REIT CFO hiring landscape undergoing a seismic shift by Anthony J. LoPinto and Eric Moskowitz
November 2011 An analysis of more than 150 Chief Financial Officers at REITs shows that the industry is placing new emphasis on capital markets experience and diversity.
After three years of depressed activity, commercial real estate is gaining momentum. Transactions in the second quarter were more than double their level from a year earlier and quadruple the post-recession low of $12.9 billion in the first quarter of 2009, according to Real Capital. As a result, and because of more complicated transactions, real estate firms are reevaluating the role of the Chief Financial Officer (CFO). Korn/Ferry International recently completed an analysis of more than 150 CFOs at publicly-traded Real Estate Investment Trusts (REITs) across the United States. The goal of the study was to identify trends in the types of CFOs being hired, as well as changes in compensation. There were three main findings stemming from the Korn/Ferry study:
1. Capital markets backgrounds are increasingly appealing to REITs hiring financial officers, rather than the more traditional accounting.
2. Real estate firms are getting more diverse: a third of publiclyannounced CFO hires in the last year were women.
3. Total compensation is rising as real estate firms prioritize financial risk following the credit crisis and are seeking more seasoned candidates.
Accounting vs. capital markets Korn/Ferry’s analysis found two distinct groups of CFOs within the REIT industry—those who come from accounting, and those from capital markets. The accounting CFO is roughly fifty years old, male, has a CPA, began his career at a Big Four firm, was internally promoted into the role, and has been there nearly eight years. The capital markets CFO is about two years younger, male, has an MBA, was hired externally, and has been in his current role for roughly five years. Although the majority of REITs currently employ an accounting CFO, the difference in average tenure may indicate a shift in preferences toward a more capital markets-focused CFO. In fact, eleven of the last seventeen REIT CFOs hired came from a capital markets background. “REIT CFOs traditionally came from a Big Four accounting firm and worked their way up inside a company. But I can see how this trend towards capital markets is picking up because there are so many more structured products, joint ventures, and investment funds out there,” says Marshall Loeb, president and chief operating officer at Glimcher Realty Trust.
More women in REIT CFO jobs The study also indicates a noticeable uptick in the hiring of women as CFOs at REITs. Of those seventeen 2010-2011 hires, six have been women (35 percent). “We are increasingly seeing a shift to capital markets-oriented hires at REITs, but also are seeing a greater willingness to diversify the management teams and place women in a traditionally male-dominated role,” says Evelyn Infurna, a managing director in equity capital markets origination at Citi, who focuses on the REIT industry. Infurna, who was a senior real estate securities analyst at Moore Capital and vice president at Cornerstone Real Estate Advisers, says she welcomes this new progressive attitude towards diversity at real estate firms.
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Figure 1
Newly appointed REIT CFOs last 12 months CFO name
REIT Sector Age Gender Profile
Internal/ Start external hire Date
Diane Merdian
Redwood Trust Inc.
Mortgage
51
Female
Capital Markets
External
2010
Diane Morefield
Strategic Hotels & Resorts Inc.
Hotels
52
Female
Capital Markets
External
2010
Richard Hickson IV Parkway Properties Inc.
Office
35
Male
Capital Markets
Internal
2010
Steven Douglas
General Growth Properties
Retail
42
Male
Capital Markets
External
2010
Eve Chan
K-REIT Asia
Commercial
40
Female
Accounting
External
2010
Fredric Starker
New York Mortgage Trust Inc
Mortgage
59
Male
Accounting
External
2010
Steven Sherwyn
Care Investment Trust Inc. Health Care
49
Male
Capital Markets
External
2010
Gregg Adzema
Cousins Properties
Diversified
44
Male
Capital Markets
External
2010
James Mead
SL Green Realty Corp
Office
51
Male
Capital Markets
External
2010
Bruce Riggins
LaSalle Hotel Properties
Hotels
39
Male
Captial Markets
External
2011
Shereen Jones
Berkshire Income Realty
Apartments
50
Female
Capital Markets
External
2011
Timothy Schoen
HCP Inc.
Health Care
44
Male
Captial Markets
Internal
2011
Janna Connolly
The St. Joe Company
Developer
55
Female
Accounting
Internal
2011
Philip Mays
Cedar Shopping Centers Retail
-
Male
Accounting
External
2011
Debra Ann Hess
NorthStar Realty
Mortgage
47
Female
Capital Markets
External
2011
Michael Forsayeth
MI Developments
Industrial
56
Male
Accounting
External
2011
Matthew Murphy
DCT Industrial Trust
Industrial
47
Male
Accounting
Internal
2011
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The capital markets exposure also can be invaluable in a C-suite role, says Infurna. “The relationships that Wall Street executives can bring to these positions—and that flow of capital markets information—may be important in their new role. Hopefully that transfers into managing capital structures in a way that is beneficial to the companies and shareholders.” Non-recourse and recourse debt, leveraged term structures, and credit swaps are just a few examples of deals that may look more like something conceived at Goldman Sachs rather than as part of a straightforward commercial property sale. But they are becoming commonplace as real estate firms increasingly “hedge” their positions due to volatile markets. “The credit crisis, especially in real estate, really highlighted the need for a well-constructed and conceived balance sheet,” says Scott Craig, a vice president and portfolio manager at Eaton Vance, which invests in REITs.
Compensation ticks upward Since REITS are attracting Wall Street talent—which is notably pricier than accounting talent—it is not too surprising to discover that compensation is rising across the board, though apparently more for those with capital markets backgrounds. For instance, at Digital Realty Trust, A. William Stein, a CFO with a capital markets background, received a 19 percent bump in cash compensation and a 25 percent uptick in long-term pay, putting him in the top 10 percent of all REIT CFOs in terms of pay for 2010. “You can earn a lot more after five years at Morgan Stanley than you would at an accounting firm like Ernst & Young,” says Joseph Sorrentino, managing director of compensation consultants Steven Hall & Partners. “So that pushes compensation up once these individuals get to the CFO level.”
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Figure 2
Change in profiles of REIT CFOs from FY 2009 to FY 2010 Category Average market cap (in billions)
FY 2009 Accounting Capital Markets
FY 2010 Accounting Captial Markets
$1.48
$2.37
$2.62
$2.98
49.6
48.3
50.0
47.5
7.8
5.3
7.9
4.7
90% male
91.7% male
89.9% male
86.1% male
37.0%
55.6%
37.8%
62.8%
Cash compensation
$638,396
$786,264
$692,400
$822,500
Long-term incentive compensation
$252,818
$468,831
$398,500
$681,000
6.4%
19.4%
5.1%
7.0%
CPA
82.0%
25.0%
84.0%
30.9%
MBA
19.1%
58.3%
20.2%
57.1%
Big Four experience
65.5%
22.2%
64.2%
21.4%
93
36
98
43
Average age Average tenure of CFO (in years) Gender External hires
On board
Number of profiles*
*Profiles identified as mixed backgrounds were omitted from the study. Any REIT IPOs during 2009 are accounted for in 2010. One company de-listed in FY2010 and was omitted as well. Source: Steven Hall & Partners
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Anthony J. LoPinto is Senior Client Partner and Global Sector Leader, Real Estate for Korn/Ferry International. He also serves as the Office Managing Director for the Firm’s New York office.
Eric Moskowitz is Senior Director of Market Intelligence for Korn/Ferry’s Global Financial Market. He is also head of the North America Research and Knowledge Management team.
About The Korn/Ferry Institute The Korn/Ferry Institute generates forward-thinking research and viewpoints that illuminate how talent advances business strategy. Since its founding in 2008, the institute has published scores of articles, studies and books that explore global best practices in organizational leadership and human capital development.
About Korn/Ferry International Korn/Ferry International, with a presence throughout the Americas, Asia Pacific, Europe, the Middle East and Africa, is a premier global provider of talent management solutions. Based in Los Angeles, the firm delivers an array of solutions that help clients to attract, deploy, develop and reward their talent. Visit www.kornferry.com for more information on the Korn/Ferry International family of companies, and www.kornferryinstitute com for thought leadership, intellectual property and research.
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© 2011 The Korn/Ferry Institute