Increasing RE Industry's Cash Compensation, Collectively
I work at a mid sized RE PE firm ($20B+) on one of the coasts (NYC/SF/LA) - pulling in around 235k all-in as a first year associate (investing in office, retail, mf, resi, industrial / mezz, pref, equity). The RE principal investing industry has a wide salary range (up to 350k+ at megafunds and down to +/- 200k for an associate at smaller firms for coastal jobs). We saw IB and traditional PE increase their salaries during COVID with the help of the controversial Goldman employee survey which highlighted long hours and decent pay (if I am recalling this correctly). On the other hand, the real estate principal investing side has been lagging traditional PE but it has been growing significantly as an institutional asset class with major PE players building their RE teams. I myself work 80 hours a week and I would appreciate it if the industry could narrow the gap between us and PE, in terms of total compensation. These ridiculous compensation surveys are used at my company to justify lower pay which ironically, they are diluted by sub institutional real estate firms (low barrier to entry industry).
Please don't comment about some BS about how RE is made to be entrepreneurial and therefore you don't make money or can't move up at a company (I've seen this on other threads and it is just cope) - that's not true. For a lot of us, we work at institutional shops (there are a lot of them) and we have upward career mobility and normal salaries that are about a 10-30% discount to traditional PE.
So what the hell can we do to narrow the pay gap? The fund's fee structures are the same as traditional PE (a point or two on equity or GAV, etc.) and the fund sizes are huge now for RE. Should we just release a survey and pressure our companies? I don't think this could work but thought it would be fun to try and am open to hearing everyone's ideas.
Cheers.
Based on the insights from the WSO dataset, addressing the compensation gap in the real estate private equity (REPE) sector compared to traditional private equity (PE) involves a multifaceted approach. Here are several strategies that could potentially narrow the pay gap:
Industry-Wide Compensation Surveys: Conducting and publishing comprehensive compensation surveys specific to the REPE industry can provide transparency. These surveys should aim to segment data by firm size, region, and role to accurately reflect the diversity within the industry. This transparency can empower employees to negotiate better compensation packages.
Advocacy and Networking Groups: Establishing or leveraging existing industry groups focused on REPE professionals can help in advocating for better compensation practices. These groups can serve as platforms for sharing compensation data, strategies for negotiation, and for collectively voicing concerns to industry leaders.
Educational Initiatives: Educating both employers and employees about the value that REPE professionals bring to the table can help in justifying higher compensation. Highlighting the skills, expertise, and the direct impact of REPE professionals on the bottom line can support the case for narrowing the compensation gap.
Negotiation Training: Providing negotiation training and resources to REPE professionals can equip them with the skills needed to effectively advocate for higher compensation. This includes understanding how to leverage industry data, articulate one's value proposition, and navigate compensation discussions.
Benchmarking Against PE: Regularly benchmarking REPE compensation against traditional PE can help identify and highlight disparities. This can be used as a basis for discussions with management about aligning compensation more closely with PE standards, especially given the similarities in fund structures and the scale of operations.
Publicizing Success Stories: Sharing success stories of REPE firms that have narrowed the compensation gap can serve as a powerful motivator for other firms to follow suit. Highlighting the benefits these firms have seen, such as attracting top talent and improving employee satisfaction, can encourage industry-wide change.
Leveraging External Pressure: While releasing a survey and applying pressure might seem daunting, collective action can be powerful. If a significant portion of the industry's professionals come together to voice their concerns, it could lead to meaningful discussions and potentially changes in compensation practices.
It's important to approach this issue with a strategic mindset, recognizing that change may be gradual. Building a strong case for higher compensation, backed by data and industry support, can help in making significant strides towards narrowing the pay gap in the REPE sector.
Sources: The Truth Behind PE Compensation, Why do you enjoy working in real estate private equity?, The Truth Behind PE Compensation, PE Comp Question - VP / Principal Level, PERE comp table
I make pretty much exactly half as much as you but work only 40 hours a week. Also a first year associate at a fund about half your size in the same market.
Not sure if double the pay for double the hours would be worth it to me....
It sounds like you are content and therefore, I am happy for you.
Not so much trying to say I am content, but agreeing that you deserve to make more if you work that many hours. The relationship between pay and hours worked is not linear.
Hey friend, I'm an associate at a firm that's 1/40th OP's firm's AUM and 1/20th of yours. I also make about 1/2 of OP and work only 40 hours (he/she makes $61/hr, I make $60).
I definitely wouldn't job hop for $235k to work 80 hour weeks. That said, pay progression looks abysmal for us and I don't know if it's because my firm is compensating others more than me, unfairly, or because we're so small. Maybe both.
No real point here. Just wanted to share and commiserate 🥲
Short of starting your own firm and simply paying your juniors more, which I recommend, I'm not sure what collective leverage you have here.
I'm one of the token WSO liberals, but collective action by people making $200k+ a year who want to make $300k+ a year is hardly "unite the workers of the world" material.
You'd be far better served working on getting a promotion or a new job to increase comp, or finding a similar role with similar comp (no easy feat) with far fewer hours. The idea of working 80 hours a week is silly to me, but I also wasn't making $235k at 27 or whatever your age is, so to each their own.
Younger but close. I'm pretty sure I am the only one who is working those hours here due to the team I am on (only junior sourcing new deals for a recent $2B fund). Everyone else works 45-60 hours at worst. Maybe I can just ask for a raise.
You should unionize!
Cash
And
Promote for
Rundown
And
Tired
Egalitarians
CAP RATE
United we bargain, divided we beg
We have about 1/3rd your AUM and I make about 1/3rd your pay 😂😂
Bruv you make $78k? What level?
80 hours includes weekend work.
Correct
Agree. OP what is your background before this role?
Relax Sherlock Holmes.
If you're still wondering - I did two years at a EastDil / CBRE / JLL. My hours were worse there.
Think this really comes down to the average quality of candidates in RE vs traditional PE. To get into traditional PE, you most likely have to have done IB or you came in straight from UG. In RE, you have dudes from literally all over - commercial banking, accounting, brokerage, etc. Those candidates are willing to take less compared to traditional PE because they are trying to break into RE and even the discounted RE pay is better than what they were getting at previous firm.
Best bet for collective pay increase in RE is (1) for more high quality (“prestige”) candidates (Ivy league/good private school/reputable large bank) to enter RE and raise the compensation floor. It’s not just BX/APO/STWD/KKR that pay well. There are a good amount of others because they want to compete for high-end talent. Unfortunately, the firms who wanna stick it to juniors and underpay em far outnumber those who recognize the benefit of properly compensating juniors. (2) If there is an apparent delta in the returns/success between higher-paying firms vs lower-paying firms. This could incentivize lower-paying firms to catch up.
Just my two cents.
Definitely agree with this
Spot on but also, outside of your AUM/Dev fees, RE is generally very lumpy in how money flows (selling, buying, etc) so it makes sense that the extra incentives (equity/carry) are where you make your nut.
Spot on. Which is why I asked the background question.
This post should be pinned. Perfectly sums up the (1) pay gap, and (2) why it's so hard to break into CRE.
Why is the assumption that your pay should rise, and not that theirs should fall?
You make an absolutely enormous amount of money and take absolutely zero risk. By your own admission downthread, you work a lot more hours than the rest of your colleagues at your level, which means that really you're complaining that making $235,000 a year for about 60 hours a week of work isn't enough. Those Goldman associates are making $350,000 a year, sure... but they're working 90 hours a week. Maybe that compares unfavorably for you, but certainly across the industry that seems like pretty equal pay.
Also, more generically... you aren't owed anything. If you think you're underpaid, ask for a raise. My guess is your managing partner is going to laugh and say that if you want to be paid like you're in traditional private equity, you should apply for a job in that field. The fact that you think "REPE" and regular PE are the same doesn't make it so. And I'm making a bit of a leap here, but I'm gonna go out on a limb and guess you aren't capable of getting a job at a major private equity shop... so why in the world should your firm pay you that way?
Really, you're only argument for why you deserve that money is because you work similar hours, but anyone working two jobs at McDonalds and Dollar Tree for 80 hours a week can make that same argument, and I doubt you'd support that.
People here have asked for raises and received them (don't worry about me, I will ask). My story was to illustrate a wider theme across the industry. As the industry becomes more institutionalized, these funds are getting big and larger than some PE raises and the economics are very similar if not the same in terms of fee streams, outside of carried interest which is going to be more lucrative going across the risk spectrum to PE which should only affect how much carry you get, not salary.
There are a good amount of RE PE firms paying first year associates $270k-$330k+, and you're probably going to say some shit along the lines like "oh but they work this many hours and they do this" blah blah blah you sound like the kid in class who tells the teacher he forgot to assign homework. If the fund's management fees are similar as PE, and the hours are getting longer at a lot of these RE shops, we should see a pay increase for transaction related roles similar to what we saw in '20 for IB from those Goldman kids. The industry's pay has been pretty stagnant for years but the industry itself is growing. Do I think we should be paid the exact same as PE? No but the gap is getting too wide imo.
Thanks for contributing.
This is all well and good, but it still is missing the point. Fundamentally, why are you underpaid versus the Goldman kids being overpaid? Your entire argument rests on the assertion that if your company makes as much money as another company in a different industry, you should get paid the same as someone at your level in that industry.
That's nonsense, just nonsense. As I said, you can just as easily argue that Goldman employees are overpaid, and thus their comp should stagnate until yours catches up (which I fundamentally think is true), but even if not, you haven't made a single coherent argument as to why you should be paid more except to point to someone else and say they have a bigger paycheck. That isn't a reason for you to get a raise, it's whining. As I said, it means any other employee in any other company in any other industry who works similar hours to you is also deserving of making that much.
Your skill set isn't valued enough to pay you what a private equity shop pays, or what Goldman pays. If you don't think that's fair or true, why are you still working at your firm? All I'm telling you is that you have an inflated sense of your own worth and an unbelievable amount of entitlement to go along with that - clearly you aren't skilled or intelligent or hardworking enough to get a job in true PE, or you'd have done it already, so really all your doing is bitching about how unfair your life is.
Why would comp go down? We’re paid for results not hours worked
Well that's clearly not true, since junior bankers don't have their cash comp go up or down annually based on performance. You're paid enough to get you to work a lot of hours and not complain too much about sacrificing your personal autonomy to the needs of your firm - essentially, for hours worked.
Eventually you hope to bring in business and therefore have results-based compensation. The point is that while you are unlikely to see your wages go down, you might be overpaid and thus not see them rise as quickly as your peers in other industries. Maybe wages were set too high for some spur-of-the-moment reason, and now financial employers won't give you a raise as quickly as your real estate counterparts.
Thanks
Now I'm going to undercut you and get the job.
Agree it’s cope that low pay has to be justified due to the possibility of being an “entrepreneur” down the road. Reality is a minuscule % of people go down that route and most people just end up as W2 employees at development shops, banks, REPE, etc. But look, my all in pay is around the same range as your pay but I work 40 hours when it’s super busy and work 30 hours when it’s slow. So issue could also be your hours and not comp as your per hour pay is terrible. Fix that and you won’t be this depressed. I was in your shoes once. Worked 80+ hours and was miserable. Realized I could work fewer hours without sacrificing meaningful pay. After a certain point, it does not a significantly move the needle in terms of quality of life anyway.
I like your response.
Thanks for contributing mate.
Pay in non-REPE PE is higher. MF hedge funds will pay more than a REIT or other institutional RE firm if you have passable P&L. Principals in RE complain about a lack of talent and retention issues all the time (subscribe to any RE industry podcast or attend a Bisnow panel) but the only solution to that is offering more money to juniors. Rather than complain about your comp in RE, try to switch to another field if you can or go out on your own. Otherwise, you will continue to have bosses tell you how valuable your experience working for them is and how it will pay off down the line when you are 50+.
Speaking of which, how much do Principals clear at these big name RE shops (BX KKR STWD APO)? Are they on-par with Corp Buyout?
I've read and heard 600k - 800k cash comp at MFs with a lot of carry on top of that.
They are lower than corp buyout, position and firm being equal. If a young professional has two offers, one being PE and the other REPE, PE is probably the correct decision unless it is a much small firm.
Ya I find it crazy how wide the gap is between traditional PE and real estate PE. If you look at every deal team and IR guy at a mid-market PE shop, they’re living in a $6-10M house after being in the business 10 years. My family is in traditional PE and I’ve done my own diligence and this is true so if you’re just gonna say that’s not true then oh well. For the amount of work and grainy technical work this job requires, it honestly is a pretty crappy career from a comp standpoint. That’s just looking at money though, if you truly like it then good for you. Personally it is brutal watching people make 4x my comp. And no they’re not all MF IB guys. IR pays a slight discount to the deal team and no need to go through two years of IB. And the dorks who r saying you’re not cut-out for those seats, it’s hilarious because they’re just probably 28yrs+ and are out of touch. You can grind and shop hop to find the best seat in real estate and won’t come close to the comp in corporate PE for roles that could easily be landed by working at a FoF or consultant. This industry is a pain in the ass
Crediting. You enter the industry to go off on your own one day, whether that is after a stint at a small developer fee shop or an institutional investor. It is easier than going solo in PE. The downside is that very, very few who enter REPE will ever try to go off on their own. Many who do fail. But it is where the money lies in RE.
Hey man I don’t disagree with you. The only part that annoys me is how that storyline is used to sell a real estate career to people. Like in reality, “going out on your own” is going to be the most profitable path in any industry. If that really is the main selling point then dang we all fell for it and real estate shouldn’t be the focus anyways it should be entrepreneurship. I don’t even get the love for real estate entrepreneurship either. You’re taking a capital intensive vehicle, with subpar liquidity, weak cashflow relative to service/product based businesses, with no major operational inefficiencies like a business might, and hoping you can scrape a return on capital that’s getting more institutionalized and harder to source as the industry ages. My two cents but what do I know
One of the major reasons it's difficult to have any sort of collection action in real estate is because the industry is so fragmented. Sure there are a handful of top institutional shops but it's not like PE or banking where there are a dozen or so majors, and a couple dozen of 2nd, 3rd tier shops. Real Estate has their top dogs, and then literally thousands of small to medium shops around the country, some that pay great, most don't. It's really hard to collectively raise wages when the industry is so split up, real estate work has been commoditized in a way other forms of financial work hasn't.
I'd also make the argument that employees in real estate don't deserve higher cash pay. Real estate companies take on actual risk, which most other finance-oriented or finance-adjacent industries don't.
The owner at a development shop takes on a meaningful load of guarantees and recourse when they break ground on a new building. Sure, the people running the deal may feel as though they're not properly compensated for doing all the work to coordinate that construction project, but at the end of the day RE is more tightly correlated to risk than most industries, and it's the sponsor (as a person, not a firm) who takes on that risk and who thus earns the reward. The W2 employees, as vital as they may be, don't take on risk.
Comparing a VP in real estate to one in investment banking isn't comparing like for like, because the guys at the top are taking real risk in one and not the other.
A few points I'd make, as a MF REPE (ignore title) guy that interfaces with our corp PE team once in a while:
- Corp PE teams are generally leaner / fees are spread out across fewer ppl. They can leverage their portco mgmt teams to do a lot of day-to-day work, and many of the portco mgmt are smart (ivy league, well paid, etc). If you're buying RE assets (and not building platforms or taking REITs private), you don't have that kind of leverage. I can't outsource my work to the property manager, construction manager, etc. That leads to more Acq/AM staff within my firm. Also, to my second point below, it takes more headcount to deploy checks in, say, <$50mm increments. Look at all the diversified asset managers, and I'd wager that the AUM/head in corp PE / infra is much higher than their RE groups.
- Based on my exp, corp PE firms are generally quicker to deploy / raise the following fund...which equates to more fees. Larger check sizes in corp PE (and infra). Seems like there's a $5B+ corporate PE / infra deal every other day. Very few in RE. The $500mm+ asset deals are all low-yielding anyways, which brings me to...
- Lower returns, in general for RE = less carry dollars. Sure you can cherry pick individual RE funds that have outperformed, but by and large this is what i've seen. If you know what you're doing, there's more operational value-add potential in corp PE / VC / etc.
This is genuinely interesting. Great post.
great color, makes sense to me
How much would you say is the comp gap between MF Corp PE and MF REPE?
Also, to your point about asset level deals, don't most megafunds in REPE operate on a company level?
Deleniti voluptas ipsa et vero debitis ratione alias. Molestias dolorum expedita dolores temporibus.
Rerum ut in eos quod et vitae. Sit et non minima dolores. Quod perspiciatis impedit eos consequatur eius minus ea.
Quia sunt at ducimus cupiditate odit et rerum nemo. Deserunt numquam et nihil. In non incidunt ab rerum.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Reprehenderit magni ullam et id. Odit maiores voluptate magnam. Enim labore sed sapiente at sed omnis. Numquam ex et pariatur voluptatibus. Ut atque accusamus non porro.
Hic magni numquam eum non. Nesciunt ut dolor facere aliquid quia. Et est et ut quia. Aut aut aut dolor cumque. Expedita atque itaque quibusdam maiores.
Autem facilis odit nobis explicabo suscipit quia iusto odio. Dolor officia voluptas labore. Qui sunt in et non saepe laudantium. Quia et sit voluptates consectetur sed enim.
Ad ducimus quae praesentium soluta eum aut. Id eligendi eligendi sit rerum facere. Inventore quia ut recusandae mollitia et. Inventore harum molestiae aut voluptatem.
Eius aliquid cupiditate veritatis et saepe. Ut qui rerum pariatur architecto.
Aut placeat consequatur eaque veniam quia. Dicta harum hic ut qui error rem tempora. Perspiciatis eius voluptas architecto similique distinctio sed. Rerum aut dolores sit. Maiores quia veniam dicta occaecati ut facilis dolorem. Odit sit illum facilis est quia reiciendis quo deleniti.