As more organisations have set up stall in Europe’s real estate lending market, competition to hire the industry’s debt specialists has intensified, leading to bigger salaries and bonuses, the results of a sector-wide compensation survey show.
For a third year running, real assets executive search firm Sousou Partners has exclusively provided annual compensation data to Real Estate Capital Europe.
The data, gathered from people moves during 2021, plus pay scales reported by the firm’s employer clients, shows a clear upward trajectory in compensation across the investment banking and alternative lender segments of Europe’s real estate debt market – in which London-based Sousou is most active.
For example, in 2020, the median salary for a managing director-level employee within a non-bank lending organisation was €360,000, with the median bonus level at €580,000. In 2021, somebody at the same level of seniority could expect those figures to be €380,000 and €610,000, respectively. Similarly, within real estate lending divisions of the investment banking industry, Sousou reported median salary growth of €15,000 to €455,000 from 2020 to 2021, at managing director level, with bonuses up €30,000 to a median of €620,000.
While salaries and bonuses at investment banks have the edge on alternative lenders, senior staff at the latter type of organisation also benefit from carried interest, which is not captured in the survey results due to its myriad structures across the industry.
“Hiring has been seriously busy, at every level of seniority, at every point of the risk curve, across equity and debt – but it has been most acute in debt,” says Jamie McKinnell, partner with Sousou.
Managers have added real estate debt strategies to their European real estate offerings in the past two years, driven by institutional investors’ growing demand for exposure to real estate debt, coupled with a reduction of commercial banks’ appetites for parts of the lending market. Those organisations have subsequently competed for seasoned debt professionals to execute their new credit strategies – often seeking to poach people from investment banks or other non-bank lenders.
In February, for example, US firm Ares Management Corporation launched a European real estate lending strategy. To do so, it assembled a team including Philip Moore, previously a managing director at private equity firm Carlyle, to lead the team, and Alessandro Luca, formerly of Goldman Sachs’ real estate financing business, as a principal.
The more frequent launch of such strategies has strained the supply of credit professionals, McKinnell says. “There is a limited pool of real estate debt professionals, particularly those that operate at the higher risk end of the spectrum. They are largely sat within the commercial real estate teams of investment banks and alternative lenders of which there are a fewer active players than on the equity side of the industry.”
Hiring demand is also coming from equity investors seeking capital markets experts to manage borrowing activity in an increasingly complicated debt market, notes McKinnell. Sousou’s data shows chief financial officers in private equity firms can earn salaries of $300,000, on a median basis, up 3 percent on a comparable basis from 2020.
Pay to retain
McKinnell has witnessed upward pressure on salaries at the senior end of the hiring scale, as organisations seek team leaders for new strategies. However, he also notes a clear trend towards higher compensation at the associate and analyst level. “We’ve heard stories of one-off mid-year bonuses being paid out at associate level, and guaranteed bonuses for this year already, purely to retain people,” he says. “That has pushed up compensation to levels some managers tell us is untenable, as it also means there is a subsequent increase at the vice-president and director level.”
According to the data, associates in investment banks can earn a median €150,000, with a €160,000 bonus, up from €135,000 and €120,000 in 2020.
McKinnell also reports hearing anecdotes of alternative lenders and investment banks introducing carry and long-term incentive plans at more junior levels than previously – at associate level in cases.
The driving factor behind the increased hiring activity in the real estate debt space is part of a wider trend which Sousou has seen across the real estate equity market – a broadening of product lines as managers increase the routes through which institutional clients can invest. This is mirrored in the equity market by opportunistic organisations adding value-add and core-plus strategies to their repertoires.
Amid the clamour for the best talent, McKinnell insists Sousou’s employer clients are putting diversity and inclusion high on the agenda during searches. “It has broadened out from two or three years ago, when there was a focus on gender, as employers think about different types of diversity,” he says.
“The focus is on trying to stretch the definition of what a successful hire looks like. A potential hire might not exactly fit what the employer was looking for – for instance they might have specifically wanted someone with experience of lending in a certain part of the capital structure. But if an individual can bring something else to the team, namely in terms of making it more diverse, and help change embedded thought processes, they will be more open to making the hire.”
Does McKinnell get a sense there is a genuine drive to diversify such organisations? “It’s difficult to fully assess motivations on this as it’s now incumbent on people to think about diversity on their teams because investors look for that when deciding to make allocations, so there necessarily is a degree of self-interest at work here.
“But I have to say it does overall feel genuine. There is a realisation that organisations need diversity of thought to challenge opinions that are baked into teams. If you are trying to place an amazing person who happens to be a woman, or from a minority background, firms are likely to press the button quickly, because they want to act on the opportunity to diversify their teams.”
For 2022 and beyond, McKinnell expects demand for real estate debt professionals to remain high. He especially foresees demand for mid-ranking employees as companies that have launched strategies and snagged leaders aim to bolster their origination teams.
“Companies will try to grow their real estate lending businesses, because they need people to execute their strategies. So, mid-level hiring will be busier this year than last,” he predicts. “Overall, the real estate debt market shows no signs of cooling off.”