Sometimes you read or hear a statistic, but
don’t quite understand it until you feel it by “the seat of your pants”
as they used to say. For instance, I read a great statistic in the news
yesterday that Pittsburgh had a 30% population increase in college
graduates under the age of 29 years old during the past 10 years. –it
doesn’t really resonate, even for me as a local - right? However, I’ve
been making the same exact commute for nearly seven years and what used
to be a reliable 15 minute commute to downtown now has crept to a
regular 20-22 minute drive with at least twice-per-week traffic
congestion related back-ups (i.e. – no accident or other mitigating
factor). It’s real – this city is changing through growth! But, I
digress…
I wanted to talk about the well-publicized statistics and very observable presence of private equity investors (both individual, 1:1 private equity as well as organized fund managers) in the investment real estate space. I won’t use this piece to rehash the figures, headlines and names you already know or can easily look-up. Rather, I want to discuss what the present market “feels like” in the seat of the pants as a player in commercial real estate. More specifically, how the private equity influence is affecting how companies are run and who is running them in the top two tiers of leadership.
In the early phase of the private equity boon (mid-2000’s give or take and certainly ending in 2008/09) and mostly lead by Blackstone’s aggressive push, the influence felt mostly like traditional fund-base LP investing. Real estate companies had higher returns to achieve and expectations, but culturally and talent-wise, not much changed. My efforts as an executive recruiter during this time were merely to find more bodies and in some cases more experienced talent to help manage the aggressive acquisitions load and project growth on the development side.
As the current economy came about in 2011 and then really picked up steam over the past 24 months, a new wave of private equity investor emerged. More highly regulated and scrutinized “big” private equity now needed to place executive leadership on the boards and in the C-Suite (particularly) of their portfolio companies and/or GP’s of whom they sponsored projects with or co-invested in funds. This is in addition to the project-level and deal-level middle-managers we’d been recruiting all along. The ability of a private equity firm to steer and guide the course of their investments has become more apparent – particularly in real estate where the assets themselves have grown well into the $100 million to nearly billion dollar per asset range in the case of some large mixed-use deals. Competent real estate executive leadership that understands investor transparency, regulatory compliance, human resources/EEOC and social awareness are real factors of consideration and hold merit when global PE is involved. I mention these executive skills in addition to all of the traditional (and still required) real estate competencies of driving return, managing project schedules and budgets and the decisive, aggressive leadership that made commercial real estate appealing to the PE firms in the first place.
During this current cycle we’ve also seen a significant advent of small to mid-cap regional private equity firms, many of which have wide and varying offshore investors. Whereas in the past, high net worth investors participated in real estate either through direct investment deals or through a deal-by-deal “country club” fund structure, we are now currently recruiting for and communicating with organized, business-plan driven PE firms exclusively dedicated to commercial real estate investment, development and asset management. Many of these firms have captive internal divisions or subsidiary companies that perform site-acquisition, development, construction, asset management and even property management.
They look a lot like traditional, vertically integrated real estate firms! Close to 40% of our recruiting activity this past year has come from these emerging PE platforms that need to bring highly skilled “functional vice president” leadership to their companies to lead the key disciplines noted above which in many cases were being previously “boot strapped” by the founders or with a skeleton-crew/staff.
The real take-away from these observations is not necessarily the strong resurgence of private equity in commercial real estate investing (statistically-speaking), rather the less apparent and very real assimilation of these firms as bona fide real estate companies. This is going to have a long term affect, for the positive, I might add, of the employment landscape. This will come in the form of diversity of position requirements, enrichment of skills of leading professionals (on the long term) and an overall more competitive employment market.
I am happy to discuss at any point. Sincerely, Wes
I wanted to talk about the well-publicized statistics and very observable presence of private equity investors (both individual, 1:1 private equity as well as organized fund managers) in the investment real estate space. I won’t use this piece to rehash the figures, headlines and names you already know or can easily look-up. Rather, I want to discuss what the present market “feels like” in the seat of the pants as a player in commercial real estate. More specifically, how the private equity influence is affecting how companies are run and who is running them in the top two tiers of leadership.
In the early phase of the private equity boon (mid-2000’s give or take and certainly ending in 2008/09) and mostly lead by Blackstone’s aggressive push, the influence felt mostly like traditional fund-base LP investing. Real estate companies had higher returns to achieve and expectations, but culturally and talent-wise, not much changed. My efforts as an executive recruiter during this time were merely to find more bodies and in some cases more experienced talent to help manage the aggressive acquisitions load and project growth on the development side.
As the current economy came about in 2011 and then really picked up steam over the past 24 months, a new wave of private equity investor emerged. More highly regulated and scrutinized “big” private equity now needed to place executive leadership on the boards and in the C-Suite (particularly) of their portfolio companies and/or GP’s of whom they sponsored projects with or co-invested in funds. This is in addition to the project-level and deal-level middle-managers we’d been recruiting all along. The ability of a private equity firm to steer and guide the course of their investments has become more apparent – particularly in real estate where the assets themselves have grown well into the $100 million to nearly billion dollar per asset range in the case of some large mixed-use deals. Competent real estate executive leadership that understands investor transparency, regulatory compliance, human resources/EEOC and social awareness are real factors of consideration and hold merit when global PE is involved. I mention these executive skills in addition to all of the traditional (and still required) real estate competencies of driving return, managing project schedules and budgets and the decisive, aggressive leadership that made commercial real estate appealing to the PE firms in the first place.
During this current cycle we’ve also seen a significant advent of small to mid-cap regional private equity firms, many of which have wide and varying offshore investors. Whereas in the past, high net worth investors participated in real estate either through direct investment deals or through a deal-by-deal “country club” fund structure, we are now currently recruiting for and communicating with organized, business-plan driven PE firms exclusively dedicated to commercial real estate investment, development and asset management. Many of these firms have captive internal divisions or subsidiary companies that perform site-acquisition, development, construction, asset management and even property management.
They look a lot like traditional, vertically integrated real estate firms! Close to 40% of our recruiting activity this past year has come from these emerging PE platforms that need to bring highly skilled “functional vice president” leadership to their companies to lead the key disciplines noted above which in many cases were being previously “boot strapped” by the founders or with a skeleton-crew/staff.
The real take-away from these observations is not necessarily the strong resurgence of private equity in commercial real estate investing (statistically-speaking), rather the less apparent and very real assimilation of these firms as bona fide real estate companies. This is going to have a long term affect, for the positive, I might add, of the employment landscape. This will come in the form of diversity of position requirements, enrichment of skills of leading professionals (on the long term) and an overall more competitive employment market.
I am happy to discuss at any point. Sincerely, Wes
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