Real Estate 2016 A look inside the U.S. real estate market

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Lewis Fisher
7 years ago
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1 Real Estate 2016 A look inside the U.S. real estate market

2 2 A shift in terrain evidenced through changing market dynamics As we finish 2016, the real estate market in North America is coming off a strong year, but with question marks around the real estate cycle looking forward. Despite fluctuations, interest rates are still at a low level compared to historical averages, which continues to position real estate as an attractive asset class. Foreign investors continue to seek U.S. investment opportunities, especially in first- tier markets. Furthermore, the underlying funding structure of the real estate industry is changing as banks modify their deployment of scarce capital. In particular, we have seen a reduction in the availability of construction financing in combination with stricter lending standards. The net result is that investor capital is still flowing to CRE and increasing the demand for human capital across a broad spectrum. Hiring across all platforms and functions remains robust and we expect that to continue even as the outcome of the presidential election adds a level of uncertainty. We have seen an acceleration in the war for talent in real estate with an increased focus on looking outside the industry. There have been high-profile moves in digital, distribution and human resources with entrants from other industries. Furthermore, companies are focusing on bringing new and complementary skillsets to their boards of directors to fill knowledge and experience gaps and better compete in this changing business environment.

3 3 Changing market dynamics driving human capital demands SINGLE AND MULTI- FAMILY RESIDENTIAL CONTINUE TO PROSPER ECOMMERCE HAS FORCED RETAIL PLATFORMS TO THINK CREATIVELY AROUND EXPERIENTIAL RETAIL TO DRAW CONSUMERS TIGHTENING BANKING REGULATIONS HAVE LED TO PRIVATE DEBT FUNDS CFO MOBILITY IS STRONGER THAN EVER INCREASE IN OUTSIDER TALENT FOR CORE FUNCTIONAL ROLES AND BOARDS We are seeing increased demand for professionals who can think strategically at the portfolio level, but also roll up their sleeves and drive property-level operations within the broader residential arena. The rise in nontraditional asset classes, such as single-family rental and manufactured housing platforms, has further increased demand for high-quality talent from the hospitality and multi-family sectors, which many view as the most relevant adjacent sectors. The success of e-commerce has forced an up-swing in placemaking creating a retail environment that attracts individuals for reasons well beyond simply shopping. Firms are striving to hire talent who bring a different and truly creative perspective to expand the consumer base and help mitigate the ecommerce impact. There is a dearth of talent with a verifiable creative track record, and national expertise. Bank and non-bank lenders co-exist and compete for deals in today s rapidly evolving market. Increased bank regulation has led to the emergence of new, and the expansion of, private debt funds. Production talent for the funds is increasingly being sourced from mezzanine funds or the equity side, rather than CMBS. Market turmoil has placed a premium on respected CFOs whom institutional investors trust. CFOs are playing an ever more important role, with upward mobility into the CEO seat. These promotable CFOs display strong financial savvy, along with gravitas to bring their firms to higher ground, specifically with investors and Wall Street. Real estate companies are targeting executives from outside the sector for new perspectives in a somewhat insular business. Chief Financial Officers, Chief Human Resources Officers, and Chief Information Officers are coming from other industries. Will the new entrants embrace and understand the business? Will firms grasp lessons learned from other industries? Prior to hiring, deep due diligence is required, particularly in the context of cultural fit. Some companies are utilizing assessment instruments to augment their traditional hiring practices and increase the success rate of the longterm fit. There is risk and reward present here, and firms must dedicate time to effectively onboard, especially in year one. The aging demographic of real estate boards has led to assessing boards and board culture. New Board members are coming from marketing, technology, and broader consumer businesses. CEOs are reflecting on how they can augment their board to impact business strategy and enhance company profile, while still maintaining a core of real estate experts. Diversity remains a top priority.

4 4 THE APPLICATION OF DATA & ANALYTICS Real estate firms are looking out of industry for talent in the Digital, Data & Analytics, and Technology spaces to both drive and secure their business. Winners make better use of data and analytics; many have data but don t harness the information to inform investment, divestiture and operating decisions. For example, we have recently observed that firms place sufficient importance on this agenda to make this new role a direct ExCo report. DEVELOPMENT ROLES ARE HIGHER IN DEMAND Many firms reacted to the most recent downturn by implementing headcount reductions across their development teams. Today, this continues to stress the industry with a clear talent gap in many firms organization structures. Firms are rebuilding the pyramid and are competing to attract and grow a deep bench of development executives. Large real estate institutions can maintain their lead by providing opportunities for emerging development executives to expand their skillset and move into other functional disciplines, particularly as the development pipeline slows. This is something that smaller firms must consider if and when the real estate cycle turns. INNOVATIVE ASSET DISTRIBUTION STRATEGIES AND FUNDING STRUCTURES Companies are seeking sophisticated executives to create new and innovative investment strategies for institutional investors, expanding firms intellectual capital and competencies. For example, firms are recruiting distribution talent from non-real estate platforms into capital raising bringing strong institutional relationships and a fresh perspective. At some firms, real estate and infrastructure are no longer separate divisions. Firms are merging these into a single platform termed Real Assets. For example, a large asset manager recently promoted its Head of Infrastructure to run both segments. LEADERSHIP & SUCCESSION In 2011, we conducted a survey of CEOs and other senior leaders in collaboration with ULI to assess the industry s readiness for long term succession not only for the CEO role but for other senior positions as well. Over 85% of the respondents felt that real estate companies were not proactive in preparing for succession, even though the topic was a key organizational priority. Over the last five years, there has been an uptick of both public and private real estate companies turning to this critical human capital topic. The more progressive organizations are planning for succession as far as 3 5 years out by assessing internal talent and creating development plans for the executive to address any competency gaps. For example, our leadership and succession team is consulting with the CEOs and boards of several publically traded REITs as well as private equity owned and portfolio companies to assist on this essential governance element.

5 5 RUSSELL REYNOLDS ASSOCIATES REAL ESTATE PRACTICE Since 2010, we have completed over 350 assignments across the real estate landscape from developers to investors. We assess and recruit boards and management teams across the spectrum of the real estate industry, including chairmen, non-executive board members, CEOs, CFOs, and other executives. We also partner with our leadership and succession colleagues to drive long-term planning, career development plans and diversity and inclusion for progressive real estate platforms. Russell Reynolds Associates is a global leader in assessment, recruitment and succession planning for boards of directors, chief executive officers and key roles within the C-suite. With more than 370 consultants in 47 offices around the world, we work closely with public, private and nonprofit organizations across all industries and regions. We help our clients build teams of transformational leaders who can meet today s challenges and anticipate the digital, economic, environmental and political trends that are reshaping the global business environment. Find out more at Follow us on GLOBAL OFFICES Americas Atlanta Boston Buenos Aires Calgary Chicago Dallas Houston Los Angeles Mexico City Miami Minneapolis/ St. Paul Montréal New York Palo Alto San Francisco São Paulo Stamford Toronto Washington, D.C. EMEA Amsterdam Barcelona Brussels Copenhagen Dubai Frankfurt Hamburg Helsinki Istanbul London Madrid Milan Munich Oslo Paris Stockholm Warsaw Zürich Asia/Pacific Beijing Hong Kong Melbourne Mumbai New Delhi Seoul Shanghai Singapore Sydney Tokyo Copyright 2016, Russell Reynolds Associates. All rights reserved.

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