People will often say that they want a commercial real estate career, but quickly discover that “commercial real estate” is a vague job description and can literally mean dozens of different things. In this post we will discuss various commercial real estate career paths in order to better understand the major players and the structure of the commercial real estate industry.
Commercial Real Estate Brokerage
Brokers are everywhere in the commercial real estate industry. By most estimates there are approximately 100,000 practicing commercial real estate brokers in the U.S. This is a sales and commission driven commercial real estate career and brokerage companies range from small mom and pop shops to large, publicly traded corporations. Commercial real estate brokerage careers fall into two categories: sales and leasing. These two segments can be further divided into buyers representation and sellers representation.
| Sales | Leasing | |
| Client is Buyer | Buyer Rep | Tenant Rep |
| Client is Seller | Seller Rep | Landlord Rep |
It’s also common for experienced brokers to further specialize by property type or geography.
Commercial real estate brokers on the investment sales side who represent sellers typically source new deals, underwrite properties to determine a realistic value, create marketing packages, actively market the property for sale, and negotiate a final sales price.
Commercial real estate brokers who represent buyers of commercial property typically find deals matching the buyer’s acquisition criteria, underwrite potential acquisitions to determine value, and negotiate price and deal terms on behalf of the buyer.
Brokers on the leasing side of the business who represent landlords typically complete in depth market analysis, market properties for lease, qualify prospective tenants, negotiate lease terms to the best interest of the landlord, and develop strategies to maximize occupancy.
Tenant rep brokers typically seek to understand the space needs of a client (expansion, relocation, etc.), negotiate leases and renewals, provide space planning services, and assist with sub-leasing and tenant improvements.
Commercial Real Estate Lending
Commercial real estate lenders provide the debt capital needed to build or acquire commercial properties. Because almost all commercial real estate is financed with debt, commercial lenders play an important role in the commercial real estate industry. Within commercial lending, there are several different roles.
Relationship managers typically handle all of the sales activities by sourcing deals, negotiating deal terms, and shepherding a loan through the internal approval process.
Analysts typically work hand in hand with a relationship manager and are responsible for underwriting prospective loans. This involves gathering financial statements, tax returns, building proforma cashflow projections, valuing properties, and writing an internal credit memo, which is a document used to determine the feasibility of the loan.
Credit officers inside of a bank are typically responsible for the final approval of a loan. A credit officer’s objective is to protect the downside of the bank and manage the overall risk profile of the commercial loan portfolio.
The types of loans a bank is involved with is varied and provide lenders with broad exposure to deals. Types of loans include construction loans, acquisitions, value-add re-positioning, bridge loans, land, development, homebuilder lines of credit for lot development and construction, and more.
Commercial Real Estate Development
Commercial real estate development is comprised of many activities, ranging from the renovation and re-lease of existing buildings to the acquisition of raw land and the sale of improved parcels to others. Developers range from small local individuals or firms to large national companies like Forest City or Hines.
Developers primarily are responsible for creating, imagining, funding, controlling, and orchestrating the entire development process from beginning to end. Commercial real estate developers take the greatest risks in the creation or renovation or real estate – and as such receive the greatest rewards.
Because of the intricacies involved in each type of real estate, most developers will specialize. For example, a condo developer must be good at marketing and creating buzz around a project, while a land developer must focus on obtaining zoning approvals in order to make the project successful.
Developers are involved in all parts of the commercial real estate industry, and deal with design, construction, regulatory approvals, financing, investment analysis, brokerage, leasing, etc. Often smaller developers will outsource many related activities such as brokerage, leasing, or construction. However, some larger developers handle these activities in-house in an effort to create a more efficient operation.
Institutional Investors
Institutional investors in commercial real estate include insurance companies, pension funds, endowments, and investment companies such as opportunity funds or REITs.
Actual investments made by institutional investors can vary, from direct permanent lending by insurance companies, to the placement of higher risk equity investments with funds or directly into properties.
Roles within these institutions also vary, but normally cover analysis, sales, portfolio management, credit risk, accounting, and finance.
Investment Banks
Investment banks raise debt and equity, and provide advisory work on mergers & acquisitions and on restructuring situations. Often when a REIT or other large investment firm raises debt capital to finance a large acquisition or the purchase of another firm, they will use an investment bank.
Because most commercial real estate is local, investment banks typically work on larger corporate deals rather than small to medium sized local deals. This often involves working with Commercial Mortgage Backed Securities (CMBS), public capital markets, and large corporate clients.
Commercial Real Estate Appraisal Career
Commercial real estate appraisers are responsible for estimating the value of commercial property and are compensated on a fee-only basis. The valuation provided by an appraiser comes in the form of a narrative report which discusses the market, the subject property itself, comparable properties, and a financial analysis.
Appraisers are licenses by the state based on various tests and experience requirements. Additionally, third-party trade organizations provide further training and certification, and these additional designations are often required by clients. The highest designation, and one that is often required by more sophisticated commercial real estate clients, is the MAI designation, granted by the Appraisal Institute.
Architects and Planners
Architects for commercial real estate are tasked with designing usable and profitable space. In the commercial world, the interior typically matters much more than the exterior, since property value is a direct result of the quantity and desirability of leaseable space.
The architect is responsible for designing usable and flexible space that meets zoning and other regulatory requirements. Often, architects will specialize in a particular area, such as landscape or interiors.
General Contracting Firms
General contractors are responsible for coordinating the entire construction process from start to finish. This typically involves scheduling sub-contractors, coordinating construction details with architects and engineers, managing logistics, planning for contingencies, and overall making sure that the project is completed on time and on budget.
General contractors typically specialize in one or more parts of the construction process and sometimes work directly for a company that also provides architectural services.
Commercial Real Estate Lawyers
Commercial real estate attorneys see all sides of a deal. Whenever a commercial property is bought, sold, leased, or financed, a real estate lawyer is normally involved. Typically, a CRE lawyer is responsible for drafting, finalizing, and negotiating detailed legal documents.
The types of documents an attorney creates can vary, and include purchase agreements, commercial loan notes, partnership agreements, etc. Much of a lawyer’s time is typically spent working on research, due diligence, drafting contracts, and networking.
Commercial Real Estate Property Management
Property managers in commercial real estate handle the day-to-day operations of a property. Typically, a property manager is involved with interacting with tenants, paying property taxes, insurance, and other expenses on time, managing cleaning, repairs, and maintenance. They are also often involved with leasing, retention, and facilities maintenance decisions.
Commercial Real Estate Asset Management
Asset managers in commercial real estate are similar to property managers, except they work on portfolios of properties and are generally more strategic instead of tactical.
Asset managers are responsible for maximizing the performance of a portfolio of commercial real estate assets owned by a company. Typically, asset managers craft a long-term strategy for acquisitions, dispositions, financing, and operations.