Overview
- The new real estate cycle presents significant career challenges.
- Rather than making this year's predictions about broad real estate trends, we created a tool to help you assess your skills/career outlook vs. peers.
- Drawing from our experience hiring, placing, and training talent we highlight five traits that will shape success in this evolving environment.
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Take the quiz to evaluate how you compare to VP-level candidates ($250K)
Predictions vs. Insights
A year ago, we released our predictions for 2024. Two years ago, we released our predictions for 2023.
We like the exercise because it forces us to think about and document where our frameworks suggested real estate markets are headed, but this year is different. We are truly at a turning point.
We finalized our list of 2025 predictions about a month ago, but we pushed ourselves to come up with something more actionable.
Our goal with this year's predictions is to triangulate observations into actionable insights for early-career real estate professionals as they navigate a much more challenging environment.
Quick Background on Our Perspective
Training provider
We started hosting classes five years ago because there was a need for high-impact training. We favor skills over certifications and avoid tokens at all costs, which attracts a certain type of student and gives us thousands of data points on successful professionals.
Real estate practitioners
Our teaching team of 30+ practitioners use the frameworks from our courses in their day jobs. They regularly observe rents, vacancies, values, debt, equity, etc., and these observations inherently lead the real estate job market.
Recruiting
We occasionally leverage our proprietary assessments and frameworks to assist companies and professionals at all levels, which gives us hundreds of data points on thousands of candidates and highlights relative strengths and weaknesses for various candidate profiles.
Memory Lane: The Rules of the Road that Governed Commercial Real Estate Before 2022
Between 2010 and 2022....
- The 10-year treasury fell 83%
- Real estate borrowing rates fell by 51%.
- Transaction activity more than doubled.
- Cap rates fell from 8% to 6% (commercial) and 7% to 4.5% (apartments).
- The number of real estate degrees conferred (annually) increased by 114%.
- 500K+ people entered the real estate business (37% increase).
Big wins attracted many people into real estate since 2010.
Against this backdrop, returns were consistently positive. All were welcome in real estate, offering endless and consistent opportunities. Hundreds of investors made tens of millions by riding the wave.
The Road Ahead: Megatrends Will Define Career Opportunities
Since interest rates spiked in 2021...
- The 10-year treasury increased 400 bps.
- Real estate borrowing rates increased 200 to 400 bps.
- Transaction activity all but halted.
- Cap rates increased 100 to 200 bps.
- Real estate degrees no longer guarantee jobs or wealth.
- The number of people entering real estate has stalled.
The traffic jam may be cleared, but real estate players are stuck in the school zone with no end in sight.
We think a growing divergence between "winners" and "losers" will have a very meaningful implications for career paths and opportunities.
All sizable real estate investors will get hit by 'falling rocks' over the next few years, but impacts and opportunities will depend on the nature of the rocks.
Many senior real estate leaders will take the next exit, voluntarily or involuntarily.
Knowledge and Skills Assessment
You're in the final round of interviews for your dream job, and you're asked the following questions. If getting the job depends on your response to each question, what are your chances of landing the role?
A) Great: I'd nail it.
B) Respectable: I'd do okay.
C) Ehhh: I really hope I don't get asked this question.
Add up how many times you answer "Ehh."
1. Why did CMBS spreads compress in 2024 while banks remained relatively inactive?
2. Core funds' returns over the last two years were lower than many opportunistic fund returns. How does that make sense?
3. This 100-page lease includes three big problems. Can you find them in less than 30 minutes?
4. Our venture has $2M to distribute and we get 50% of profits over a 9% pref. At what $ amount does our promote kick in?
5. Here's last year's budget, a survey of comps, and a list of planned capital projects. Build a dynamic pro forma in Excel.
6. We were under contract to sell an asset, and the buyer threatened to sue us for not disclosing a document. If I give you the PSA, can you quickly summarize our related obligations?
7. We borrowed a 65% LTV CMBS loan eight years ago, it matures next year, and the collateral value is down 15%. Of the five lender types, which is most likely to be able to refinance our loan in full? Why?
8. If a developer needs an 8% YOC and we give you development costs and a rent comp survey, can you build a development model and answer if the developer can pay $3M for our site?
9. We have a 10% co-investment and get 25% over 9% and 50% over 15%. What will the LP's share of the profits be if the deal doesn't hit the pref?
10. Can we build a big business around converting office into apartments?
11. What shortcut alternates between formulas and figures in Excel?
12. Build an Excel model comparing line item variances and highlighting those above $5K or 5%.
13. How would the proposed lease's net effective rent change with an additional $10/SF in TI?
14. Build an acquisition model from scratch that provides return sensitivity to rent growth and exit cap rates.
15. What would be our return on an $8M renovation if it generated an extra $2/SF in annual rent? Build a detailed model to support your conclusion.
16. The investment sales broker thinks we could get $55M if we sold. What's our return if we hold?
17. How is the YOC affected if the bank funds loan proceeds pro rata?
18. Change the model to incorporate the developer's ability to earn back overrun exposure over the second hurdle.
19. How is our IRR affected by adding the lender's required interest reserve to the financing model and assuming we must either replenish the rate cap or refinance at a 50 bps higher rate in year 3?
20. Create a sources and uses model that accounts for the lender's delayed funding mechanism.
21. The owner doesn't have an ARGUS model and wants us to give her a BOV. Get the documents you need from her and build the property in ARGUS.
22. Write an investment memo that clearly outlines our investment rationale, risks, and recommendations.
23. Our ability to get a zoning variance depends on your ability to explain our plan in a 15-minute presentation to the planning commission.
24. You'll need to work at least 60 hours a week to thrive here.
25. We're ready to make you an offer but will need you in the office five days a week. That okay?
How many times did you answer: "Ehh: I really hope I don't get asked..."?
If your next dream job relates to decision-making in a $250K+ role, here's a rough assessment of your competitiveness vs. peers.
Less than 3 "Ehhs": Highly competitive.
3 to 5 "Ehhs": Will likely need an outsized strength to overcome weaknesses.
More than 5 "Ehhs": Meaningful weaknesses vs. peers.
We believe five traits will differentiate careers in the new real estate cycle
First, your willingness to invest in yourself.
Jalen Brunson and Aaron Holiday were drafted within an hour of each other back in 2018. Holiday was toward the back of the first round, and Jalen toward the front of the second round. Same size and same position on the court.
What differentiates them after five full seasons in the NBA? Aaron was a great defender but has struggled in the pros. Jalen was also a great defender but constantly reinvested in himself. He's now a better ball handler and a dominant scorer.
What does Jalen Brunson have to do with your real estate career?
Over the last ten years, success came by being in the game. But those tailwinds have died.
From now on, we think your compensation and employment will be much more closely tied to your skills and performance (for better or worse).
Investing your resources in skill development almost always pays off. Our take: Rather than debating which opportunities you should invest in, do them all. ...especially in your early 20s to early 30s when you have decades for those skills to compound.
Second, your ability to self-assess.
Findings from an interesting study on self-assessments in a classroom setting:
The primary objective of this study was to analyze the impact of self-assessment by undergraduate medical students on their subsequent academic performance. The secondary objective was to obtain the perception of students and faculty about self-assessment as a tool for enhanced learning.
The overall aim of education is to produce critical thinkers who should be able to evaluate and analyze different types of information gathered in their chosen field of expertise. Contemporary approaches emphasize the active engagement of students in their own learning, learner responsibility, meta-cognitive skills, and a dialogical collaborative model of learning. Self-assessment is considered to be very major component of learning because here the student gathers information and reflects on his own learning. It enhances the potential of learner development as a lifelong learner. Keeping these things in mind, the present study was planned with an objective to assess the impact of self-assessment by medical students on their subsequent academic performance.
Significant improvement in academic performance after self-assessment was observed. There was a significantly positive correlation between student and teacher marking. Both students and faculty perceived it to be helpful for developing self-directed learning skills.
In practice, we think the value of self-assessment is extremely obvious: 1) confidence notoriously exceeds competence for most people, and 2) you can't improve what you don't know needs improving. Honest looks in the mirror mark the beginning of progress.
Third, less processing and more thinking.
The value of processing (e.g., commoditized modeling, moving/categorizing/calculating, repetitive writing, etc.) is dwindling quickly.
If you're betting your career on your modeling abilities, you should invest in a backup plan.
If you're betting your career on non-commoditized skills and understanding (e.g., valuation, negotiation, etc.) you'll be in a great position.
Fourth, your ability to underwrite firms and their leaders.
You can have a great career, or at least a great career stop, at a not-so-great firm. But you need to know what skills you can build within an organization, have an informed forecast for compensation potential and risk, and understand how your future resume will fit in the market for talent.
Over the last 10+ years, real estate performance has been consistently positive. Even poorly managed firms with spotty access to capital and relatively unskilled leaders did well.
Do you think these people or their firms have accurate reads on their competencies or are perhaps intoxicated with past success?
Skilled leaders will outperform in most environments. Unskilled leaders will be increasingly frustrated.
Those who accurately underwrite firms' and leaders' will likely outperform those who use the last cycle's playbook.
This is an imperfect science but our guidance is as follows: focus on access to diverse capital and leaders who have been through multiple cycles and have the respect of their peers.
Fifth, your attitude.
We couldn't agree more with recent comments from Amazon's CEO on this topic...
“An embarrassing amount of how well you do, particularly in your twenties, has to do with attitude,” Jassy said in an interview with LinkedIn CEO Ryan Roslansky.
Looking back, he told Roslansky that “there's so many things that you can't control in your work life, but you can control your attitude.”
“I think people would be surprised how infrequently people have great attitudes,” he said. “I think it makes a big difference.”
The reason why Jassy thinks positivity determines success is pretty straightforward: People want to be around positive people. “You pick up advocates and mentors much more quickly,” he added. “People want those people to succeed—and it's very controllable.”
“The biggest difference between the people I started with in my early stages of my career and what they're doing now has to do with how great they were at learning,” he said.
“There are some people who get to a certain point and it almost feels threatening to them to learn,” Jassy pointed out, adding that it can highlight gaping holes in your knowledge and make you question whether you're worthy of your rank.
“But the second you think you know it all is the second you're really starting to unwind.”
We Just Passed a Turning Point
The last two years were a major reset after a decades-long climb to unprecedented heights, and we're in a new world for real estate players.
Glass half empty: There will be more bad news, more losses, and more layoffs.
Glass half full:This is an amazing opportunity for people who invest in themselves and sync up with the new cycle's future winners.
Request: We want to connect with the following types of people.
- Mid-to-late 20-somethings who are good at their jobs (usually making $150k+) and want specific skills to get to higher levels;
- College/grad students looking to develop differentiating skills in a more challenging job market; and
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Career switchers/lifelong learners
These are the profiles of professionals who have leveraged our courses to achieve promotions or new jobs within six months of taking our classes.
On the other hand, our classes aren't a great fit for people looking for quick wins, passive learning opportunities, or certification. [Sidenote: Our Valuation in Argus class leads to certification through Argus, but it's a byproduct of skill acquisition, not a specific goal of our curriculum. i.e., we don't teach the test.]
If our approach resonates with you, someone who works for you, or someone you know, we'd love to talk with you/them. Email jbarber@creanalyst.com.
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