March 7, 2017 – This post is an email put out by Bruce Cumming, a commercial real estate appraiser in Florida. As he notes, the email contained some attachments. I have not included those on my web site – please contact Mr. Cumming if you would like to see the data he has collected.
I hope you find his research interesting. Our industry faces a lot of challenges. Bruce has put in a lot of time in doing this research and sharing his results. As he suggests, please contact him if you wish to discuss his findings.
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The focus of this document (MS-Word version attached) is CRE (Commercial Real Estate) VAS (Valuation Advisory Services) Industry Trends, Product-Service Quality, University Relations, and Challenges in Recruiting and Retaining Talent.
My abbreviated qualifications and contact information appear at the end of this document.
At last count I am up to 23 exhibits for another research project of which:
- 9 comprise primary research (inclusive of the 4 attached)
- 11 comprise secondary research on the web
- 3 comprise semi-confidential information from other sources
The first part of this email revolves around my research into “Apex Level,” or Global-National CRE VAS Firms as noted below and attached:
- Global-National CRE VAS Firms – this list is divided into two groups, the first of which are the Global-National CRE Services Firms VAS Groups and the second are the National Boutique CRE VAS Firms, granted some on both lists are more aspirational, than reality at present.
- CRE Valuation Professional Requirements – I reviewed a large number of employment advertisements from 4.20.2009 through 2.10.2017 for larger CRE VAS firms and banks. This research indicates the current professional requirements sought in the marketplace. I then created Aggregate Professional Profiles for:
o Senior Professionals
o Managing Directors/Group Managing Directors (of specialty groups within larger CRE VAS firms)
o Bank Review Appraisers
- Global-National CRE VAS Firms Marketed and Promoted Professional Services – I briefed what professional service line expertise and property type specialization these firms are currently marketing and promoting.
- CRE Valuation Data, Resources, and Software – I reviewed a number of academic and professional sources to generate a fairly comprehensive list of current CRE Valuation Data, Resources, and Software. I emailed that list in mid-January 2017 to MAI/principals, professional staff, and academics around Florida. I received a number of good suggestions adding about a dozen items to the list and then I did substantial additional research of what will always be a “work in progress.”
Key Takeaways:
- Mergers and acquisitions of “local” CRE VAS firms by Global-National CRE Services Firms JLL (Jones Lang LaSalle) and NGKF (Newmark Grubb Knight Frank).
- Emergence of the CFA (Chartered Financial Analyst) professional designation as a CRE VAS credential
- Market acceptance of the MRICS/FRICS professional designations as a US CRE VAS credential
- Demand for advanced MS-Excel (and ARGUS) financial and valuation modeling skills as well as some key online providers of training
- The Player-Coach Model of management, common in many small CRE VAS firms and typical within specialty groups of larger firms. The general consensus of the articles that I was able to find is that the skill set between a good player/individual contributor/producer and a good coach/manager are very different and bouncing between the two areas often does not work well in practice (people tend to lean toward either the activities they like best, or the ones with the most immediate economic rewards). Given that virtually any entrepreneurial start-up is subject to the Player-Coach Model (as are virtually all small professional services firms), I was surprised NOT to have found any information on tactics to successfully navigate the challenges presented of balancing review, accounting/billing, information technology, management, marketing, new business development, and training functions mixed with personal production (see attached CRE Valuation Professional Requirements – Managing Director/Group Managing Director, page 8 for Player-Coach Model articles and links).
o I have long thought that a CRE trainee appraiser course/manual be developed with a managing director/supervisor track and a trainee appraiser track to facilitate effective on-the-job training.
- Valuation for Financial Reporting (CBRE and Duff & Phelps both have good online brochures outlining the CRE VAS applications)
- The Wall Street Oasis website was the second hit when I searched, “Commercial Real Estate Appraisal Business” for another project. It has a variety of posts on the CRE VAS career (linked later in this document) that largely view the typical CRE VAS career in a negative light. Granted, Wall Street Oasis has a focus on students of, and graduates from (read Millennials) Wall Street target schools (The Ivy League, top liberal arts colleges, and other elite schools) and semi-target schools (second tier). The most liberal list of business schools would be students of, and graduates from the “50 Best Undergraduate Business Schools,” http://www.collegechoice.net/top-undergraduate-business-schools/, and equivalent graduate business programs.
o CRE VAS was viewed as good training option for 12 to 36 months prior to moving on to a better CRE opportunity. It was also viewed as consisting of a lot of “grunt work” at “poor pay” with limited long-term opportunities. The exception being managing directors/ group managing directors (and the principals of the more entrepreneurial/marketing oriented, specialized, and tech savvy boutiques) – “the salesman” – who were primarily rainmakers.
§ Hopeful CRE VAS exit strategies included: AM (asset management), BB (bulge bracket banking), IB (investment banking), PE (private equity), REIT (Real Estate Investment Trusts), development, and investment properties brokerage.
▫ I remember when I attended the Appraisal Institute’s Leadership Development and Advisory Council (2001 to 2003), which is held annually in DC, that many of the better, large local/small regional CRE VAS firms in Northern New Jersey (and Manhattan) would NOT hire NYU real estate graduates, because they would leave after 2, or 3 years and triple their earnings on Wall Street.
▫ The Florida Gulf Coast Chapter of the Appraisal Institute wanted to sponsor one of my Career Forum21’s (expert panel discussion followed by a networking reception) at Florida State University (FSU), which has one of the larger real estate programs in the US (ranging from 80 to over 300 depending upon the real estate market’s current cycle). I’ve spoken to several classes at FSU over the years. I could not get a response back from any of my FSU faculty contacts. When I was attending an FSU Real Estate Trends & Networking Conference, I “cornered” the, then, faculty advisor for the FSU Real Estate Society. I’ve spoken to his classes before. He said that he was concerned that FSU would NOT get enough students, specifically, to attend a real estate valuation event to make it worth our while.
▫ When the Florida Gulf Coast Chapter of the Appraisal Institute met in Tallahassee, Florida near FSU we offered a free lunch at our chapter meeting for up to 10 FSU/real estate students. This yielded 3 FSU/real estate students. A similar offer near FGCU in Fort Myers, Florida also yielded about 3 students.
▫ I know that both the FSU real estate faculty and FSU alumni promote real estate valuation as, at least a very good place to start a real estate career, that message, I have been told by faculty and students falls on largely deaf ears.
▫ I met an FSU/real estate senior back at the 2012 FSU Real Estate Trends & Networking Conference. It turns out that his old high school was my old junior high school. I got to know him fairly well and I asked him about student interest in real estate valuation, particularly coeds (who, given the relative career flexibility, I thought might be good targets). He said that they (coeds that he knew) all wanted corporate real estate jobs with benefits. He had a couple of CRE VAS interviewed, but the compensation was too low. He is a retail properties leasing agent.
▫ A senior managing director at CBRE Valuation & Advisory Services once told me that the average CBRE appraiser earns about what the average CBRE broker earns, albeit the appraiser has to work a lot more hours to do so. He was quick to add that the top CBRE brokers far out earn the top CBRE appraisers.
▫ A former managing director at Cushman & Wakefield Valuation & Advisory Services said the he rarely lost an appraiser to another CRE VAS firm, but did lose them to the investment properties brokerage side of Cushman & Wakefield.
o The first staff professional exception to the poor income opportunity in the CRE VAS Industry included employment at one of the Global-National CRE Services Firms VAS Groups (specifically mentioned were CBRE and Cushman & Wakefield) where low-to-mid six figure CRE VAS incomes were reasonably aspirational.
o The second staff professional exception to the poor income opportunity in the CRE VAS Industry included employment at entrepreneurial/marketing oriented, specialized, and tech savvy boutiques.
The base requirement to produce a quality work product is a quality professional. The baseline Aggregate Professional Profile requirement of all the “Apex Level,” or Global-National CRE VAS Firms is:
- A bachelors degree, or higher from an accredited university (AACSB preferred) in accounting, economics, finance, real estate, or related field; MBA degree, plus
My last survey of Florida university real estate professors relative to recent BSBA/real estate graduate starting salaries was in the fall of 2014:
- Bachelors degree overall range, $25,000 to $70,000, plus benefits, plus training, plus equipment & tools
- Bachelors degree central tendency, $40,000 to $45,000, plus benefits, plus training, plus equipment & tools
- MSRE (Master of Science in Real Estate) degree overall range, $70,000 to $90,000, plus benefits etc. with MBAs higher
My last survey of Florida MAI/principals indicated that CRE state-registered trainee appraisers were paid in the $30,000 to $40,000 range max, often with a minimal (if any) benefits package and minimal (if any) training allowance.
See my article, Houston, We Have a Problem, on page 15 of the Florida Gulf Coast Chapter of the Appraisal Institute newsletter, The Approach (2013:Q3),
http://www.aiwestcoastfl.org/uploads/3/3rdQ2013Newsltr.pdf, for a more detailed discussion.
Starting salaries for Florida CRE state-registered trainee appraisers are weak when compared with the overall earnings potential of a newly minted BSBA/real estate graduate. The CRE VAS Industry will be very challenged to recruit and retain quality professionals based upon the current economics of the CRE VAS Industry.
Since founding the Region X of the Appraisal Institute University Relations Program in October of 2003 by regional vote, I have talked to about 3,500 to 4,000 college students at the University of Florida (UF), Florida State University (FSU), University of South Florida (USF) Tampa, USF-SP, University of Central Florida (UCF), Florida Gulf Coast University (FGCU), and New College of Florida and coached about 30 enough on their job searches that we still keep in some level of contact. There was some interest by students/recent graduates in CRE VAS careers from 2005, when I first started to speak to university classes and student organizations, until 2008. Then it stopped.
The next student who had a genuine interest in a CRE VAS career who contacted me was in July of 2016 when I was contacted by a 2015 UCF BSBA/finance with a real estate minor. I met her at the 2015 Appraisal Institute-University of Central Florida Expert Panel Discussion. She is now located down in the South Florida area. I have arranged for some of my South Florida AI friends to speak with her and she has attended a South Florida Chapter of the Appraisal Institute chapter meeting. She has had no luck locating a CRE VAS trainee appraiser role as of mid-February 2017. We have exchanged numerous emails and she is a very good writer and seems to be enthusiastic and motivated about entry into the CRE VAS Industry. She is getting frustrated with limited to non-existent CRE state-registered trainee appraiser opportunities after six months in a metropolitan area of about 6,000,000 people.
Next, as previously noted, I searched “Commercial Real Estate Appraisal Business,” for another project, which yielded the Wall Street Oasis website as the second hit and the link (current students and recent graduates (read Millennials) would find this link easily):
- Jobs as a Commercial Real Estate Appraiser Suck?
http://www.wallstreetoasis.com/forums/jobs-as-a-commercial-real-estate-appraiser-suck
A further review of the Wall Street Oasis website yields the following posts:
Appraisal/Valuation Exit Opportunities
http://www.wallstreetoasis.com/forums/appraisalvaluation-exit-opportunities
- Commercial Real Estate Appraiser (The Future of this Career)
http://www.wallstreetoasis.com/forums/commercial-real-estate-appraiser-the-future-of-this-career
- How is Appraisal Looked Upon
http://www.wallstreetoasis.com/forums/how-is-appraisal-looked-upon
- JP Morgan Middle Office in Newark DE Vs. Commercial Real Estate Appraisal
http://www.wallstreetoasis.com/forums/jp-morgan-middle-office-in-newark-de-vs-commercial-real-estate-appraisal
- Real Estate Appraisal/Consulting -> Real Estate IBD/PE/AM?
http://www.wallstreetoasis.com/forums/real-estate-appraisalconsulting-real-estate-ibdpeam
- Real Estate Appraiser Internship
http://www.wallstreetoasis.com/forums/real-estate-appraiser-internship
- Real Estate Appraisal Question?
http://www.wallstreetoasis.com/forums/real-estate-appraisal-question
- Transition from Real Estate Appraisal to Real Estate Modeling
http://www.wallstreetoasis.com/forums/transition-from-real-estsate-appraisal-to-real-estate-modeling
The above posts are the types of things that current students and recent graduates (read Millennials) will quickly find when researching the CRE VAS career. What do you think most will do?
Key Takeaways:
- CRE VAS is great training for 12 to 36 months (BUT have an exit strategy)
o Be prepared for a lot of “grunt work” at “poor pay”
- The professional image of the typical CRE VAS firm is generally viewed poorly, as compared with other types of firms:
o A UF MSRE candidate (Yale University undergraduate) that I knew several years ago, whose entire cohort class had internships at local CRE VAS firms in a wide variety of locations, to an intern, did not care for the less-than-professional grade offices and related professional images that they encountered – none wanted to enter the CRE VAS Industry at the typical CRE VAS firm upon graduation.
o A more recent UF MSRE who wanted to enter the CRE VAS Industry in South Florida could find no firms that offered health insurance and most were described to me as having “broken chairs and egg crates” to sit on. He is an analyst with a commercial loan servicer now.
- Economic opportunity within the CRE VAS Industry is viewed as poor with the following exceptions:
o Employment at one of the Global-National CRE Services Firms VAS Groups (specifically mentioned were CBRE and Cushman & Wakefield) where low-to-mid six figure CRE VAS incomes were reasonably aspirational.
o Employment at entrepreneurial/marketing oriented, specialized, and tech savvy boutiques.
o Longer-term, managing directors/group managing directors (and principals of the more entrepreneurial/marketing oriented, specialized, and tech savvy boutiques) – “the salesman” – who are primarily rainmakers.
Recruiting and retaining quality professional talent in the CRE VAS Industry will, again, prove VERY challenging in light of the career “realities” presented on the Wall Street Oasis website. A quality work product begins with quality professional talent.
What do CRE VAS professionals do?
This same research and analysis process should be turned on the CRE VAS Industry itself to better understand its current economic dynamics relative to the performance of other CRE professional options for quality new professional talent — and for RETAINING that talent. A quality work product begins with quality professional talent.
As I indicated in my previously linked article, Houston, We Have a Problem, research in the form of a “cost approach,” or “feasibility analysis” on the economic viability of CRE state-registered trainee appraisers should be done by one, or more, of the following:
- The Appraisal Subcommittee
- The Florida Division of Real Estate/Florida Real Estate Appraisal Board
Based upon my relatively informal research of many MAI/principals around Florida the current fee level is far below an equilibrium required to recruit, train, and retain quality CRE trainee appraisers with the minimum previously researched Aggregate Professional Profile criteria of:
- A bachelors degree, or higher from an accredited university (AACSB preferred) in accounting, economics, finance, real estate, or related field; MBA degree, plus
A quality work product begins with quality professional talent.
The Project Management Triangle (AKA, Iron Triangle, or Triple Constraint),
https://en.wikipedia.org/wiki/Project_management_triangle, is central to the economic issues of the CRE VAS Industry:
Generally, on the financial side, the CRE appraisal, or valuation product/service, has been commoditized driving the cost down substantially and reducing turnaround times, which, based upon the Project Management Triangle, will substantially erode quality. This economic pressure also drives down the CRE VAS Industry’s ability to attract quality new professional talent – and to RETAIN that talent. Economics will largely trump The Appraisal Foundation’s Appraiser Qualifications Board and Appraisal Standards Boards best efforts. A quality work product begins with quality professional talent.
I have given the above dynamics much thought over the last few years.
Quality must be effectively demanded by and a commensurate professional-level fee paid in order to drive quality upward, that new economic reality would then drive up the ability to recruit quality new professional talent – and to RETAIN that talent, and provide superior risk management tools for financial institutions individually and as a whole. A quality work product begins with quality professional talent.
The Federal Reserve, FDIC, and other financial regulators could hire enough bank examiners experienced, qualified, and trained in assessing and reviewing CRE valuation reports as to quality and ranking their risk management level. This could help drive up the demand for true quality CRE VAS products/services at a commensurate professional-level fee. A quality work product begins with quality professional talent.
Two financial “Carrot and Stick” levers could be engaged to accomplish this goal:
- The Federal Reserve could raise the reserve requirements of those financial institutions run by lending “cowboys” and “cowgirls” limiting the funds available to lend, lowering profit potential, and lowering the bonus pool and value of stock options.
o Conversely, those financial institutions run on very sound CRE risk management principles could be rewarded with lower reserve requirements increasing funds available to lend, increasing the profit potential, and increasing the bonus pool and value of stock options.
- The FDIC could raise deposit insurance premiums of those financial institutions run by lending “cowboys” and “cowgirls” reducing the funds available to lend, lowering profit potential, and lowering the bonus pool and value of stock options.
o Conversely, those financial institutions run on very sound CRE risk management principles could be rewarded with lower deposit insurance premiums increasing the funds available to lend, increasing the profit potential, and increasing the bonus pool and value of stock options.
Theoretically, this would penalize aggressive, or reckless “cowboy” and “cowgirl” lending behavior and reward prudent lending behavior and risk management; thereby, lowering CRE-related systemic risk.
Capitalism without bankruptcy is like Christianity without hell.
– Frank F. Borman, II, retired Chairman & CEO of Eastern Airlines and a former NASA Astronaut
Privatizing profits and socializing losses.
A phrase describing how business and individuals can successfully benefit form any and all profits
related to their line of business, but avoid losses by having those losses paid for by society [taxpayers]. Privatizing profits and socializing losses suggest that when large losses occur for speculators or businesses, they are able to successfully lobby government for aide
rather than face the consequences of said losses.
– Investopedia
I have also thought for many years why the buyer/consumer protection value of an appraisal to help ensure that a buyer/consumer is not over-paying for a property is not advocated by:
- The Appraisal Subcommittee
- The Florida Real Estate Appraisal Board
* * * *
Alternative Case Study: Superior Selling Skills
John Henry Patterson . . . NCR . . . and the cash register . . . the product that almost nobody wanted (this, sadly, reminds me of “cowboy” and “cowgirl” lender driven financial institutions and CRE appraisals/valuations to some extent):
* Honesty store clerks viewed the cash register as an insult to their integrity
- Dishonest store clerks viewed the cash register as cutting their self-determined bonus program
Before the MBA degree, there was NCR. Between about 1910 and around 1930, I read, that about 1/6 of US business executives spent some time at NCR. John Henry Patterson bought what would become NCR in 1882. He had a knack for hiring good people and then firing them.
One of the people Patterson hired and fired was Thomas J. Watson, https://en.wikipedia.org/wiki/Thomas_J._Watson, who took what he learned at NCR and built IBM. Watson created the motto “Think,” at NCR and took it with him to IBM (after Patterson’s death) — that’s where the ThinkPad notebook brand name came from.
Patterson was the father of professional selling. There are some interesting articles on him in old Forbes magazines from the 1920s (the USF Tampa library has them on microfilm). I can’t find any books written by him and few written about him and his methods.
Your comments, insights, and thoughts ARE solicited.
You may forward this email at your discretion.
– Bruce
J. Bruce Cumming, Jr., BSBA | Real Estate & Urban Analysis | uf
State-Certified General Real Estate Appraiser RZ1639 | f
Licensed Real Estate Broker | f
941.926.0800 | t
941.926.2880 | f
813.505.7241 | c
jbcummingjr@gmail.com | e
Former member, Real Estate Council, Dr. P. Phillips Institute for Research and Education in Real Estate, University of Central Florida (2014 to 2016)
Founding chairman, University Relations Committee, Region X, Appraisal Institute (2003 to 2013)
Former member, Real Estate Advisory Board, Bergstrom Real Estate Center, University of Florida (2006 to 2012)
Former vice chairman, Global Education Research Initiative (GERI), International Valuation Council, The Appraisal Foundation (2009 to 2011)
Former member, Industry Advisory Board, Argus Software (2008 to 2010)
Former chairman, National University Relations Project Team, Appraisal Institute (2007 to 2009)
Former commissioner, Architectural Review Commission, City of Tampa (1999 to 2000)
