Annual compensation increases by up to 15% in 2009, but lags 2007 levels.
Real estate investment trust (REIT) employees saw their total compensation increase by as much as 15% in 2009 as the industry began to recover after one of the most turbulent years in its history, according to a recently published study by real estate adviser FTI Schonbraun McCann Group (SMG).
At the chief executive officer (CEO) level, total compensation including salary, cash bonuses and long-term incentives such as stock shares averaged $3.3 million. Top CEOs at office and industrial REITs led the pack with an average of nearly $6 million for the year.
Median increases ranged from 3% to 15% depending on seniority levels. But REIT pay increases seem modest for companies that on average doubled investor returns in 2009 as many landlords struggled to maintain occupancy.
“Our study revealed significant swings in compensation levels from 2007 through 2009,” says Larry Portal, senior managing director at SMG.
“Many real estate companies have been trying to balance liquidity and dilution concerns while also trying to retain employees and keep them motivated during these difficult economic times.”
The recent gains contrast sharply with the trend in 2008, when REITs cut compensation for executives and senior managers by 10% to 15% and pay remained flat for other employee levels, says Anthony Saitta, a managing director at SMG. “Depending on the level of people,” says Saitta, “we're still probably 5% to 7% below where we were in 2007.”
Those ups and downs pale in comparison with the extremes REIT investors have experienced in their annual returns, notes Victor Calanog, chief economist at New York-based research firm Reis. Prices tracked by the Dow Jones Equity All REIT Index fell to 86.46 on March 6, 2009, down more than 75% from a peak of 356.85 on Feb. 7, 2007.
The index, which tracks the performance of U.S. REITs that primarily own and operate income-producing real estate, shows that REITs recovered about half of the lost value, closing at 196.89 Aug. 24, up 128% from the March 2009 low.
The Equity All REIT Index is up 8.6% year to date, compared with a 3.8% loss in the Dow Jones Industrial Average for the same period, Calanog points out. “It certainly seems that [the employees] deserve at least a bit of an increase.”
The real estate advisory practice of New York-based FTI Consulting Inc., SMG has conducted its survey for the past three years and based its latest report on responses from 45 public and private real estate companies surveyed in August 2010. Those companies have roughly 37,000 employees.
The 2010 Compensation of Management and Professionals Survey reflects bonuses and equity awards for performance in 2009, and base salaries in place in April 2010. Pay increases ranged from 3% to 6% for REITs' mid-level managers and professionals, notes Saitta. Raises of 10% to 15% went to upper-level executives paid largely through performance-based equity programs.
Looking ahead, SMG expects increased reliance on performance-based shares. SMG projects pay increases in 2011 of 2.8% to 3%.
DEALS & PROJECTS
The Bascom Group LLC has acquired The Retreat at Canyon Springs Apartments, a 360-unit Class-A property built in 2001. The sale closed Aug. 26. The apartments are located in the Stone Oak subdivision of San Antonio. The property was purchased through a receivership sale, and debt financing was provided by Midland Loan Services. The purchase expanded Bascom's Texas acquisitions to 25 properties totaling 9,173 units.
George Smith Partners, on behalf of an institutional client, has completed a $32 million construction loan in Hollywood, Calif. The construction loan will be used to complete a 180-unit multifamily project on La Brea Avenue and Hollywood Boulevard in Hollywood. The project was 70% complete when it was purchased, requiring a new loan to finish the construction and cover the lease-up period. The project has 14,000 sq. ft. of retail space.
Old Florida National Bank and Mercantile Capital Corp. have entered into a merger agreement. The bank, based in Orlando, expects the merger to be finalized late this year or early in 2011. Formed in 1982, Old Florida National Bank operates eight retail banking facilities in Central Florida and Inverness, Fla. Mercantile is a seven-year-old firm based in Altamonte Springs. It has provided commercial loans in 30 states and Puerto Rico.