This type of broker represents a real estate investor seeking to buy, sell or finance a real estate asset. Investors engage these brokers to provide strategic advice, market knowledge and access to capital. There are several types of investment sales shops. Top-tier firms, such as CBRE, Eastdil and Cushman, will almost always require you to start as an analyst if you are new.
One user on this forum told me that he was offered an analyst position in an institutional group at CBRE and was told he couldn't go looking for deals for 5 years. This makes sense, as this is a relatively sophisticated game and a big fund is not going to want a guy in his 20s doing their trading. Once the analyst stage is over, you will start doing more property visits and interacting with clients, often on a supervised basis. As part of sales and trading activities, traders buy and sell securities, either on behalf of the investment firm they work for or on behalf of their clients.
As an added bonus, you don't even need to go to a top school to get started, as long as you're good at working your way to the top. And you might even end up owning your own island one day, if you play your cards right. When I was younger, I had some friends who were already in the industry. They were a few years older than me, so I had the opportunity to see if they were enjoying their careers and making good money.
It turned out that they did both. There are some sectors that employ some really miserable people, but all my friends in real estate seemed to really enjoy what they were doing. I could continue brokering and see where it took me, or I could go back to business school to transition to the buying side. I ended up going back to business school and found a job at a real estate development company.
After spending a little time there, I realised that what I really wanted to do was own property. And I saw brokerage as the best way to generate enough cash flow to do that. After a few months of networking, I got a job at a multi-family real estate company as a sort of trainee for the established agents. So they match buyers and sellers of investment-grade properties, and earn commissions for getting deals done.
Each property is unique and brings different value to potential investors, so it's more complicated than it sounds to find the right buyer for each sale. You have the best chance of "making it in this sector if you have contacts and resources and are good at networking and connecting people. You should also be good at analysing the real estate market and figuring out the best regions, types of properties and buyers and sellers to focus on. In general, it is also easy to get into real estate brokerage, at least compared to fields like IB and PE.
The hard part is thriving once you are in. On the other hand, connections are everything, because CRE brokerage is all about who you know. You can't get big real estate deals unless you have a wide circle of potential buyers, sellers and financiers. As a broker, you are constantly looking for new deals.
It's like networking your way into investment banking, but instead of a job offer, you're looking for a deal. In reality, there are real estate investors of all types; the key is to find something that you can be successful at initially, so that you are able to generate enough cash flow to own properties on your own. If you are interested in CRE from the start, brokering makes a lot of sense, as it is very lucrative and allows you to get involved with the assets themselves. Many successful brokers own investment properties, and some even become full-time investors if they do well.
For someone who is interested in real estate as a student, analyst and support positions are definitely the best way to get into the industry. These positions offer a great opportunity to learn about a wide range of real estate transactions. This uncertainty, coupled with the possibility of going broke, pushes many aspiring brokers out of the industry before they even have a chance. Another major reason for burnout is the hiring practices of some firms.
There is no doubt that there are companies that recruit with great fanfare, hoping to get as many candidates as possible and see which ones sink or swim. It's like a scene out of Glengarry Glen Ross or Boiler Room, except possibly more ethical. Firms can afford to do this because there is not a lot of overhead in hiring a new broker. While some brokers don't mind that and just need a desk and a phone to get started, I wanted a little more help.
In that sense, smaller firms are usually the way to go. The experienced brokers in my office are slowly teaching me how things work while I help them with their operations. As a young broker, the most important thing is to have a leader you can look up to as you try to build your business. However, every deal is different, and sometimes there can be nuances that change the fee structure.
Once the broker gets paid, he or she owes a portion to the brokerage firm. This is also a sliding scale, but this time volume favours the broker. The percentages differ for each firm, but you can expect the firm to keep at least 50 percent of your commission when you are starting out. As you get more trades, you have more leverage and can start taking home more and more commission.
Star brokers can earn millions of dollars a year, depending on their volume of trades and average trade size. However, you won't see brokers making hundreds of millions or billions of dollars a year unless they move to the investment side and start buying and selling properties themselves. How do you analyse real estate deals to make sure the numbers work? Depending on the type of deal, investors will either focus on current income or projected income. For example, in a stabilised transaction that is not expected to have a long run, current rents are the main valuation factor.
In a bank-owned operation, expected income is the determining factor, as the buildings are often vacant and dilapidated. You mentioned the "stabilised deal" and the "REO deal", are these the two types of deals you typically encounter? Stabilised transactions, also known as "core real estate", are the most important real estate investment values. These buildings are generally newly constructed, and currently have a stabilised yield, i.e. when investors look at these buildings, they are generally looking to maintain the income they are currently producing.
There is not much risk in a stabilised transaction, but there is not much reward either. The renovation transaction is the next type. A property that is a candidate for a renovation transaction would be an older building in a nicer submarket (that can support higher rental prices) that could earn significantly higher income or value by renovating units or the entire building. These transactions are riskier than stabilised transactions, as investors bet on the advantages of renovating the property and reselling it to another investor.
There are also second homes, which are basically bank-owned properties. They often need a lot of work (the units or the building itself are in poor condition) and do not perform well. Often, these buildings have large vacancies, so the expected income is an important factor in the valuation. REOs carry an even greater risk than renovations, as the building needs work and underperforms.
Finally, there are the new development agreements. They are exactly what they sound like. Development occurs when an investor wants to take the raw land, assess what can be built on it and what kind of return it can generate. Development deals have the highest risk, but also the highest return.
As other contributors have already pointed out, you do not necessarily make the most money from development deals, because of the inherent risk and uncertainty, so do not assume that the highest risk equals the highest bonus in the bank account. It is not true in private equity, and it is not true here. However, cash flow is calculated differently in commercial real estate: since the building is the "product", the rent is the gross income from the investment. After that, expenses such as landscaping, maintenance, billing and management fees are incurred, leaving you with a net operating income (NOI).
That figure is essentially the profitability. Once the NOI is established, many scenarios can be modelled with different financing to obtain cash returns and do a discounted cash flow analysis based on the unleveraged free cash flow. Although numbers are generally used to support valuation, comparable sales analysis is king when valuing properties. Any investment, whether a stock or a property, is only worth what someone is willing to pay for it.
Master financial modelling for real estate development and private equity and REITs with 8 short and 9 in-depth case studies based on real properties and companies like AvalonBay. It is an easy metric to use; for example, if you have a 6 ap property, but it is at an interest rate of 6 ebt, you can easily see that it is not returning money. However, capitalisation rates have flaws. The biggest one is that everyone assumes that the cap rates of a specific submarket apply to all properties in that submarket.
This is not the case. Each property has its own nuances that make it more or less attractive to potential investors. If you look too closely at the capitalisation rate, you could be overvaluing or undervaluing your building. You have to thoroughly analyse each building and the market to get an idea of how much it is really worth.
Another weakness is that while Cap Rates are fine to use in a region like Manhattan, where buildings are constantly being bought and sold, there is much less data in other regions without as many sales, so the figures may not be reliable. Buyers need to protect themselves, or they could be harmed. Due diligence is usually divided into two components. The property is analysed in the micro sense and then in the macro sense.
In the micro sense, the building itself is examined. You check the market to make sure that the expected rental prices in the building actually make sense, and that people are paying those prices in similar buildings in the area. You also dig deeper and make sure that the tenants are in good financial shape. This is especially true if you are buying a building with a single tenant, or if you just have larger tenants in general.
For example, if you're buying a commercial building with a Starbucks and a Quiznos leasing the space, you'll want to check the financials of those businesses to make sure they're stable. Next, you look at macro trends. You need to look at what other investors are paying for comparable buildings to make sure you are not overpaying. It is also important to look at macroeconomic trends in the region in which you are investing to ensure that the sub-market can sustain positive economic growth over time.
For example, it would be much less risky to buy a building in New York or San Francisco than to buy the same building in Detroit, even if the price is much lower there. Andy Sondag graduated from California State University, Chico, interned at a small investment bank and then joined a commercial real estate agency. I'm a sophomore studying computer science, but I've found that I'm much more interested in sales and investments as a career. Now, my grades are good enough and I understand the material well enough that I think I could graduate with my CS degree.
My question is, should I do it? I am interested in real estate brokerage and private equity. I don't know exactly what I want my career to look like, but I want to pursue deals, and I find the coding a bit tedious, although the logic problems are sometimes quite interesting. I also like finance and looking at markets. Economics is a really interesting field of study for me.
Do you think it's a good idea to switch to economics-oriented business administration as a major? On the one hand, I don't think I like software engineering work very much. It's interesting, but I don't like the idea of pounding out code day in and day out. Money is all very well, but I want to be interested in my work. I find finance interesting, and I think it would be a better foundation if I end up working in real estate private equity.
I could also get a civil engineering degree and use it for property development, but I don't want to end up in the construction industry, I want to end up in finance. I have also considered technology sales, but I think I would eventually like to scale up to working on the investment buying side, and I'm not sure how that would translate. Thanks for any advice you can give. We have a full course on real estate financial modelling, but you could also look at books and a bunch of free sample exercises online.
Do you think CRE brokerage will remain a lucrative field in the future, or will there be pricing pressure on fees? If so, which firms do you think will lead the market (I'm guessing CBRE, Eastdil, HFF and JLL)? What would be the expected commission rate for someone new to CRE? Great article, much appreciated. what were the reasons you decided to go into investment sales as a means to achieve your goal of owning commercial real estate rather than staying in leasing brokerage? I assume it is for the operational exposure and income potential, but I ask because I have aspirations to become a full-time multifamily and commercial real estate investor and believe I would be better off "getting into the game early, but I am torn between what type of commercial brokerage would best position me to achieve my goals. I think the interviewee wanted more exposure to deals and felt it would be more useful than staying in brokerage. I would like to get into the financial services sector, would you recommend going into commercial mortgages or commercial broking? I was thinking of going into residential real estate, but as I didn't do well at school but got a level 1 degree in Business, Commerce and Management, I was wondering if that would help me take a step further into the real estate industry or would I have to go back to university and maybe get other qualifications to help me get a job in residential real estate.
It's a difficult decision. It depends on what your goals are. I can't comment on A, although if you really want to get a business school degree, Said is a good school. However, you might want to first examine why you want to get an MBA.
You may find that you don't really need it and this may help you make a better decision. Ask yourself this question: will I regret not getting my MBA in 5 years? Is there a tax-deferred strategy for investing in commercial real estate? Can someone please explain what the entry-level role in CRE brokerage really entails? let's say I start at CBRE or Jones Lang Lasalle as a junior broker (like an analyst in IB), how much to earn the first few years and what I do, also the average hours per week would be good to know? how long does it take to become a real broker with a decent salary over 100k? thx First of all I would like to thank you for sharing your thoughts on the industry and your knowledge of commercial real estate. I think all the qualities you mentioned are important. And demonstrating the amount of income etc you generate - this is important.
You also have to demonstrate leadership skills and the ability to have "thick skin", i.e. be persistent. Do new brokers actually earn a salary at the start or is it 100 omission? I know in the residential sector it is 100 omission. I'm not sure about that, but I think it depends on the type of property; in residential it's pretty much 100% commission, but in other sectors the structure may be different.
In smaller companies, the mentality is often "burn and switch". Most are 100 omissions and people work as contractors for the company. This has been very informative, thank you. I think readers may give you better suggestions Readers may have a better take on the above I think it's pretty similar in North America in general, so yes.
But as Nicole said, Canadian readers can offer a better perspective. There is more detailed coverage in the modelling courses and the interview guide. But basically, it's being reclassified out of the company's normal cash flows and figuring instead in the investment cash flow (which reflects the full proceeds from the sale). Technically, I suppose you could argue that this is not a true cash item, but I think it is easier to think of it as something that is "reclassified out of cash flow from operations and included elsewhere".
A similar treatment applies to items such as Excess Tax Benefits from Stock-Based Compensation. What is the difference between a CRE agent and a broker? Yes, brokers may have agents conduct trades under their licence; the broker gets a share of the commission from each trade an agent closes. A broker may also act as an independent agent making its own trades and collecting 100 per cent commission. An agent must "hang" his licence with a brokerage firm and cannot trade on his own - less risk but also less commission.
I work on the CRE (brokerage) market in Paris and it is very similar to what is described here. However, many firms are now leaning towards higher base salaries with year-end bonuses rather than a commission-based approach, but it varies. A great first step is to get into commercial real estate brokerage Yes, of course, it takes time. My emails are designed to spark interest in the subject and curiosity to find out more.
It wouldn't be so flashy if I said, "By the way, if you want to learn how to work really hard for 30 years to have a chance to succeed, I have a long, detailed guide that requires a lot of work and sacrifice on your part." As a college student who will soon declare a major, which is better, majoring in real estate or marketing? Finance is not an option If you like real estate, go for it. If you don't like it, I would probably choose marketing. However, finance is probably more useful for IB roles, especially if you want to go into RE IB, or even work for other real estate companies Nicole, If finance was an option, would you choose it? We guarantee 100 percent privacy. Your information will not be shared.
When investing in commercial real estate, you need a broker who knows the value of the property and the market to help you find the best assets and determine long-term risks. Skillful trade execution is especially important for investment bank traders who execute trades for institutional investor clients. However, the most common practice is for brokers to provide investment capital that is managed by trading staff. Therefore, individuals interested in pursuing a sales career must have not only an interest and talent for selling, but also a keen interest in and understanding of the investment instruments they will be marketing to potential clients.
As a result, an investment sales agent is equipped with the tools to secure the highest value for the asset with the most qualified and researched buyer, that coupled with the fact that most owners simply do not have the time, resources or appetite to handle the disposition in-house. There are options on fixed income securities, equities, commodities and currencies, so where an options sales broker fits into an investment firm's trading groups depends on the type of options it trades. Any reputable investment sales broker does not do this on a part-time basis; it is their full-time job, boots on the ground, eating and breathing every day. After reading my resume and cover letter, they told me they didn't have any of those positions available, but suggested I talk to their investment sales department.
For information on the current state of the market or if you have a real estate investment need on the buy or sell side, contact The Palomar Group here. Prop traders have the freedom to operate that agency traders do not; however, they are still restricted by the risk limits set by the investment firm. Prior to an IPO, a company is considered a private company, typically with a small number of investors (founders, friends, family and business investors such as venture capitalists or angel investors). One factor to consider in relation to investment sales is the type of investors you are most comfortable targeting: individual retail investors or institutional investors.