Here’s How You Build The Investment Team Of The Future During A Recession

With a massive loss in liquidity comes a significant drop in action. For real estate investment teams, what next? Sit and wait for interest rates to fall, or create a crack investment team that can wheedle out opportunities and get into the psyche of end consumers?

This decision is facing investors and capital markets teams right now. To be successful in a tough economy, companies need to build investment teams that can thrive today, and also be resilient in a future when real estate will have changed dramatically.

“There's no question that the skills needed in capital markets are changing significantly,” Cushman & Wakefield Head of UK and Ireland George Roberts said. “Whilst the role of a capital markets broker remains to connect capital to opportunity, the level of sophistication required by clients has shifted significantly and will do so further.”

Now Q4 figures are in, it is really hitting home how bad the last three months of 2022 were for real estate investment. Unsurprisingly, a number of real estate firms are talking of redundancies. In January JLL confirmed that it is looking to make redundancies across its UK offices, while Avison Young offered voluntary redundancy to UK staff in November. 

How the downturn is impacting jobs depends on which element of the investment market you are in, BentallGreenOak Managing Partner Toby Phelps said. If you’re an adviser or other intermediary and your revenue depends on transaction volume, it is a challenging time. But cuts are yet to hit investors and property owners. 

“The challenge for an advisory firm is to maintain a cost base while keeping the best people for when recovery arrives,” Phelps said. “If you're an investor or real estate owner, the situation is less volatile. Those assets still need to be managed, perhaps even more so in a downturn.” 

Whether or not a specific job is at risk, the makeup of an investment team following the last few years of turbulence could be very different. Roberts said that in volatile markets, the importance of strong analytics and data to understand what is happening takes prominence. 

“We are moving from a world where advice was intuitive and to some extent implicit, to a world where advice is highly analytical and assumptions explicit,” Roberts said. “Sophisticated cashflow modelling and knowledge of debt structures is a given. As we move forward, the ability to draw on sources of data that provide detailed insight into the underlying strengths and weaknesses of an asset will assume even greater importance.”

Technical and financial skills aside, there is a need for investment teams to converse on a wider spectrum of real assets than previously, Phelps said. Putting the current economic turbulence aside, the world has changed radically in the last decade — the way we shop, live, interact, our ambitions for our lifestyle — and investment teams have had to respond.

“Before the global financial crash, real estate was a simple asset class: generally retail, offices and a bit of industrial,” Phelps said. “Today there is a much broader investable universe. So if you want to be successful as an investor, you need people in your team who understand the psyche of those who use new asset classes: They rent, without necessarily an ambition to buy, they don’t go to shops.”

The ability to look at the bigger picture needs to be taken right up to leadership level, JLL Head of Diversity, Inclusion and Equality Amy Russell said. The industry will always face times of uncertainty, so the main factor in success is the ability to lead through these periods.

“This isn’t just about skills but how to lead with a big-picture view,” she said. “Listening is a huge part of being a good leader, as is going in with a very open mindset. Uncertainty will always be an opportunity to rethink how we work and the environment we’re in.”

The investment team of the future is likely to understand environmental, social and governance obligations and remits far more fully. While the real estate sector has increasingly understood ESG, the last 12 months have brought it more sharply into focus. 

Since the war in Ukraine began, reducing energy costs not only affects carbon footprint but translates to a tangible impact on the bottom line. The pandemic and cost-of-living crisis have pushed the social agenda further up the list of priorities. To fully embed ESG into an investment team, there’s a general feeling that more diverse and younger perspectives need to be introduced. 

“The strong desire for talent to work within purpose-led organisations will broaden perspective and influence advisers to consider the wider impact of investment decision-making,” Roberts said.

For example, an investment team with an agenda more aligned to ESG might not push rent to the optimum level because there is a social responsibility not to do that. This insight might be considered new to a traditional investment team.

This evolution is already pushing investors and agencies to take a new approach to recruitment. Roberts said the industry needs to move away from traditional recruitment grounds to recruit data and behavioural scientists, finance specialists and those with other analytical skill sets. These are people who can use data as strong underwriting to help buyers and sellers make better decisions and be highly conversant on debt structures.

There’s a real business case for recruiting people from more diverse backgrounds than those who have traditionally entered real estate, Russell said. The pressure to do so is increased by the need to find solutions in a challenging market. 

“Clients want diversity of thought to provide a breadth of solutions,” Russell said. “The only way to do that is if we broaden our people pool, and with that comes diversity. Clients want to work with the brightest, best talent.”

Phelps said he saw firsthand during the Global Financial Crisis that the organisations with diverse minds around the board table fared much better. 

“Lots of academic analysis shows that people of different backgrounds think differently, and we are all coloured by our own experiences, like it or not,” he said. “For most people it’s unconscious, but we are fiduciaries of other people’s money, so it is incumbent on us to have diversity of thought, mind, backgrounds and experiences to make the best decisions.”

As Phelps said, commercial real estate comprises far more asset classes than before the Great Financial Crisis. As more asset classes have been added — private rented sector, student housing, mixed-use, coworking — there has become a greater need for an investment team to understand changing demographics. 

“If all we were doing in our investment strategy is trying to create assets that appeal to a middle-class end consumer, then a traditional real estate team would be fine,” he said. “But that’s not what we’re trying to do. We want to invest in a broad spectrum of real estate for people in all stages of life. We have an obligation to reflect the communities we operate in. This isn’t just important for the industry but should be beneficial to the company if we are more diverse.”

Many real estate organisations are already changing recruitment practices to encourage a broader spectrum of people to apply. Blackstone has a diverse leaders programme aimed at students, which involves going out to schools but also bringing students to the office to see the world of work. The aim is to open up quite a closed industry, Blackstone Vice President Sneha Patel said. 

“More diverse teams are more successful for the business,” she said. “We know that the more diverse the people are around the table, the more opinions we’ll have. Blackstone is all about looking from all angles.”

Others are working with external initiatives such as Pathways to Property or supporting educational programmes such as SEO London’s Real Estate Programme, which supports undergraduates with limited social capital or industry. 

JLL has taken the approach of working with clients, including investors. The firm has established a Working Dynamics team that offers DEI consultancy services across EMEA. 

“As we tighten belts in one area, does it mean there’s an opportunity to do things differently?” Russell said. “Clients are increasingly asking for diversity. This is an opportunity to collaborate and learn from each other.”

The real estate sector overall is facing many pressures — from the economy, from end users, from government legislation relating to ESG. Investment teams might be struggling to make concrete predictions for the next nine to 12 months, but there is a general feeling that to do so, they need to create the investment team of the future. Change is possibly inevitable. 

In January, Bisnow launched The Rise Initiative, a campaign to recognise organisations that are committed to improving racial diversity in the commercial real estate sector by taking measurable actions. If your team has a tangible project to shout about, you've got until 24 March to submit it.