Commercial Real Estate Brokerage: Make Millions Without Suffering Through Investment Banking First?

42 Comments | Real Estate - On the Job

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Commercial Real Estate BrokerageSo, let me take a wild stab at your future career goals here:

  • You want to make a lot of money
  • And ideally own a building or 3 with your name on them one day.
  • And while you wouldn’t mind working the killer hours required in investment banking, you’d like to avoid it if at all possible.

  • Mary says

    As a college student soon to declare a major what’s better to major in real estate or marketing ? Finance is not an option

    • M&I - Nicole says

      If you love real estate, do it. If you don’t really like it, I’d probably choose marketing. RE is probably more useful for IB roles though, especially if you want to break into RE IB, or even work for other real estate firms

  • Piotr says

    Hi Brian,

    thanks, great article!
    I wonder if you have any information on the CRE market in Europe. Is it similar to what you described here?

    • says

      Thanks! I am not sure offhand – I think the mechanics are similar but the numbers, commission percentages, and so on may be slightly different. But many of the same concepts still apply and I know that RE development, for example, is the same even though sometimes the terms are slightly different (e.g. “Yield” is used instead of “Cap Rate” in some countries).

    • says

      I believe there’s a lot of overlap, but brokers are sometimes “above” agents and can operate independently whereas agents usually work for brokers. But someone who knows it better may be able to confirm / deny this.

      • GT says

        Yes, brokers can have agents doing deals under their license – the broker gets a cut of the commission from each deal an agent closes. A broker can also act as an independant agent doing thier own deals and collecting 100% of the commissions. An agent must ‘hang’ thier license with a brokerage firm and cannot operate on their own – less risk but also less commission. Hope this helps.

        Brian, another great article. Question for you. Currently in CRE finance as an analyst working with REITs, REOCs, and development firms. Also have worked in the workout/foreclosure/REO group at a large commercial bank. Wanting to make the move to RE Investment Banking. Any suggestions on breaking in – networking, back to school for MBA, combo of both? Would breaking in be simular to ‘normal’ IB?? Thanks!

        • says

          Thanks. It really depends on how long you’ve been there – if it’s 2-3 years or longer, a top MBA program may be the best bet at this point. Networking could also work but RE is very specialized, as you know, so you might have to focus on smaller firms that are RE/REIT-focused… which could be tough since few boutiques do that given that many deals are capital markets-related.

  • Scott says

    Brian,

    This seems out of topic but could you please explain me why gain/loss on PP&E sales are non-cash items? Isn’t that cash items since those gains will be redeemed in cash in the end? Thanks!

    • Ben says

      Gain/Loss on PPE sales is just the profit or loss recognised from the disposal of the PPE. A simple equation would be as follows: Proceeds – Carrying Value of the PPE (Cost minus accumulated deprection) = Profit or Loss on disposal. The proceeds amount is what, assuming the transaction was settled for cash, is paid into your bank account ie the cash flow. The profit/loss is purely an accounting entry and, as you can see above, is not in itself a cash flow.

    • says

      What Ben said. There is more detailed coverage in the modeling courses and interview guide.

      But basically it is being re-classified out of the company’s normal cash flows and listed in Cash Flow from Investing instead (which reflects the full proceeds from the sale).

      So if you have a $10 gain on the IS and you sell PP&E for $110 (so the book value is $100), Net Income goes up by $6 assuming a 40% tax rate.

      On the CFS, Net Income is up by $6 but you subtract the gain of $10 to reflect that you paid additional taxes but did not truly record something that’s related to the company’s operations.

      And then in the CFI section you record the $110 number to reflect both the gain on the sale and the actual book value. So at the bottom, cash is up by $106.

      On the BS, cash is up by $106 but PP&E is down by $100 so the Assets side is up by $4. And then Retained Earnings on the other side is also up by $4 due to the increased Net Income so both sides balance.

      Technically I guess you could argue that it is not a true cash item, but I think it’s easier to think of it as something that’s “re-classified” out of Cash Flow from Operations and listed elsewhere instead. Similar treatment applies to items like Excess Tax Benefits from Stock-Based Compensation.

  • Jack says

    hey brian thanks for this great insight! :)
    was wondering if you have any information on CRE market in canada? would that be similar to this?

  • Nate says

    This was very informative, thank you.

    I have a question surrounding the lending side of the CRE world:

    I have an opportunity to (1) move to Chicago or LA to do commercial mortgages (multi-fam/retail dev/mixed-use, etc, up to $15MM; internal transfer, I work for a BB) or (2) move to NYC but staying in Resi Mortgage Banking, (was told “pick any office in Manhattan”) 6+ years running in resi — becoming brain-dead.

    My question is this: Does commercial mortgage experience/work/knowledge provide better “leverage” (couldn’t resist the pun) for a future in Private Equity/Venture Capital down the road, or stick with resi, get feet planted in NYC, and network into something from there later? If so, where would you go, Chicago or LA?

    Thanks a million in advance!

    • says

      Hmm, I don’t think either one would necessarily make a huge difference if you’re trying to get into PE/VC down the road. I would definitely stay in NY if that’s your goal because it’s much easier to network into finance roles in NY.

  • Jay says

    Do new brokers actually make a salary at first or is it 100% commission? I know in residential its 100% commission.

    • says

      Not 100% certain on that, but I believe it depends on the type of property – for residential it is pretty much 100% commission, but for other sectors the structure may be different.

    • says

      At top tier brokerage firms new brokers start out making a salary or a draw plus commission. They could earn commission in two ways: first, and most common, as a percentage (1-5%) of the total net commission of the team they work on-think end of year bonus; second, on a deal-to-deal basis. For that reason, starting pay in brokerage depends largely on the performance of the team your on.

      At small(er) firms the mentality is often burn and churn. Most are 100% commission and people works as contractors of the firm.

      To answer your question in two words: it depends.

  • David Racz says

    Hey Brian,

    Thanks for posting this article, it is very insightful.

    I was wondering if you can provide a list of top brokerage firms ( or CRE firms in general) in the NYC area. I am having trouble finding this info.

    Thanks

  • john says

    Do I have to work at a brokerage to become a REIB? Is there a way I can take courses, get a license, and become a private broker? Thank you so much!

  • says

    I think it’s important to make a distinction between investments sales and commercial leasing. These are two completely different roles in brokerage. In investment sales a broker represents investors in the buying/selling of properties. Commercial leasing deals solely with leasing properties and can further be broken down into agency leasing and tenant representation. In agency leasing, a broker represents a landlord to market and lease a landlord’s (investor’s) property. Tenant representation brokers represent tenants (occupiers, companies/corporations) to find the right location for their business and negotiate a deal with agency brokers. Although the nature of work differs between each area of the industry, pay for all subsets of brokers is similar; the top 10% make millions with the average broker bringing in between 125k and 225k.

  • Michael says

    Hello Brian & Nicole,

    Firstly I’d like to thank you for sharing your thoughts on the industry and your knowledge of commercial real estate.

    I am interviewing with Brokerage firms in the investment sales team as a sales analyst. I would like to know during the interview process, should I demonstrate the qualities of an excellent sales support, or prove myself as a self motivated, entrepreneurial future sales rep. Thank you.

    • M&I - Nicole says

      I think all the qualities you mentioned are important. And demonstrate the amount of revenue etc you generate – this is important. Also show your leadership skills and ability to be “thick-skinned” i.e. persistent

  • Bob says

    could anyone please explain what the beginners role in in CRE brokerage really entails? let’s say I start out at CBRE or Jones Lang Lasalle as a junior broker (like an analyst in IB), how much do I make first years and what do I do, also average hours per week would be nice to know? how long does it take to become a real broker with a decent over 100k salary?
    thx

  • Giacomo says

    This is a good article, thanks. I am almost finished my Ontario real estate license and am thinking about going to school for business while I try to sell some real estate. I also have about 50k to invest and I’m not sure if I should A : make the move and start investing in small rentals or B : use the money to go to school and obtain said business education. Any thoughts/suggestions??

    • M&I - Nicole says

      Tough call. Depends on what your goals are. I can’t comment on A though if you really want to get a business school degree yes Said is a good school. You may want to examine into why you want to get an MBA first though. You may find that you really don’t need it down the line and this can help you make a better decision. Ask yourself this question – Will I regret not getting my MBA in 5 years?

  • Phill says

    I was thinking about getting into the residential side off the real estate industry but as i didn’t really do good in school but i got a Level 1 qualification in Business, Retail and Administration, i was wondering if that would help get me 1 step closer into the real estate industry or would i have to go back to college and maybe get some other qualifications to help me land a job in residential real estate?

  • Joe says

    Would really love to see one of these for real estate private equity. I’m considering taking a role at a top reib, but am trying to get a better understanding of the possible exit ops first. Struggling to find information on lifestyle/work/pay/promotion structure of the job

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