The nightmare scenarios pundits paint about commercial real estate right now — malls and retail boarding up, offices remaining empty for months, large-scale developments pulling the plug — truly become horror stories when lost business leads to lost income and jobs.
Talk with leading industry recruiters, however, and the scenario may not yet be as dire as some worst-case scenarios suggest. Chris Papa, senior vice president at Bacharach Group, a CRE-focused recruiting firm, said the volume of job searches and recruitment activity hasn’t wavered for the last six months, bouncing back after the initial March and April downturn.
The current uncertainty is shifting how some firms think about compensation, and it is making some talent reconsider their current roles.
But the landscape has dramatically shifted. It’s important for firms and employees to adjust their expectations and strategies, said Allison Weiss, founder and principal of CRE Recruiting, to avoid falling behind, especially as an increase in executive hiring signals firms are investing in long-term strategic shifts. She believes there’s an increase in attrition-driven hiring, as well as new chief diversity officer hires, such as Tim Dismond at CBRE.
“Firms need to be focused on retention and recruiting strategies and have those strategies in alignment, or you’re setting yourself up to be raided by firms that are doing both,” she said.
One shift that’s been noticeable post-pandemic is a change in compensation structures to favor less guaranteed or upfront income, and even more performance-based pay, especially in leadership. Large CRE firms either won’t discuss compensation (CBRE) or didn’t respond to questions (JLL and Cushman & Wakefield).
Papa said firms feel like they can get great talent at a discount, at least upfront, cutting base salary for an executive from $300K to $200K, but offering higher commissions or rewards based on asset performance. According to a 2019 industry salary analysis by CEL & Associates Inc., most C-suite executives saw bonuses that ranged from 106% to 180% of their base salary, while executive bonuses were in the 30% to 90% range.
The firm will release 2020 data in a few weeks, but Christopher Lee, the company’s CEO, told Bisnow that their recent surveys found that 78% of companies plan to adjust compensation packages due to COVID, and two-thirds will freeze C-suite compensation, waiting to revisit until early 2021 to gauge the impact of the election and the state of the pandemic. In addition, 80% of firms haven’t adjusted performance goals due to COVID, and bonus realization will likely be down 20% to 30%.
“In in this season, companies are really focused on cost-cutting, removing redundancies and ‘right-sizing’ for a down market,” Weiss said. “If an executive can drive revenue, or pull a firm out of the red through reorganization, or move resources from a slower line of business/sector to a flourishing one, they will be rewarded, but not exorbitantly.
“A big executive bonus could ruffle a lot of feathers with their remaining teams and perhaps in the market at large, especially if a firm took actions like a reduction in force or reduced hours/compensation. I don’t think we’ll see a big bonus season, personally.”
Building Careers President Carly Glova said companies seeking executives or leadership positions have been much more willing to get creative with compensation structure, allowing candidates to get larger pieces of deals. Historically limited to C-suite positions, more performance-based compensation, such as giving restricted shares, has filtered down to vice presidents and others to entice them to make a move. These shifts come after decades where compensation structures had slowly been shifting toward a great reliance on annual salaries; between 2005 and 2020, CREW found that base salaries for men and women in CRE have increased, while commissions and profit-sharing have decreased by roughly the same amount.
For brokers, especially frequent closers, there’s a question of support, Weiss said. Pre-pandemic, many wouldn’t examine the commission split they had arranged with a brokerage (typically 50-50 for big firms). But now, after months where big firms, especially publicly traded ones, may have downsized staff and support (office space, research reports, staff to help with paperwork), brokers are faced with a situation where they’re paying the same for less. The house gets its money, and they aren’t getting the same kind of value. Weiss said she has seen a few examples of similar situations where frustrated brokers break off and start their own firm.
What should commercial real estate brokers and execs think about as the uncertain COVID situation continues to evolve and impact the search for top talent? A Deloitte research paper suggests that firms take this moment to broaden their talent searches and modernize technology to attract younger workers: For every Gen Z hire, CRE companies recruited three baby boomers.
Glova has seen surging demand for anybody with life sciences experience, and comp packages are market-agnostic, meaning those with experience in established markets such as San Francisco and the Bay Area can look at relocating to rising markets like Denver and enjoy a big cost-of-living benefit.
“There’s still a small pool of companies doing this, and folks with this kind of specialty are few and far between,” she said.
Weiss sees a coming gap in mid-career opportunities as development hires slow down and existing development pipelines close out.
“In the last decade, the industry was moving so fast, you could get 15-20 years of experience in 10 years,” she said. “Now, if the pandemic lasts another six-12 months, industry won’t immediately bounce back and people may lose a chance to move up.”
Papa sees institutional funds, with lots of capital to deploy in Q1 next year, staffing up and waiting on the sidelines. Until things turn around, there may be more and more big-pocketed players looking to pick up deals as the market dips.