Commercial Real Estate Pay Explained

Key Takeaways

Most people get into commercial real estate to make money. But the way people get paid in this business isn't all that straightforward. And even though the earning potential is really high in this industry, there are certain paths you can take that can make a high income a lot more likely, while others can make this a lot more difficult. So, in this video, we'll walk through how pay structures tend to actually work in commercial real estate, how these differ in different parts of the business, and what to expect when you're first getting started. So, the first thing worth mentioning here is that pay structures are going to be very different between brokerage and principal side roles. And we'll start out by talking about principal side positions first. And working on the principal side essentially just means you're working for an investment or development firm. When you first start out with an analyst or associate level title within one of these companies, pay is going to be primarily based on salary and a bonus. At these levels, bonus targets usually come in somewhere between about 15 and 30% of base pay with the exact number within this range you can expect usually being directly related to how close your job is to revenue generating activities. And this means that jobs in acquisitions or capital raising, where you're working closely to get deals funded and closed, will usually have the highest bonus percentages in the industry, while jobs in asset management or portfolio management where you're primarily working on company operations will usually have the lowest bonus percentages in the industry. And unlike a base salary, which is essentially guaranteed pay, bonus pay can be extremely variable. And this tends to be highly dependent on the performance of your team and the company as a whole. And this means that a lot of people who were working in acquisitions in 2022, 2023, and even 2024 with bonus targets on the high end of that range might have actually seen a much smaller bonus payout in practice since transaction activity for many firms during these years was extremely low overall. Now, as far as timing is concerned, bonuses in commercial real estate are usually paid out somewhere between about January and March each year. So, you'll typically need to stick around until at least after the holidays if you want this. And because this timeline is so common among companies in this industry, this also directly affects recruiting timelines throughout commercial real estate. Because people will almost always wait to get their bonus before taking a different job and leaving their current employer. The most active months of hiring in this business tend to be in the winter and early spring when people tend to move on and their positions become available. This is also a common time when people get promoted into more senior level roles which also creates openings at the analyst and associate level. Now, on that note of more senior level roles, the next thing to know about pay going into this industry is that as you progress throughout your career, bonuses and other forms of income become a much bigger portion of your all-in compensation. When you move up to the director or the VP level in acquisitions or capital markets, this is where bonuses start to get significantly higher and will often come in somewhere between about 50 and 100% of annual base salary. This is also the level where people start to participate in things like fees and promoted interest, which can really start to add up, especially in years with a lot of transaction activity. In asset management roles, senior leadership might be entitled to a portion of what are referred to as leasing override fees, which are usually calculated as a percentage of the total value of a new lease. And in acquisitions roles, senior leadership will often be entitled to a portion of what are referred to as acquisition fees, which are usually calculated as a percentage of the total purchase price of a property. And in some roles, senior leadership will also receive a portion of promoted interest on deals they work on, which is a percentage of the profits over and above what they've invested in the deal. And this can often be the biggest portion of annual pay in later stages of your career. This is also why jobs at the biggest firms that are doing the biggest deals in this industry tend to be some of the most sought after roles in commercial real estate. Because the bigger the deals you work on, the bigger those fees and promoted interest amounts are ultimately going to be. For example, if an acquisition's director buys $200 million of real estate in a year and the company charges a $1.5% acquisition fee, that's $3 million of acquisition fees alone. And if that acquisition director receives only 5% of that, that's an additional $150,000 added to their paycheck. And if in that same year, the company sells a handful of properties and earns $10 million of promoted interest if that same acquisition's director is entitled to 5% of that number, that's an additional $500,000 added to their paycheck. And if you layer these numbers on top of something like a $250,000 base salary and a 100% bonus target, this person would be taking home an all-in pay package of over $1.1 million. And while this wouldn't be the case in every single year, something like this isn't unrealistic at all for more senior level positions at high volume shops. Now, I want to point out that while this does sound really good when we throw out these numbers, one of the most important things to think about related to promoted interest specifically is that this often takes a number of years to vest. And if you leave before a certain date, you may need to forfeit this. Most vesting periods I've seen in this industry last somewhere between about 4 and 6 years, which can feel like a very long time in your 20s and your 30s, especially if you're in a work environment that doesn't feel sustainable. Now, I mentioned earlier on in this video that pay structures in brokerage are very different than this and with a caveat that brokerage firms will all pay a little bit differently. These are the types of structures I've seen on the brokerage path for analysts and associates at bigname shops. For people starting in investment sales, capital markets, or debt and equity placement roles at a company like CBRE, JLL, Eastill, or Newark in a major city, salaries are often lower than what you'd see on the principal side of the business, but bonus targets are often significantly higher, usually somewhere between about 50 and 100% of base pay. Now, this number can vary a lot based on the team's production volume, the number of deals you personally work on, and how much experience you have overall. But this tends to be made up of a small percentage of the commissions your team earns on an annual basis. And for more senior level roles in brokerage, this is where you typically move into a 100% commissionbased job where you're entirely responsible for generating new business. And again, if you're working on bigger deals with equally high commissions, top tier brokers can make a lot of money. At bigname firms like the ones I just mentioned, brokers will often take a deal to market as part of a team with anywhere from about two to four individuals working to get that property sold. And if a threeperson team sells a $30 million deal with a $600,000 commission, even if 50% of that goes directly to the company and support staff, this still leaves $100,000 of commissions for each team member involved with the transaction. And again, for someone doing 10 to 15 deals like this per year, an income in the low seven figures is very realistic. So, while this isn't necessarily easy to do, this is very possible in this part of the business. So, obviously, there are always going to be outliers and this information won't be applicable in every single situation, but these are the things that I wish I knew when I was first getting started. And if you're trying to break into commercial real estate right now and you want to make sure you have the skills you'll need to land the most competitive and the highest paying jobs in this industry, make sure to check out our all-in-one membership training platform, Breaking a CR Academy. A membership to the academy will give you instant access to over 120 hours of video training on real estate financial modeling and analysis. You'll get access to hundreds of practice Excel interview exam questions, sample acquisition case studies, and you'll also get access to the breakin to CRA analyst certification exam, which covers topics like real estate proforma and development modeling, commercial real estate lease modeling, equity waterfall modeling, and many other real estate financial analysis concepts that will help you prove to employers that you have what it takes to tackle the responsibilities of an analyst or associate at a top real estate firm. And if you like this video and want to see more content on commercial real estate pay, make sure to hit the like button and let me know. And let me know in the comments if you've seen any different pay structures in this industry and what those have looked like. As always, thanks so much for watching, guys. I hope you found this helpful. Subscribe to the channel if you haven't already to see more videos like this every single week. And I'll see you in the next video.