Overview
The real estate industry’s pared-down definition is land. However, it’s much more complicated than that. The industry involves the buying, selling, renting, leasing, and management of commercial, residential, agricultural, and other kinds of property, including all the functions that support such activity, such as appraising and financing. The successful realtor is necessarily a shrewd salesperson with a deep knowledge of real estate markets and a broad understanding of the contracts, laws, and tax regulations that apply to real estate transactions.

Thinking big is part and parcel of the real estate industry, and grandiose speculation has created some of America’s greatest fortunes. John Jacob Astor traded in his empire of beaver pelts for a gamble on uptown Manhattan real estate and in the process became the richest man in America. Arthur Levitt’s own development virtually created that fixture of American life: the suburbs. More recently, moguls like Sam “the grave dancer” Zell and the perennially overreaching Donald Trump have made fantastic fortunes on real estate gambles. Even for nonbillionaires in the industry, the thrill of deal making, the promise of financial reward, the potential to have a lasting impact on cities and communities, and the sociability make real estate a rewarding profession.

The real estate market has undergone dramatic changes in recent years. Real estate investment trusts (REITs) have become major sources of financing for property acquisition and development. The total market capitalization of public REITs has grown from $10 billion in 1991 to more than $218 billion in 171 funds today, causing a revolution in real estate financing, similar to the rise of the individual investor in the stock market. Sources of financing have been steadily moving from cabals of private investors to public equity, in the form of REITs. With this shift has come more transparency in the market and a slow whittling away of the old boys network for which real estate investment is infamous. This transparency also shines a critical light on investment strategies, which are now subject to public scrutiny, and are therefore more accountable to the will of investors. Families with their savings invested in REITs are unlikely to tolerate the wild swings of fortune of stereotypical real estate tycoons; Wall Street and REITs have had a stabilizing effect on the industry. Finally, mergers and acquisitions have increased the size and scope of firms involved in real estate, with companies like brokerage and hotel franchiser Cendant leading the charge.

Nevertheless, the industry itself is slow to change. Two of the largest real estate investment companies, Donald Trump’s Trump Organization and the LeFrak family’s Lefrak Organization, are decidedly private and operate almost exclusively in the New York area. With its unpredictable cycles and idiosyncratic geographic markets, the real estate industry continues to defy taming by modern organizational structure.

Trends

While large companies and small specialty firms will survive, industry experts predict that midsize companies will suffer. This is due in part to the increased costs of technology and infrastructure, which a high-touch small firm doesn’t need, but a midsize firm doesn’t have the economy of scale to make pay off. It’s also due in part to the popularity of REITS, which need to be large to participate in public markets—as REITs grow, they swallow up midsize companies. Therefore, the fate of many a midsize company is one of two things: go out of business or get eaten by a predator.

In former years, the real estate industry was like your brilliant, but manic-depressive friend, with higher highs, and lower lows. The cyclical nature of the industry was exacerbated by many small-time speculators who worked independent of one another. Developers tended to work with private capital and build on gut feel rather than sound analysis. The consequence was horrible overdevelopment during booms that led to overcapacity in lean years—a true boom-and-bust industry. As financial markets have taken over much of the financing of commercial development through REITs and private equity placement, they have also forced discipline on developers. Consequently, developers, now under Wall Street’s scrutiny, have forced themselves to be much more disciplined—developments and property acquisitions are subject to sensitivity analysis and “what if” scenarios rather than wild hare speculation.

Though every sector of the real estate industry is fragmented, companies are slowly but surely acquiring one another and making the playing field a little less full. The home building sector is a good example of this. Over the past 5 years the market share of the top ten homebuilders has doubled. Commercial brokerage firms are undergoing a similar spree of acquisitions. Analysts argue that this consolidation helps the industry become more stable, as there are fewer small players disrupting the industry with overbuilding. Indeed, the average time a speculative home (a speculative home is one that was built before someone has purchased it) has been on the market before being sold has gone from 6½ months in the 1990s to 3½ months today.

Four Segments of Job Opportunities

1. Sales and Leasing

This segment includes everything from residential real estate brokers such as Century 21 and Coldwell Banker to larger corporations that broker bigger commercial properties such as office towers. Grubb & Ellis has one of the largest global brokerage divisions, offering sales and leasing services in many U.S. markets and in Europe. Cushman & Wakefield is another giant, with offices nationwide. Its clients are primarily corporations and other institutions, for which it negotiates sales and leases.

2. Management

Property managers are responsible for maintaining property values. They deal with tenants, manage finances, and physically tend to the property. Of all the segments of the industry, this one has been hit hardest by the wave of mergers and acquisitions sweeping the industry. Some industry insiders are predicting that 75 percent of the property management firms in operation in 1990 will be out of business by the year 2007. For job seekers, this means fewer jobs as companies look to become more efficient and cut redundant staff.

3. Development

Developers are responsible for taking a property idea and making it a reality. This is a complex process involving architects, engineers, zoning officials, builders, lenders, and prospective tenants. Development is not always the gravy train some make it out to be. In the early 1990s, when real estate prices crashed, construction dried up and a lot of commercial office space was left vacant. Deprived of rents, a lot of developers had to scramble for survival. Many ventured into other areas of real estate. Today, many of the largest real estate developers are also property owners and managers.

4. Acquisition and Analysis

Any kind of investing in real estate requires a thorough understanding of how to analyze the value of a property and navigate the maze of land-use regulations, zoning laws, environmental impact reports, financing realities, and other barriers to buying and developing a property. The people who develop, market, and manage REITs and other real estate investments are financial types, often MBAs, who are charged with evaluating and arranging for the purchase of properties.

Job Prospects

Unlike much of the rest of the economy, the real estate industry has been doing quite well. Though the robustness varies between sectors, with the residential side of real estate doing best, the industry is hardly in the hangdog state that nearly every other part of the economy seems to be in.

Nevertheless, without solid connections in the industry, you may have a hard time establishing yourself. Real estate veterans rely on the advice of contacts to help make recruiting decisions. Rather than using traditional recruiting processes, firms often bring on new talent through personal networks and word of mouth. It’s even harder to break into the elite club of real estate investment finance.

If you don’t aspire to join the elite ranks of real estate investment management, you still have before you a wealth of rewarding positions in property management, real estate services, and residential brokerages, as well as very challenging development roles in corporate real estate. Beware though: Skills in one real estate market aren’t necessarily transferable to other markets. Select your location carefully. And once you’re in, be prepared to ride the roller coaster of a cyclical industry. Although the real estate industry is in a protracted boom period right now, veterans assure us that busts will come, and those busts won’t be pretty.

Source: WetFeet Press

Jobs

Residential or Commercial Agent or Broker
Appraiser
Property Manager
Consultant or Advisor
Developer
Entrepreneur

Source: WebFeet Press

PRINT RESOURCES AVAILABLE IN THE CDO

Wet Feet Press Guide to Real Estate

Online Resource http://www.bus.wisc.edu/realestate/resources/resco&org.asp