The real estate industry will soon experience a shock of epic proportions when the lack of qualified talent far exceeds the growing demand.
For many in the apartment industry, the Great Recession is finally in the rearview mirror. But one of the most significant remaining questions for companies may not be access to capital, supply/demand imbalance or lack of job creation. Instead, it may be the looming shortage of qualified and experienced talent and leadership.
Over the next decade, the apartment industry is facing an exodus of founders, senior-level executives and experienced professionals that is likely to reshape the industry in unexpected ways. Perhaps the most important mission-critical decision for apartment firms pertains to the composition and character of the talent required to be successful in 2011 and beyond.
Getting the right people in the right place at the right time is a cornerstone strategy. It also is no easy task. For many, it may be perceived as a daunting challenge. The lack of talent will create many sleepless nights for CEOs and human resources department directors.
This potential crisis, however, is actually an opportunity. It is an opportunity for those organizations that become talent-centric. It is an opportunity to deploy a robust talent management plan. It is an opportunity for those who adhere to standards of excellence and mandate getting the right people in the right spots at the right time.
Talent Shortage Looming
Real estate CEOs and their respective companies are looking to “upgrade” their talent pool. A recent CEL & Associates Inc. survey of national real estate leaders found that in 2011, “upgrading existing talent base” ranked third on a list of “most important” strategies.
Unfortunately, some Baby Boomers (the generation born between 1946 and 1962) in the real estate industry are a major barrier to new openings for young or talented employees. Faced with dramatic declines in their home values, 401(k) plans, net worth, long-term incentive plans and other investments, the “First-Wave Boomers” (aged 57 to 64) are not retiring but are focused on recapturing some or all wealth they have lost during the past three years. The U.S. labor force participation rate for those over 55 was 29 percent in the mid-1990s. Today it is around 40 percent.
The conundrum is that by 2020, more than 65 percent of senior leaders in the real estate industry will retire or be in the process of phasing out, according to CEL & Associates Inc. estimates. The combination of the exiting Boomers and a lack of experienced young and next-generation talent (Gen Xers, born between the mid-1960s and early 1980s, who may not be ready, and Y’s, born between 1980 and 2000, who are still learning) could result in a potential talent vacuum. The challenges of a just-experienced recession and a slow economic and job recovery have moved concern about tomorrow’s leadership to a far lower priority. Faced with limited advancement potential in an industry perceived as financially challenged, young talent is seeking employment in other, more “growth-oriented” industries.
What will happen when the Boomers retire? Who will take their place? Will their replacements have adequate experience, relationships and capabilities? The real estate industry is about to experience a shock of epic proportions when the lack of qualified talent far exceeds demand.
In addition to leadership talent, the industry faces a shortage of qualified workers. Between 2010 and 2025, according to U.S. Department of Labor projections, approximately four million Boomers are expected to retire per year in the country as a whole. By 2015, according to the same projections, the number of new workers aged 21 to 25 entering the workplace each year will be 3.6 million. When offset against the number of Boomers retiring, there will be a shortage of 400,000 workers in the workforce each year from 2012 to 2018.
CEL & Associates Inc. estimates that by 2015, the real estate industry could be faced with a potential shortage of 15,000 to 25,000 qualified workers per year. When demand is greater than the supply, the resulting effect is likely to be wage inflation. If labor costs are 65 percent to 70 percent of a company’s expenses, and wages, benefits and healthcare costs rise in excess of the rate of inflation (a very strong likelihood), then real estate companies will need to dramatically increase fees charged to clients or investors, downsize or restructure their staffing models to achieve desired profit margins, or both.
Commitment to Excellence
Over the next three to five years, these trends mean compensation, staffing and the entire human resources function are likely to become as big of an issue as access to capital. Without talent, a real estate firm cannot survive. Without meaningful compensation, talent will not stay. Without a perception that tomorrow will be better than today, employees increasingly will seek greener pastures.
When the challenges of recruiting, hiring, training, motivating, rewarding and recognizing outstanding talent begin to surface as among the top priorities for real estate organizations, the elevation of the human resources function will be essential. In times of struggle, transition, challenge and transformation, how and when workforce issues are resolved can mean the difference between making and losing money.
This potential crisis can be avoided if and when a real estate organization undertakes and embraces the following solutions:
• Hire and retain only those who embrace and believe in the vision, value proposition, goals and priorities of the company. It is a great deal easier working with those who have embraced corporate dogma than those with one foot out the door.
• Step back and take an independent look at your annual and long-term incentive program. Is it market competitive? Does it properly reward exceptional performance? Does it motivate and retain talent? Is it attractive to potential new hires?
• Modify your hiring practices so employee turnover can be reduced. Consider adopting core competency hiring practices.
• Upgrade and expand your training and leadership development programs.
• Enhance the frequency and quality of employee communications.
• Implement actions that enable employees to be participants rather than observers of organization strategies and initiatives.
• Create and deploy a robust leadership development program.
• Take an independent look at your organizational structure, reporting relationships and staffing plan. Utilize external staffing metrics to validate your service delivery platform.
• Revisit and enhance your employee recognition programs.
• Open a dialogue between employees and management. Reinforce the “one team” concept.
• Prepare detailed succession plans for all mission-critical positions.
Remember, nothing happens in the real estate industry without talent. Those real estate organizations that are able to attract, motivate, retain and reward the best of the best will emerge as the future leaders of the apartment industry. Those who address—today—the looming challenge of a future talent shortage will outperform their competitors. It is not a question of who has the best site or best building. It will be who has the best talent. Is your firm up to the challenge and opportunity?
Christopher Lee is President and CEO of CEL & Associates Inc., Los Angeles. He can be reached at chris@celassociates.com.
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Prioritize Talent to Recapture Young Professionals’ Interest
Real estate firms during the 1980s actively recruited and were welcomed at Stanford, Harvard and many other outstanding colleges and universities. Over the last two decades, the real estate industry lost some of its cachet. The industry needs to recapture the career interests of young professionals. Companies must replace outdated titles (such as Property Manager) with titles reflecting the true nature of the responsibilities. They must restructure compensation plans to align the interests of all stakeholders and to utilize the proper metrics of performance.
They need to elevate talent to the same priority as capital.
These are some of the trends that will reflect the changing needs for new talent in the year ahead. –C.L.