By Patrick Sisson
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At first glance, this appears to be a terrible moment to switch jobs or start a new business in commercial real estate. Deal volume is down, and financing presents significant hurdles to any new enterprise.
But angst around compensation and bonuses and frustration around cuts and resource allocation may be creating a groundswell that could lead to talent looking for new opportunities, even if they are few and far between.
“The reaction is, there aren’t a lot of great places to go. It’s not like these other firms are paying great bonuses,” said Chris Papa, founding partner of Jackson Lucas, an executive search firm focused on real estate. “I think people are looking to make moves to firms that maybe are a little better positioned, maybe don’t have as many office assets in their portfolio.”
Last summer, 43-year-old Phoenix retail broker Eddie Gonzalez and a group of co-workers at SVN Desert Commercial did the numbers and decided it was exactly the right moment to hang out their own shingle. They discovered they were giving away roughly half of their commission to SVN and realized they could pay themselves the same or more and have their own company.
Gonzalez, Rommie Mojahed and Chad Shipley left SVN and launched CR8 Advisors, along with Andy Kroot and Lindsey Dulle.
“We looked at the situation and didn’t really understand why we were giving as much to the house as we were,” Gonzalez said. “Now is such a good time. There’s a slowdown in the market and everyone knows sales are down. But leasing is actually really strong in Phoenix.”
Gonzalez said compensation and pay, especially after a year when the industry struggled and bonuses and commissions dropped, created frustration among brokers.
Analysts have seen senior brokers putting out feelers and looking for opportunities at other firms. Their rationale is that the promote or deal equity they were staying for is no longer worth what they thought it was, or they want to work on a growing asset class for the last period of their careers.
Senior brokers can often get frustrated when they feel their support is drying up, said Allison Weiss, founder of CRE Recruiting. She sees today’s market as part of a typical cycle. When transaction volume decreases, support staff that assists senior brokers gets cut, leaving brokers feeling they aren’t getting the same support and resources.
That can lead them to question why they are working with a smaller staff and still providing the same payout to the firm. That starts a certain thought process: “Why don’t I move somewhere else? Or why not take my connections, perhaps rehire my support staff and try and do it for myself.”
“This has happened a lot in the last several years,” Weiss said. “Big producers who build engines and machines within some of the big firms say, ‘I don’t really need these guys anymore. I’m the brand.’”
There’s been a whiplash in the talent market in recent years, Papa said, and it may be fueling some of this angst. In 2022, firms were aggressively hiring and spending for top talent, only to be hit with shrinking deal volumes in 2023, leading to poor bonus payouts, which tend to filter out from late December to March.
He said he has seen firms using “creative, interesting ways of managing expectations,” including delaying bonus payments and spacing them out over the year, and even large firms asking employees to sign forms promising they will give at least six months’ notice if they want to get their bonus payments.
Papa sees more small firms spinning off, like CR8. Some are looking at this moment and seeing a chance to tackle new sectors. Steel Peak, which focuses on industrial outdoor storage deals in California, was founded in San Diego earlier this year by Blake Rodgers and Pasha Johnson, who worked at JLL and Pacific Southwest Realty Services, respectively.
Others said dissatisfaction should have been expected and, in this market, won’t lead to new firm formations.
“It’s not necessarily a prophecy,” RETS Associates principal Kent Elliott said. “If people are unsatisfied with their 2023 bonus or compensation, it’s got to be a little bit of a reality check. Some may be saying, ‘I’m going to go do something different’ or ‘I’m going to go to another firm.’ Starting your own firm, that’s fraught with challenges. It’s not easy.”
The bigger, more likely shift, according to Elliott, comes from value-creation brokers and developers perhaps looking at poor performance at their firm and reconsidering strategy, asking, “Am I at the right stop in my career for the next 10 years? Do I have a high chance of earning a promote on the deals we’re doing? Am I in the right position, and does the firm have the right cost-to-capital and the right infrastructure?”
That mindset may lead to bigger shifts down the line.
“It might be time to jump to another player, right?” Elliott said. “Without a doubt, I’ve had those conversations with candidates that are at the wrong firm, aren’t doing any deals and feel like they’re going through the motions.”
That sense of timing — and the value of time — is what ultimately encouraged Gonzalez to make a move last summer. In some ways, he found the slow market had its advantages. He, Mojahed and Shipley met years ago while working as valets at The Ritz-Carlton Phoenix, and they had long envisioned starting a commercial real estate firm that brought a valet-level customer service approach to the industry.
“We really wanted to be more hands-on with our clients and be able to make a decision on the fly, instead of having to go up the totem pole,” Gonzalez said. “Time is money, and time kills deals. We love that we can change anything at a moment’s notice. It wasn’t as much frustration with the other job as a feeling that we could do this better.”
Gonzalez said that in the eight months since they started, the firm has survived and thrived. They upgraded their office furniture, and they see plenty of runway for the firm, with some larger deals in the works that he said will pay in the medium term. But even the small success means more.
“The first deal I did for CR8 resulted in one of the smallest checks I’ve ever received,” he said. “I mean, it was so small, I was seriously debating whether or not I should cash it. It was a teeny-tiny deal. Should I just put it in a frame?”
Contact Patrick Sisson at [email protected]
