"Bonuses that were slashed last year could be even worse for 2008 – at least another 20% or more below 2007 levels," Graham Michener, consultant at Russell Reynolds Associates for its Global Banking and Markets, and Real Estate Practice, tells GlobeSt.com. On average, last year bonuses were down by 40% to 50% last year. For people looking for a job, former CMBS executives are faring the worst right now, he says.
"For them there is a shell shock factor and they are trying to figure out the next step given the demise of this product. I have not seen a lot of professionals out there looking to make drastic changes in their employment – instead they are trying to stay on fringes of CMBS with hopes of rebound. A lot of folks are simply not willing to give up the leverage and credit they have built up over years in the community," Michener says.
Many of these people are also still attached to the compensation levels that come with CMBS, Robert Baron, president of American Real Estate Executive Search Co., a national firm that specializes in the commercial real estate industry, tells GlobeSt.com. "The CMBS market, when it worked, was highly profitable. In New York City, it was not uncommon for someone in CMBS to make $1 million. Other opportunities with the same skill set, but different areas of investment, pay $300,000."
Nor will all of these people be able to take that lower-paying opportunity. CMBS was not necessarily about understanding the underlying real estate asset, Baron says. "It was about getting the securitized product out of the door." Now, though, lenders are looking for people who have that understanding. A background in CMBS doesn't necessarily preclude that -- but it also doesn't automatically mean the skill set will translate easily either, he says.
"We are seeing some redeployment of folks on the debt side – but only if they know how to underwrite assets," Victor Arias, Korn/Ferry's managing director for Global Real Estate Sector, agrees. "Those skills are transferable."
Meanwhile, alternative opportunities are not nearly as plentiful – though they do exist. For instance, Arias tells GlobeSt.com that private equity, planned sponsors and state funds are among the areas where he is seeing activity.
There has been a huge level of capital raised to buy distressed real estate – and that will provide a haven for a few senior executives, Baron says. "Still, though, even those shops aren't fully staffing up right now. The anticipation is when these funds start to invest they will hire, but that hasn't happened on a large scale yet."
Agency lending is another possibility. "There has been a significant shift on the product focus into multifamily in general," Michener says. "Also the industrial space has seen some stability – which can be attributed to a weaker dollar."
"The real estate cycle was in full swing for a good four years, but in August the cycle abruptly ended and the counter-cycle kicked into full gear," James D. Dell'Olio, president and senior managing director of Ferguson Partners, tells GlobeSt.com. "With it, we have seen a surge of new business creation searches, ranging from non-real estate firms looking to get into real estate for the first time, to the creation of distressed debt or land vehicles, to equity players looking to create debt vehicles to take advantage of the fact that many of the biggest players in debt are sidelined," he says. "We are also finding a lot of firms shifting their focus to operations and value creation, which results in a lot of attention being paid to improving asset management, client service and corporate operations functions."
Unfortunately these disparate areas do not entirely fill the void left by the collapse of the debt markets. The only good news that search executives can hold out is that eventually the pendulum will swing back. "Once that happens, watch out: the flood gates will open," Michener says.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
