeks. They have some questions that you cant answer but promise to follow up. 4:00 p.m.: Back to your desk. You shoot an email off to the property manager with the contractors questions. You also make calls to some tenants who responded to your email about the emergency evacuation drill with questions. 4:45 p.m.: Accountant drops off last months operating report on her way out. You review and note a few questions to follow up on in the morning. You remember to call the tenant whos delinquent on rent. Secretary answers but the office manager is not in so you leave a message. You also send an email with the property manager CCed. 5:30 p.m.: Sort through the rest of your inbox and prioritize for tomorrow. 5:45 p.m.: Run out the door to make your soccer game.
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THE SCOOP
Institutional investors, such as pension funds and insurance companies, are active in the real estate market. Wealthy individuals (sometimes referred to in the investment industry as high-net-worth individuals) also normally allocate a portion of their investment portfolio to real estate assets. As with the investments they make in stocks, bonds and other securities, institutional and individual investors often hire advisors to direct their real estate investments. Real estate advisory firms (also known as private equity funds) act as a fiduciary agent. Youll sometimes hear people refer to this as the agency side of investing. Advisory firms help investors identify real estate assets that match their risk tolerance and targeted returns. Advisory firms often raise equity for specific real estate investment objectives. For example, a firm may announce a fund that will focus on buying office properties in central business districts (CBDs). The advisory firms announce their intention to raise a fund and then solicit investors to contribute to the fund. Here, the advisory firm is called the general partner and the capital-providers are called the limited partners. Once the advisory group meets its capital-raising goal, it begins to identify properties for purchase and builds a portfolio. Advisory firms select investments by focusing on markets and property types likely to experience price appreciation in the future or on properties in which they can add value through renovation, improving management, etc. Some firms with a large real estate private equity business include Blackstone, Lubert Adler, Carlyle Group, and Goldman Sachs. Hundreds of private equity funds exist with different specializations based on the location, size, and type of property. Additionally, some funds serve as a conduit for allocating money to advisory funds. They analyze the track record of investment advisory groups, conduct due diligence, and invest capital alongside the funds. This fund of fund business allows capital providers such as pension funds and universities to outsource capital allocation and fund diversification.
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ON THE JOB
Advisory firms can be divided into two primary functions: property management and acquisitions. Property management manages existing assets within the portfolio while acquisitions sources and closes on new properties to be added to the portfolio. In some funds, these roles are not exclusive; since these groups operate lean, responsibilities are often blurred. Every advisory group operates differently, so the following description is a generalization. New hires start as an analyst or associate and are expected to handle
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valuation analysis and performance reporting to investors. The main task for analysts/associates is to analyze investments, prepare financial models using Excel and ARGUS, and prepare reports for senior managers and investors. The reports cover issues such as the state of the local market, taxes, valuation, local cap rates, buildings recently sold and the status of their cash flows. New entrants in this field should understand that advancement in real estate advisory can be quite difficult. In fact, many advisory firms have a tendency to hire for senior associate (such as recent graduates from MBA programs) and higher positions from outside the firm. The next step up the ladder is senior associate (many new MBAs start in this position). In this role, you may interact with the property manager on a regular basis to make sure portfolio investments are performing to plan. Senior associates still perform analysis and build financial models but will delegate some of this work to the analyst/associate. They might also: (1) make decisions on some smaller capital expenditures, such as repairs and upgrades to the building(s); (2) attend meetings to discuss acquisition assignments that involve your portfolio; and (3) generate contacts and seek new investment opportunities. Its at this level that you begin to have more client/broker contact and are expected to understand the assets at the ground level. Above the senior associate is an asset manager (AM), vice president (VP), or senior vice president (SVP). The AM/VP may be responsible for everything related to the assets in a segment of the portfolio (e.g., assets in a specific region or of a specific property type). The VP may also be responsible for originating new acquisitions or coordinating dispositions in an assigned region or for an assigned property type. Many day-to-day and some major capital decisions are made at this level. At the top of the firm is usually a head of acquisitions and an overall portfolio manager, who has ultimate authority for the funds operations. Additionally, a person or person(s) will work specifically to market to capital providers and raise money for the fund. Some firms call these people market directors, while others call them client relationship managers. In this role you are the representative of the advisory firm to the investment community and your chief function is to raise money. This is a salesintensive role and extremely high profile in the real estate industry where experience is demanded.
COMPENSATION
A non-MBA new hire at the analyst/associate level should expect to be paid a $40,000 to $70,000 salary plus a performance bonus. Senior associates, such as recent MBA graduates, should expect to make between $90,000 to $120,000 per year plus a performance bonus; a signing bonus is typical for new hires out for business school. At the vice president level and above, salaries may range from $100,000 to $200,000 a year depending on experience plus a sizeable annual bonus and/or an interest in portfolio investments. Client relations managers tend to make over $100,000, but pay may be more commission-oriented based on funds raised.
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GETTING HIRED
People who are comfortable with finance, especially valuation analysis, do well in this field. Strong interpersonal skills are also very important. Most firms look for people who already have worked in finance and have some real estate experience, which is why they hire from MBA programs and investment banking. This is a very high profile and lucrative job, so it is arguably the most competitive career to land in real estate. You must be comfortable with Microsoft Excel, as its necessary for spreadsheet calculations and reporting. Many firms use a popular financial software package called ARGUS, which is specific to real estate and helps isolate project cash flows. Interviewers will likely ask if youre familiar with Excel and ARGUS and about your level of expertise with the software programs. In fact, one insider reports taking an Excel test to demonstrate that he knew how to model a real estate transaction. The interviews are not entirely skills-based, of course. We bring in people with at least two years experience and a financial background, says Albert Pura, a portfolio associate at RREEF. In the interview, we focus on the individual to determine whether he or she will fit in our culture. I was not asked one quantitative question during the interview process, adds Rich Monopoli, an MBA graduate from the Kellogg School of Management who took a job with Jones Lang LaSalles investment management group. I met with many people at the firm and got the sense that each one was determining if they would like working with me. That said, I was still ready to answer questions about valuation.
Questions to ask
What is the career path for a position and what drives internal promotions? Who are your principal investors and how are the advisory fees structured? Are property management and acquisitions roles segregated or one-in-the-same? How has the fund sourced the majority of its portfolio investments? How much of this fund has been allocated; what is the status of the next fund?
Questions to expect
Customized for: Alex ([email protected])
Do you know ARGUS and if so, how much have you worked with the program? Provide an example of your financial modeling experience of a real estate asset in Excel. How is a real estate asset valued? How would you value such-and-such property? What is the range of cap rates in this market for office buildings? Industrial, etc.? If you were going to invest in a real estate, which type of asset would you buy and why? Where?
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1:00 p.m.: Team call to review pipeline of prospective acquisitions and funding needs. It is decided that no immediate capital calls are needed to limited partners. Discuss a few problematic assets in the portfolio. 2:00 p.m.: Punch out list of questions and additional materials needed related to an industrial development that we have been evaluating. Email to SVP and the local developer that pitched the investment. 3:00 p.m.: Get a call from a broker on an office deal that we previously had bid on but lost. Deal fell through with other buyer and now he wants to know if we still want it at our old price. Tell him youll get back to him. 3:15 p.m.: Check assumptions on old model and make some updates. Revise purchase price recommendation. Talk to SVP and decide to drop the offer by 15 percent due to the changing market conditions over the few months since your last bid. 4:00 p.m.: Submit a new offer on office deal via fax. Broker calls but says its too low and tries to encourage a higher offer. You say no, thinking that youll probably hear from him again. 4:30 p.m.: Follow up with a few lenders about trying place debt on an asset already owned by the fund. One lender e-mails a term sheet. The interest spread is 50 basis points higher than you underwrote and LTV is lower. Reprogram the debt into your old model to explore the impact on returns. Share a summary of findings with SVP. 5:30 p.m.: Reply to new e-mail. Print a two offering memorandum that you will take home to review. 5:45 p.m.: Triple-check a cash flow model and review results in preparation for a call with some of the investment committee members tomorrow morning to feel out their interest in an investment. You need to know the numbers cold in case of questions.
Customized for: Alex ([email protected])
6:30 p.m.: Print out some real estate articles for review later. Get organized for tomorrow. 6:45 p.m.: Talk with a co-worker to see if hes got any interesting deals in the hopper. Nothing too promising. Ruminate on where cap rates are going. 7:00 p.m.: Head home with some document to review in tow.
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THE SCOOP
Many investment banks on Wall Street and elsewhere have groups dedicated to real estate that are good fits for someone with an interest in both real estate and investment banking. It shouldnt surprise you that these are very finance-oriented groups that look at real estate as one more asset class to make money for themselves and their partners. Products involve the repackaging of mortgages into residential mortgage-backed securities (MBS), collateralized mortgage obligations (CMOs) and commercial mortgage-backed securities (CMBS). Other popular areas include the REIT stock, bond and preferred stock origination business, lodging investment banking, principal investing in real estate and synthetic lease origination. Some of the big players include Deutsche Bank (www.db.com), Goldman Sachs (www.gs.com), and Morgan Stanley (www.morganstanley.com). These groups look to place money with operators (real estate developers and owners) all over the world who need capital for real estate projects. Operators, in turn, seek these groups out for funding. Its important to note that these groups look for high return deals. Of course, higher returns mean riskier deals. They base their decision on the expected return, or what is commonly referred to as the internal rate of return (IRR). You should know this term and be comfortable explaining it in an interview. Many people are intimidated by IRRs, but theyre easy to understand. If youre discussing a potential investment, you will want to know the associated returns, which are expected but not guaranteed. Thats what an IRR is: the expected return on the investment if everything goes according to plan.
IRR Example
Let's say that XYZ bank is going to invest $100 million in a real estate development today and in return expects to receive $10 million a year in cash flow for five years. Furthermore, the development will be sold at the end of the fifth year and XYZ's bank will receive $150 million in sale proceeds. The IRR is the expected return that is associated with this transaction (calculated at roughly 17% for this transaction). Remember, there are no guarantees related to the project only expectations presumably, based on a good deal of analysis. Note: There is a function in Excel that makes calculating the IRR very easy. Make sure to become familiar with this function.
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Funds will set a target IRR that they hope to exceed; the target IRR will vary depending on the risk level of the fund and what was promised to limited partner investors. Generally, the target IRR will range from10 percent to 20 percent. An investment fund will also consider other metrics beyond IRR, especially the ratio of capital distributions compared to funds invested (called a multiple). Investors are concerned not only with the rate or return but also their gross return as driven by the amount of time that the capital was invested. Both are important statistics, among others.
ON THE JOB
Entry-level employees usually referred to as analysts spend the bulk of their time doing acquisitions and valuations work. Theyll also do financial modeling for proposed deals. As part of the modeling, analysts account for the IRRs to the contributed debt and equity. Additionally, they help write deal memos that are presented to the investment committee, which ultimately makes the decision on whether or not the group will invest in the deal. The memo contains the pros and cons associated with the deal as well as market risk and fundamentals. In the course of preparing the memo, the analyst will have most likely visited the parties involved with the deal and inspected the physical asset. Since these groups invest money all over the world, there is a good deal of travel. At some companies, analysts have a lot of contact with the deal partners and will interact with the operators, attorneys and investors involved in the deal. They will seek any affecting the risk and return of the project. The next level is the associate, whose main duty is to oversee the work of the analyst. He or she generally handles more of the contact with the deal partners and communicates any concerns or issues to the VP. Associates report to vice presidents (VPs), who have a supervisory role. Their main purpose is to bring in deals and make sure they run smoothly. Managing directors (MDs) are the top dogs in this hierarchy. They are even bigger dealmakers than the VPs and have the final call on all decisions. MDs are charged with business development.
COMPENSATION
The pay is very good in this field. Analysts make anywhere from $55,000 to $80,000 per year plus a performance bonus. The associate or senior associate level is where the money becomes particularly enticing; associates can expect a base of $95,000 -$110,000 plus bonus. A VPs base salary is somewhere between $150,000 and $200,000 plus bonus. Managing directors can millions and have a major stake in the deals. All bonuses are contingent on group, project and individual performance. At some firms, anyone above the associate level has an equity position in the group.
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GETTING HIRED
These jobs are very difficult to get because the real estate groups at investment banking firms tend to be small and you need a certain background. Candidates in this field have usually gone to a top undergraduate or business school and can demonstrate both an interest in finance and real estate. You dont need a real estate license for a career in real estate investment banking, but many people belong to industry organizations like the Urban Land Institute (www.uli.org). If you get an interview, be conversant in the condition of the world economy and the general health of the real estate market. Be ready to answer questions about IRRs, discount rates, PVs and why you have an interest in the industry. Be prepared to run through an impromptu financial analysis doing math in your head.
Questions to ask
How many and what types of deals have you completed over the past few years? What types of deals do you expect over the next few years in light of this environment? What is the typical size (money-wise) of the deal? In this role, how will someone interact with the rest group? How is the team structured? What is the natural progression from this role? (Specifically, will you be expected to have your MBA to take the leap from associate to vice president?)
Questions to expect
Are you comfortable calculating NPV, Internal Rates of Returns (IRRs), multiples, etc.? Lets run through an example now. What type of financial modeling have you done in the past? Provide an example of your Excel modeling capabilities. What are your thoughts on the current state of the domestic economy? How will a rise in interest rates impact commercial real estate valuations? Where are cap rates headed? If you were investing in real estate, which markets (geographically) would you place your money and why? How much do you know about our group and its performance?
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4:40 p.m.: Take a short break. Read The Wall Street Journals Property Report. Chat with fellow associate on whats youre both working on. You offer some advice on a deal. 5:00 p.m.: Step into the meeting with your MD with the analyst on your heels. Go over valuation and questions. MD offers input and sends you back to work.
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5:30 p.m.: Voicemails never seem to stop arriving. Prioritize. You circle up with the analyst on the pitchbook and start helping. 6:45 p.m.: The analysts are ordering dinner. You decide to cancel tentative dinner plans with the girlfriend (again) to keep working. 9:15 p.m.: Pitchbook looking good. You ask analyst to carry it across the finish line and have a draft for you to look at by the morning. Turn to some edits on the hotel model. 10:15 p.m.: Email your MD with results from hotel valuation update. Weary-eyed from staring at Excel for so long, youre happy to head home. You walk by the analyst pit and ponder their stamina. At least youre an associate. How long until I get my bonus again?
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Development
Chapter 13
THE SCOOP
If you enjoy taking risks, look no further than development. Development involves managing labor, establishing time estimates, managing money and monitoring construction crews. Good developers are results-oriented, creative and know how to get work done on time. You can break into the field by working for a smaller developer or you can strike out on your own, starting with some smaller transactions. In development, you take a concept and physically construct or alter a property that will last for years. In this field, you work with the local and sometimes federal government to bring your project to life. You also aggressively pursue necessary funding from both the debt and equity markets to make the project a reality. Because of changes in population, technology and consumer taste, theres always a need for development. Even the largest developers have lean organizations, so getting a job is tough. Some developers specialize as design-build firms that help design and then build real estate for a fee, while other developers are full-service firms that not only design and build the property, but manage and lease it after the building is completed. Most real estate professionals agree that development is the riskiest, most rewarding part of the industry. Many developers are extremely charismatic and appear regularly in the society pages. It seems that every major city has its own Donald Trump someone behind the high-profile real estate projects and deals. One of the best things about real estate is the lifestyle and development is no exception. This is definitely a work hard, play hard career, said one real estate developer. Since much of the job is focused on cultivating personal relationships, coworkers are typically gregarious folk who love to have a good time. I worked in banking before I made the jump to development, another professional in development confides. I saw how much fun and money my real estate clients were having and decided to switch careers. Granted there is a learning curve and you initially suffer pay-wise, but I dont know any industry that allows you to make the kind of money you can make in real estate, while not putting in a ridiculous amount of hours.
ON THE JOB
The developer is the person or the company responsible for creating the concept of a property and bringing it to reality. One thing must be stressed: Every development firm is different, more so than in any other part of the real estate industry. Titles and pay scales vary widely from firm to firm.
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New hires normally start as analysts, creating and revising spreadsheets that examine returns for the developer. Part of the spreadsheet analysis is keeping track of debt payments and the returns to equity partners. In this role, youll be expected to become an Excel expert since your principal duty will be to run financial spreadsheets. Any time there is a change to the project, the analyst reruns the spreadsheets to determine how it impacts the developers and investors returns. Since most development firms are lean, analysts can expect to perform other duties such as market research, studying comparable project research, leasing activity in your market and demographic studies. Associates, sometimes called project managers, work above analysts and are assigned to a specific project. The developer may have 10 buildings under construction, but the associate will usually be responsible for only one building. Associates still perform financial analysis, but have additional duties such as contact with the real estate community, architect, contractors, investors and attorneys. Your main task is to ensure that the building is constructed on time. The management team will rely on you for updates and recommendations. You write a number of memos and begin to get invited to presentations to management. Associates typically possess several years of experience and/or an advanced degree or other accreditation. Associates report to vice presidents (VPs), which some companies call managing directors (MDs). Theyre responsible for multiple assignments and make the final decisions with respect to the development project or portfolio. VPs delegate a lot of work to associates but are ultimately responsible for a developments success. Theyre directly involved with leasing or sale negotiations and report to management or the developer. In this role, theres a lot of responsibility and a ton of pressure. At many development firms, you will have the opportunity to eventually become a principal. As such youll be expected to contribute equity to a development. Principals are asked to help raise money and are also expected to provide concepts for future developments. This is as good as it gets in the industry you can make millions. Developers start marketing their projects before they break ground and will often have their own team of leasing agents to market the property to the real estate community and show it to prospects. Leasing agents who work for developers essentially have the same responsibilities as regular agents, but are under much more pressure when leasing a new development. Junior agents are assigned to a project and work with the leasing team to market the property and conduct property tours. It is worth pointing out, however, that some leasing agents at development firms eventually become principals.
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COMPENSATION
Analysts can make $40,000 to $60,000 per year. There is bonus potential, but at this level dont expect much. Associates or senior associates at the larger firms make roughly $80,000 to $110,000 per year. At this level, you have the potential to make a bonus of roughly 20 percent of your salary. At the vice presidents level, the money becomes very good, with a base salary of anywhere from $150,000 on up. On top of this, you can earn a bonus as high as your salary and earn an interest in your projects. Principals can make millions; it all depends on how the project(s) perform.
GETTING HIRED
If you know you want to pursue a role in development, be extra-aggressive; even the largest developers are lean and dont add staff often. For those at business schools, be ready to perform an independent job search. Chances are your career placement office doesnt bring a lot of firms to campus or is simply not familiar with this field. Developers will expect you to tell them why youre interested in this particular field. Be prepared to describe how to value a property and what makes it valuable. Be able to discuss the local real estate markets, including vacancy rates, rental rates and current development projects. Brace yourself for questions about time management, organizational and interpersonal skills. One insider says many developers like people with marketing skills, which makes sense effectively marketing yourself and the project youre working on will ensure your success.
Questions to ask
Can you walk me through some recent projects from start to finish? Are most projects the firm works on rehabilitation projects or new developments? Does the company focus on one real estate property type? What is the firms organizational structure like? Which team members focus on identifying opportunities; which concentrate on raising money? How does the firm raise funds for projects? Is the firm using banks, insurance companies, wealthy individuals or other money sources? What are your targeted returns or IRRs?
Questions to expect
What is your understanding of the development process? How can you add value? What recent well-known development do you think highly of and why? Can you describe some local high-profile developments? Where do you see opportunity in this market?
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Are you comfortable doing a diverse set of activities? Provide an example of a past experience of multitasking. What is your understanding of finance and how it plays a role in development?
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10:00 a.m.: You check your e-mail and see that you have some new construction figures for different development scenarios on your condo deal. You stop by the analysts desk to ask him to update the financial model with the new information you received and build in some pricing sensitivities. 10:30 a.m.: A development manager asks you to handle a request by one of your equity investors. You call the associate at the fund and find out they are looking for an updated pro forma to help them with a portfolio performance update. You get off the phone, open the model, input some updates, and e-mail to the investor. 11:15 a.m.: You get a call back from the broker about the land. Unfortunately, it appears the owner is firm at $15 million but your numbers dont support more than $12 million. You double-check your assumption and reaffirm. Just to have it in your back pocket, you look at a scenario where you offer the owner some upside on the backside of the development deal should it prove successful. 12:00 p.m.: Grab lunch with your development manager and analyst but bring it back to the conference room. Discuss the condo deal financials. 12:45 p.m.: Contact a few of your consultants on the condo deal get an update from your traffic consultant and tenant relocation coordinator (evictions). The building is almost empty since youve been offering a generous relocation package but there are a few hold-out tenants. 1:30 p.m.: Get a call from your former business school buddy at a competing development company. Catch up a bit and make plans meet up at a networking event later. 1:45 p.m.: You head out of the office to sit in on a zoning hearing for one of the companys developments. 2:15 p.m.: Traffic was bad but you made it. Your project is just about to come up on the agenda. Your company president gets up and presents the plan. Some of the local residents that attended voice concerns about the development, and the city planning officials ask your team to address the issues. You respond to some emails on your BlackBerry while listening passively. 3:45 p.m.: Meeting still underway, but you take off back to the office to handle some more pressing items. 4:10 p.m.: Back in the office. Circle up with the analyst to get the new scenarios on the condo deal. Take them back to your desk to review.
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4:45 p.m.: Follow up with architect on where they stand with their renderings. Arrange for them to present to your development team next week. 5:00 p.m.: You turn to working on a financing request package that you will eventually pass on to some of your banking contacts to obtain debt for the deal. 6:15 p.m.: Save your work and head to real estate young professionals networking event. Commiserate with your business school buddy about his companys development deal gone awry due to zoning issues. You start to sweat about tomorrows landmark hearing for your condo project another drink please.
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Conclusion
After reading this guide you should have come to the following conclusions: (1) the real estate industry is a tight-knit community; (2) when looking for a job, it pays to be aggressive and to network as much as possible; and (3) many different roles are available to the ambitious job seeker. To get the job you want, use resources such as your alma mater's alumni network, real estate related websites such as those listed in the Appendix and network within the industry as much as possible. Remember, most real estate jobs are filled by word of mouth, so build your own network within the real estate community. Once you get the interview, be ready to demonstrate your passion for the industry. Remember real estate is a cyclical game. Though it is challenging to get started in a downturn, the key is to stay involved in the industry however you can to learn and position yourself for the next wave. The booms and busts can be big, and thats what makes real estate such a challenging but rewarding industry. Those who navigate the swings have the opportunity to be wildly successful.
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APPENDIX
Vault Guide to Real Estate Careers
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Sample Periodicals
Commercial Property News - www.cpnonline.com Globe Street - www.globest.com Journal of Property Investment and Finance Multifamily Executive - www.multifamilyexecutive.com National Real Estate Investor - www.nreionline.com Real Estate Alert - www.realert.com Realty Stock Review - www.reri.org Urban Land Institute - www.uli.org The Wall Street Journal, Weekly Property Report - www.wsj.com
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Headquarters: 1 Campus Drive Parsippany, NJ 07054 Phone: (877) 221-2765 www.century21.com Also owned by Realogy, Century 21 Real Estate Corporation is the franchisor of the world's largest residential real estate sales organization, with more than 8,500 independently owned and operated franchised broker offices in over 64 countries and territories worldwide. Their agents represent both buyers and sellers of residential real estate. The firm is known for good training programs.
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CB Richard Ellis
Headquarters: 355 South Grand Avenue Suite 200 Los Angeles, CA 90071 Phone: (213) 613-3333 www.cbre.com CB Richard Ellis is a global provider of commercial real estate services. It has 30,000 employees in more than 450 offices worldwide. CB, as it is commonly known, offers brokerage assistance, corporate services, research, consulting, project management, valuation and advisory. CB Richard Ellis acquired Insignia/ESG in 2003 and Trammell Crow Company in 2006. Candidates can view and apply to openings through the website or send their resumes to [email protected].
Jones Lang LaSalle is a leading international provider of comprehensive real estate and investment management services. The company stresses a team environment and serves clients locally, regionally and internationally from offices in over 100 countries. The 30,000 Jones Lang LaSalle professionals offer integrated investment, transaction, and management services. While most of their competitors pay commissions only, Jones Lang LaSalle pays base salaries. Candidates can view jobs and submit resumes online at the corporate website.
Development
Catellus
Headquarters: 4545 Airport Way Denver, CO 80239 Phone: (303) 567-5700 www.catellus.com Catellus is one of the nation's premier diversified real estate development companies. The company specializes in developing, managing and investing in a broad range of product types including industrial, office, residential, retail and major urban development projects. It was acquired by Prologis in 2005. Openings can be viewed and applications can be submitted on the Prologis website, www.prologis.com.
Hines
Headquarters: Williams Tower 2800 Post Oak Boulevard Houston, TX 77056 Phone: (713) 621-8000 www.hines.com An international developer that has a portfolio of projects completed, acquired and/or managed of more than 1,100. Its development expertise includes skyscrapers, corporate headquarters, mixed-use centers, industrial parks, and master-planned resort and residential communities. Currently, Hines controls assets valued in excess of $25 billion. The firm has offices throughout the U.S. and in 16 other countries. Open jobs can be viewed and applied to online. Note that the recruiting process, like most real estate firms, is often driven from the local/regional office.
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KB Homes
Headquarters: 10990 Wilshire Boulevard Los Angeles, CA 90024 Phone: (310) 231-4000 www.kbhome.com KB Home is one of America's largest homebuilders with domestic operating divisions in Arizona, California, Colorado, Florida, Nevada, New Mexico and Texas. Kaufman & Broad S.A., the company's majority-owned subsidiary, is one of the largest homebuilders in France. It also operates KB Home Mortgage Company, a full-service mortgage company for the convenience of its buyers. All openings can be viewed on the company website and entries can be submitted online.
Trammell Crow
Headquarters: 2001 Ross Avenue, Suite 3400 Dallas, TX 75201 Phone: (214) 863-3000 www.trammellcrow.com Trammell Crow was acquired in 2006 by CB Richard Ellis, becoming a wholly owned but independently operated subsidiary. In its 60+ year history, Trammell Crow has developed or acquired commercial real estate of over 500 million square feet and $50 billion in value. Trammell Crow has traditionally focused on office, industrial and retail properties, though it also has other operating units such as health care and student housing. Each office operates as its own business unit, and hiring is often driven by local needs. Open positions may be posted in the career section of the CBRE website, www.cbre.com.
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REITs
OFFICE-FOCUSED
Boston Properties, Inc.
Headquarters: 800 Boylston Street at The Prudential Center Boston, MA 02199-8103 Phone: (617) 236-3300 www.bostonproperties.com Boston Properties, Inc. is a self-administered and self-managed REIT that develops, redevelops, acquires, manages, operates and owns a diverse portfolio of office properties. The company is one of the largest owners, acquirers and developers of Class A office properties in the U.S., concentrated in four core markets Boston; Washington, D.C.; midtown Manhattan; and San Francisco. Boston Properties has 650 employees and five full-service regional offices located in the aforementioned areas and Princeton, New Jersey.
Equity Office
Headquarters: Two North Riverside Plaza Chicago, IL 60606 Phone: (312) 466-3300 www.equityoffice.com
Customized for: Alex ([email protected])
Equity Office was formerly the nation's largest office building owner and property manager. It was acquired in 2007 by The Blackstone Group, which spun off some assets and consolidated others from other acquisitions. Equity Office still owns and manages office buildings in several major cities across the country. All openings can be viewed on the company website and applications can be submitted online.
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RETAIL-FOCUSED
Westfield Group
U.S. Head Office: 11601 Wilshire Boulevard Los Angeles, CA 90025 Phone: (310) 478-4456 www.westfield.com Westfield Group began in Australia in 1960 and has since expanded to New Zealand, the United Kingdom and the United States. It has 119 retail centers across the four territories with 55 of those centers in the U.S. comprising 63 million square feet of space. Westfields global headquarters is in Australia, where it is publicly traded. Business activities include property management, leasing, development, design and fund/asset management. All openings can be viewed on the company website and applications can be submitted online.
INDUSTRIAL
AMB Property Corp.
Headquarters: Pier 1 Bay 1 San Francisco, CA 94111
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Phone: (415) 394-9000 www.amb.com AMB Property Corporation is a REIT engaged in the acquisition, ownership, operation, management, renovation, expansion and development of primarily industrial properties across 14 countries. The company has a portfolio of 159 million square feet, comprising of industrial properties located near seaports, airports and primary interchanges in the Americas, Europe and Asia. Openings can be viewed on the company website and applications can be submitted to [email protected].
ProLogis
Headquarters: 4545 Airport Way Denver, CO 80239 Phone: (303) 567-5000 www.prologis.com ProLogis operates a global network of industrial distribution facilities, with more than 2,500 properties and 475 million square feet of space owned, managed, or under construction in markets across North America, Europe and Asia. The company leases its industrial facilities to more than 4,500 customers, including manufacturers, retailers, transportation companies, third-party logistics providers and other enterprises with large-scale distribution needs. All openings can be viewed on its website and applications can be submitted to [email protected].
APARTMENTS
AvalonBay Communities, Inc.
Headquarters: 2900 Eisenhower Avenue, Suite 300 Alexandria, VA 22134 Phone: (703) 329-6300 www.avalonbay.com AvalonBay Communities, Inc. is in the business of developing, redeveloping, acquiring and managing luxury apartment communities in the high barrier-toentry markets of the United States. These markets are located in the Northeast, MidAtlantic, Midwest, Pacific Northwest, and Northern and Southern California regions of the country. As of mid-2009, AvalonBay owned or held interest in 173 apartment communities containing 50,000 apartments in 10 states and the District of Columbia, of which 12 communities were under construction and seven were under
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reconstruction. All openings can be viewed on the company website and applications can be submitted online.
Equity Residential
Headquarters: Two North Riverside Plaza Suite 450 Chicago, IL 60606 Phone: (312) 474-1300 www.eqr.com With more than 530 properties and almost 144,000 units across 23 states and the District of Columbia, Equity Residential is one of the largest publicly traded owner and operator of multifamily properties in the United States. The company is a selfadministered and self-managed equity REIT, trades on the NYSE, and has been named one of America's Most Admired Companies by Fortune magazine. All openings can be viewed on the company site and applications can be submitted online.
Lendlease has more than 11,000 employees across three core businesses: property investment management, project management and construction, and property development. Thus, it could be classified in more than just in the investor category. Lendleases investment management division manages $11 billion in property assets through funds and joint ventures and is focused on Asia, Australia and the U.K. Openings for all divisions can be viewed on the company website and applications can be submitted online.
RREEF
Headquarters: 101 California Street, 26th Floor San Francisco, CA 94111 Phone: (415) 781-3300 www.rreef.com RREEF is an alternative investment group with a real estate division that invests and manages investment grade real estate properties and provides research and other specialized services to REITs. It is owned by financial services giant Deutsche Bank. As of 2009, the company had an estimated $56 billion of property under ownership and management. Job openings are not listed on the website so interested applicants should contact RREEF.
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Northwestern Mutuals real estate investments group invests in commercial mortgages, equities and securitized investments across all major property types. The entity controls a $29 billion portfolio comprised of 75 percent fixed income and 25 percent equity investment. Refer to website for application procedures.
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James Bonderson
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I would like to arrange an interview to further discuss how my skills match the Senior Associate Position. Thank you for your time and consideration. I look forward to hearing from you. Sincerely, James Bonderson
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Cecilia Rhodes
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