The pick-up in European real estate investment activity over the past year is spurring inflationary salary increases for senior directors with solid experience in deal origination and execution, new research from executive search firm Bohill Partners shows.
Emily Bohill, Managing Partner at Bohill Partners said: "Competition for the best talent is heating up and so there is inevitable inflation in salaries, particularly in the real estate private equity sector. We're also seeing an increasing churn in positions as confident and capable managing directors and directors seek the right platform for the next market cycle."
The Bohill Partners' Compensation Report 2011: Real Estate Investment, examined salary and bonus levels in three key areas this year compared with a year ago: Private Equity Principal Investment; Real Estate Finance; and Capital Raising.
The research was carried out primarily among companies based in London, which is the largest single European center for real estate investment, including the UK market itself. All salary and bonus levels referred to in the report are therefore expressed in sterling.
The research found that while there were robust salary increases this year for real
Estate private equity managing directors and directors, there were more moderate rises for vice presidents, and it saw little evidence of upward pressure on salaries for associates or analysts.
The report also noted the on-going divergence between some private equity and real estate banking investment platforms. Bonuses at captive real estate funds have been severely depressed over the past few years and salaries for those working in this investment vehicle category have been increased at all levels. Salaries at private equity houses are now substantially lower and make up the difference with the bonus and carried interest.
In the real estate finance sector, the Bohill Partners' Compensation Report considered both structured finance houses utilizing the capital markets and also 'mortgage bank' balance sheet lenders.
With bonuses in real estate finance depressed again this year, salaries at the senior end for structured finance bankers have risen in an attempt to try and preserve total compensation figures. The salary increases started with London-based US investment banks towards the end of 2010 and this trend was followed by the majority of institutions as they moved to retain key staff.
There is little evidence, however, of upward pressure on salaries at the analyst and associate levels, with these positions only now starting to be recruited to support the challenge of deal execution for more senior staff as activity picks up. Recruitment for senior positions is also gaining momentum as institutions look to deploy balance sheet, or to develop fee business focused on new lending and restructuring.
With capital raising remaining a top priority for most private equity firms over the next 12 months or so, and staff recruitment reflecting that focus, Bohill Partners examined the compensation structures around this core activity. In addition to a base salary and bonus structure, there are several additional compensation models and many groups use a hybrid of these:
Supplemental cash bonus calculated against committed capital (in the region of between 20 35 basis points).
Carried interest in the fund.
Share of management fee for the fund.
Bonus structures will vary according to seniority, product development and ongoing investor relations, with carried interest ascribed to a pooled fund if a house has multiple products, so as to encourage cooperation within the investment team.
Emily Bohill concluded: "It's clear we're seeing a resurgence in activity across the European real estate investment market, which is being reflected in compensation levels and people's willingness to seek new positions. It should be an interesting autumn in the executive search business and certainly within the senior levels of the industry."
Source: Bohill Partners