The US commercial real estate debt markets had a banner year in 2021, with traditional and non-traditional lenders continuing the momentum through the first half of 2022. But there is a key problem that could foil a host of business plans: there are not enough bodies to fill the seats.

“The job market for a company hiring in the commercial real estate market is very challenging,” says Michael Cale, co-head of debt investments at New York-based Allianz Real Estate America. “Everyone is growing, everyone wants to do more business, specifically for the debt side. I really do believe this is a problem for the market as we move ahead – we have our business plan, but if we don’t have the bodies, the right people in place, it is a problem.”

According to Real Capital Analytics, a New York-based data and analytics provider, transaction, pricing and lending activity rose during 2021. Additionally, compared to the period between 2015 and 2019, the balance of power shifted toward what RCA terms investor-driven groups, which includes commercial real estate debt funds and other alternative lenders. Commercial mortgage-backed securities lenders saw their activity rise by 52 percent and regional and local banks saw a 47 percent increase in lending

“I’m just blown away at how much wages have risen, especially for entry-level employees”

Shlomi Ronen
Dekel Capital

Gemma Burgess, president of New York-based executive search firm Ferguson Partners, tells Real Estate Capital USA the recruiting firm has seen a real supply-demand imbalance between debt specialists that want to hire and qualified candidates. This has been bolstered by the growth of the debt funds, which have seen their assets under management swell.

“People’s portfolios have swollen to an incredible size,” Burgess says.

According to data from affiliate publication PERE, capital raised for commercial real estate debt funds has risen since 2008, with a high point of $42.72 billion in 2017. While annual numbers have fluctuated substantially, capital raising dropped to about $22 billion in 2020 before picking up again in the first quarter of 2022.

The ghosts of the GFC

Burgess believes the global financial crisis severely contracted the number of new financial professionals coming into the market for roughly half a decade – and the effects are being felt now. There is a depleted number of seasoned veterans that should be entering the prime of their careers and that is being felt in originations groups across the US.

“The real issue is when you layer in that missing generation of folks from the GFC. The first four or five years after the GFC there was just a much smaller number of analysts and associates coming into the industry. So it just means we’ve been fishing in a [shallower] pool [at a time] when there has been this massive demand for talent,” Burgess says.

There are bigger problems than the fallout from the global financial crisis: the impact of the covid-19 pandemic. Financial professionals, similar to other skilled workers throughout the US, have different priorities than they did 10-15 years ago. The pandemic and lockdowns made employees more conscious of issues surrounding wellness and work-life balance, concerns that have not ebbed even as the pandemic has receded.

“You’re not going to have people necessarily doing that 90-hour week anymore,” Burgess says. “You’re probably going to need more people to do the same amount of business just to stand still.”

“The job market for a company hiring in the commercial real estate market is very challenging”

Michael Cale
Allianz Real Estate

Debt specialists looking to bring on staff have had to offer higher wages and better amenities packages. As inflation hits 40-year highs, even the most successful companies have struggled to meet the salary demands of prospects who might have a plethora of lucrative options. Market participants tell Real Estate Capital USA that wages have climbed steeply for entry-level jobs, rising from around $70,000 or so to about $100,000.

“I’m just blown away at how much wages have risen, especially for entry-level employees,” Shlomi Ronen, managing principal at Los Angeles-based debt advisory Dekel Capital, tells Real Estate Capital USA. “This part of the workforce has a deep bench of companies looking to hire them at $100,000 a year and it is incredible.”

Addition by contraction?

As concerns over inflation and interest rate hikes mount, so does anticipation of a potential recession that could tighten the labor market as the debt space reorients itself to a more turbulent environment. Yet, Burgess is skeptical of a slowdown lowering employee expectations very much.

“Even if the markets do lose a lot of their heat, if you have an entire generation that has the same mindset with regard to how they want to work and play, then that flexibility is going to have to remain and that work life balance is going to have to remain because the whole has got that mindset,” Burgess says.

There are a few things firms can do to set themselves apart, starting with a commitment to create a positive atmosphere. “Candidates are now focused on what is the culture of the firm? What are the beliefs of the leadership team?” Burgess says. “These are some of the softer things which you did not really talk about that much in real estate until fairly recently.”

Casting a wide net beyond the usual dominant labor markets of New York and London will be key as well.

“I think to increase the candidate pool, the employer should be thinking with a wide geographical focus, if they can. If you can have someone in a different location, that obviously increases your talent pool,” she says.