NEWPORT BEACH, CA—Construction and development executive searches are on the rise, and it has much to do with where we are in the real estate cycle and the health of the industry, RETS Associates principal Kent Elliott tells GlobeSt.com. According to the firm, the number of executive searches it has conducted for construction managers/VPs and development managers/VPs in 2016 in on pace to exceed the totals for each of the previous two years.
For construction manager/VP positions, the firm conducted 24 searches in 214, 22 in 2015 and has conducted 11 thus far in 2016. For development manager/VP positions, RETS conducted 10 in 2014, nine in 2015 and has already conduced 10 so far this year. We spoke with Elliott about this data and what he believes it indicates about the state of the CRE industry.
GlobeSt.com: Based on your stats about construction and development executive searches for the last three years, what’s your assessment of how this year stacks up to the previous two years?
Elliott: What I see is the lead time on development is so long, from the time a project is identified to entitlement to design to construction to completion, you’re talking about multi-year process. So I think as we’ve gone through this cycle, you have this next wave of activity that is commencing of development activity. Development activity commences first, then construction activity. There are some waves we go through.
What’s really interesting is that in the searches we’re working on, there’s been a shift from the Bay Area to really L.A.-ish. We’re seeing development/construction activity becoming L.A. focused in this most recent wave. We’re doing searches for clients that are L.A. focused, and they tend to be mixed use, generally including multifamily in many instances. We’ve even been doing one significant industrial-development role search at a VP level right now based in OC, but some assets are based in L.A. County. And then we have inquiries and proposals out and ongoing searches for multifamily positions in L.A.. We just closed a search with the Rockefeller Group, and that was a light-development/lower-level development position because they’re ramping up activity and needed to add somebody to their team to take on some light management.
So we’ve seen a shift geographically, but there also continues to be strong hiring in this space. I always talk about the risk spectrum of positions, and your low-risk positions are accountants and property managers—you always need those despite the economy. For high-risk development and acquisitions positions, it depends on where we are in a cycle how much clients need those searches. We’re seeing continued demand for development and construction roles. Each time we flip the calendar, we continue to handle more of those searches and close the ones we started in previous months.
GlobeSt.com: Why do you think construction and development executive searches are so strong for this year even though this is much speculation that development is slowing down?
Elliott: As we get to the end of this cycle (to make a football analogy since it’s almost fall, I believe we are now in the fourth quarter), acquisition prices are extremely high, so companies are looking at development activity. When investors are seeking yield and opportunity, they look at replacement cost, and we are at a point for certain markets and asset classes where it makes sense to develop. If they’re having a tough time putting out money to acquire existing assets because they can’t justify the prices, they have allocated money to the development side. Companies still have the capital, and they have to place it.
GlobeSt.com: What types are properties are seeing the most development/construction based on your searches?
Elliott: Multifamily and industrial.
GlobeSt.com: What else should our readers know about these statistics and what they mean for the industry?
Elliott: In our business, there are two time periods in which there is a slowdown in number of searches we work on. One is Thanksgiving until January 1, when people get into an end-of-year focus, and another is at the end of the summer in the July/August time period. We saw that this summer in terms of a normal reduction in the number of searches we open up in a 45-day period during July/August. We got to the end of last week, and I think that we started 10 new searches in the last two days of last week, right before Labor Day weekend. This was strange timing.
As I look at our 15-year history, I’ve recognized a slowdown cycle, and the number of new searches we start for July/August normally slow down for that time period, with a micro-focus on a handful of days—Sept. 1-2 and 6-7—when clients come out of the woodwork requesting our services to recruit positions. Hiring continues to be very strong, which is an excellent indicator for the health of our industry. The numbers have increased by a few for each category in development and construction.