Combatting the Age Gap. Strategies for addressing the REIM industry s changing demographics

Transcription

1 Combatting the Age Gap Strategies for addressing the REIM industry s changing demographics NAREIM/FPL Pulse Series Second Quarter, 2013

2 The Age Gap Age demographics in the United States are undergoing a fundamental shift. Baby boomers, defined as those born between 1946 and 1964, today represent nearly a quarter of the U.S. population. This group is aging, and reaching retirement age in ever increasing numbers. According to the U.S. Census Bureau, from 2015 to 2030, the population aged 65 and over is expected to increase by 53 percent compared to just a 3 percent increase for the demographic. The implications of this shift are innumerable, and companies throughout the country are grappling with a changing workforce demographic, and an ever-increasing focus on how to appropriately plan for this impending change. The effect of the baby boomer retirement wave is even more pronounced within the commercial real estate industry. Not only are the visionary founders of many of today s prominent and successful companies approaching retirement age, but there is a clear gap between these professionals and the next generation of leaders. The industry s workforce today largely consists of two demographics: professionals in their 20s and early 30s at one end of the spectrum and those 50+ at the other. By contrast, senior professionals in their late 30s and 40s are largely underrepresented due to industry dynamics that led many away from commercial real estate in the s. This combination a national population that is reaching retirement age in ever increasing numbers and the REIM/PERE-specific anomaly of an undersized next generation tier - creates a distinct challenge for human capital planning. This quarter s Pulse survey asked industry leaders to consider the impact of this age gap and share their strategies for addressing this challenging phenomenon. High-level findings Survey results confirm the existence of an age gap within real estate investment management firms today 75% of respondents indicated a gap between their firm s senior management group and the next tier of future leaders. This gap is most evident within the executive leadership tier, followed by the core real estate functions (e.g. acquisitions, asset management, development, and portfolio management). Perhaps it is not surprising that corporate functions such as accounting, human resources, technology, and legal do not exhibit an age gap to a large degree, as these functions tend to be less weighted towards senior professionals in general. Additionally, corporate employees tend to be more transferable across industries, and therefore a larger candidate pool exists than for specialized real estate functions. Exhibit 1: Does an age gap exist between your senior management group and the next tier of leaders? 72% Executive Mgmt. 44% No 25% Transactions 39% 39% 39% Asset Mgmt. Yes 75% Exhibit 2: In which functional areas is the age gap most evident? Development Portfolio Mgmt. 1

3 High-level findings (cont d) While the majority of firms acknowledge the existence of an age gap, only moderate levels of concern were reported in aggregate (the average level of concern was reported as slightly above a 3 on a scale of 1-5, where 5 was a great deal of concern and 1 was no concern). This muted concern may be partially due to the fact that more than 70% of companies who reported an age gap also reported that they had taken proactive steps to address the impending organizational change. Furthermore, among those who indicated there was not an age gap evident within their organization, two-thirds reported that they have avoided the issue because they have already proactively addressed the risk. The key question then, is how are REIMs addressing the risks inherent in the age gap? At the most fundamental level, there are three primary strategies for addressing this challenge: Developing and promoting younger employees more quickly than usual Retaining and leveraging older employees Recruiting new employees to fill the gap Development of younger employees Development of our more junior team members began 5-7 years ago, with an eye towards creating talent ladders within our organization. Placing an emphasis on the development of younger employees was the most common strategy reported for combatting the age gap (cited by 67% of respondents). It stands to reason that if your senior leadership tier is nearing retirement, it is critically important to groom the next generation to fill the void. For that reason, many firms have made the proactive development, and accelerated advancement, of younger employees a priority. In general, we do not hire experienced (5-10 years) employees. We have had better success (at a lower cost) hiring people with less experience where we can have a greater influence on developing their technical, investment, and social skills. Development activities come in a variety of forms, meant to target different areas and cultivate distinct skill sets. Though wide-ranging, development activities can generally be grouped into four categories: On the job training/experience Rotational programs Committee participation Task force/special project participation Increased responsibility/visibility within one s function Learning from others Mentorship/coaching programs 360 degree feedback Job shadowing Greater external exposure Industry organization participation Public speaking engagements Panel participation Increased interaction with investors Formal training/education Executive or graduate level coursework Presentation/public speaking training Seminars/conferences 2

4 Development of younger employees (cont d) On-the-job training (and rotational programs in particular) was the most commonly cited development activity among survey participants. As one respondent reported, We utilize rotational training through our various disciplines and accelerate the advancement of our younger employees relative to past practice. Exposing next generation talent to cross-functional responsibilities is an important precursor to broader enterprise responsibility. Furthermore, these types of programs expose next tier talent to a firm s senior leadership group, giving these younger employees the opportunity to learn from senior leadership s experience and tenure. Retention and leverage of mature employees Another strategy for combatting the age gap is to retain your more mature employees longer, and to make better use of their expertise while they re engaged. Twenty-eight percent of participants reported making a concerted effort to retain senior -level resources beyond the typical retirement age. And there is reason to believe such efforts can be successful. People are living longer, and staying healthy and active far beyond what was historically the case. This longevity has a tangible impact on baby boomers retirement plans - according to a 2012 survey by AARP, two-thirds of baby boomers expect to delay retirement beyond the traditional retirement age. That said, this strategy is more of a temporary fix than a long-term solution. We are leveraging our more senior staff by giving them direct reports and more managerial responsibility. Perhaps the most common method of encouraging retention among older employees is through financial incentives, particularly those that are long-term in nature. Many firms cited use of long-term incentive programs that vest over a multi-year period as the means by which they retain mature employees. But such programs must be approached thoughtfully. Though long-term in nature, a program cannot be so drawn out that the employee does not view the timeframe as realistic. In other words, a 65 year old executive may not view a program with a 7 year vesting favorably given his/her retirement horizon; instead, a shorter vesting period may more appropriately incentivize retention. Such nuances must be identified and accounted for. While financial incentives are certainly one method by which retention can be encouraged, companies throughout the country and across industries are implementing creative non-financial programs to facilitate the retention of mature employees. Such initiatives include (but are not limited to): Flexible work schedules Many firms are allowing mature employees flexibility in setting work schedules that are conducive to their needs. This may mean flextime, where workers are able to set their own daily hours (i.e. working from 6 am to 3 pm instead of 8 am to 5 pm), or compressed work weeks (i.e. an employee may work four 10-hour days per week, rather than five 8-hour days). Some firms have even implemented snowbird programs that allow employees to work one part of the year in one locale, and the other in a second location. This type of program is meant to accommodate employees who spend the winter months in warmer climates, and the summer months in cooler climates. 3

5 Retention and leverage of mature employees (cont d) Working remotely Providing geographic flexibility is another benefit that can help retain more mature employees. Teleworking is increasingly common in the U.S. as technology makes physical proximity to one s workplace less of a necessity. Allowing employees to work remotely eliminates costly, time-consuming commutes, and provides mature employees with the option of continuing to work without the limitations of being proximate to an office. Transitioning to a new or modified role Some firms are allowing mature employees to design a new role for themselves (with approval by the firm) that allows the company to keep the employee s expertise within the organization, but requires less time, causes less stress, or both. Other firms are allowing senior employees to take a consultant -type role within the organization. This type of transition allows the employee to take a step back from day-to-day responsibilities, while still ensuring that his/her expertise and experience is available to the firm as needed. Another method of retaining employees is to implement a job sharing program, whereby two individuals can share the responsibilities of one role. This allows each individual to dedicate less time and energy to firm activities, while keeping both engaged. At its core, each of these programs is ultimately about flexibility. Companies recognize that tailoring working arrangements to meet the needs of mature employees is a key to preserving their valuable expertise as a continued resource to the firm, and are implementing programs to provide a mechanism for such flexibility. Not only are firms working to retain their more mature employees, but they are also looking for ways to better leverage these employees expertise. One strategy for leveraging the value of senior employees is to decrease direct responsibility for completing day-to-day tasks, and instead have these individuals oversee a team of younger employees charged with the same responsibilities. This approach has a dual benefit: junior employees have the opportunity to work with, and learn from, a seasoned professional, while the senior employee has less direct responsibility for day-to-day minutiae and instead serves in an oversight capacity. Other firms are keeping mature employees engaged as independent contractors, calling upon their expertise only as needed. This arrangement allows the firm to leverage the individual s experience and knowledge, while providing the employee with additional freedom and flexibility. Some companies are taking this concept a step further and creating formal intellectual knowledge databases that track employees areas of expertise to serve as a resource to other members of the firm. When a new project arises, the database can be searched for individuals with the requisite knowledge to assist on the project. The expertise of seasoned employees can then be called upon as needed, but they are not obligated to commit to a traditional work week. Recruiting new employees Lastly, some firms are turning to new hires to fill the void left by departing senior professionals. Twentytwo percent of respondents reported undertaking such an initiative, though many noted this is a secondary approach to organic development. Recruiting new talent is the second option if we cannot find the right people internally, or if the talent is here but will not be ready to step up in a reasonable amount of time. 4

6 Recruiting new employees (cont d) We are hiring more experienced people to fill the gaps. Recruiting new employees to address the age gap is complicated by all the normal obstacles associated with any new hire (e.g. finding an appropriate cultural fit, dealing with the unknowns of a new hire, etc.), but can be particularly difficult in the context of filling the age gap. Because the age gap is an industry (and economy) wide issue, many firms are in need of experienced, next-generation talent, meaning demand for seasoned professionals over the coming years will be at a prime. Identifying ways to effectively differentiate your firm from all the others competing for this limited talent pool will be an important human capital challenge for many companies over the coming years. Conclusion The age gap will continue to be a critical facet of human capital planning for REIMs over the foreseeable future, but by employing a proactive, thoughtful approach, firms can successfully bridge the gap. So what are the key drivers of attracting seasoned, next generation hires to your firm? Research suggests that Generation Xers (generally defined as those born between 1965 and 1980) are driven by very different motives than their baby boomer counterparts. Gen Xers tend to highly value work/ life balance and, as a group, more closely adhere to a work to live mentality than the live to work mentality of the boomers. These individuals, many of whom saw parents and grandparents laid-off from companies after long tenures, tend to be less loyal to companies as a rule and more concerned with proactively managing their own career. They are also less willing to delay gratification when it comes to their career, and generally don t buy into the concept of paying your dues simply for the sake of doing so. In order to effectively recruit Gen Xers, employers will need to tailor their approach to address the unique characteristics of this generation. 5

7 Index This quarter s index value was 63, indicating that most executives feel current real estate investment management conditions are improved from the previous quarter. This value reflects a slight decline from Q1. How do current Real Estate Investment Management industry conditions compare to the prior quarter? Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q About the Index: The index is calculated as follows: a point value is assigned to each response, worse (0), about the same (1/2) and better (1) then dividing the total number of points by the number of respondents. Therefore, an index of 50 indicates the overall sentiment is about the same as the prior quarter; similarly, any value over 50 indicates a better environment and under 50 indicates a worse environment. 6

8 Methodology In early June 2013, NAREIM and FPL Consulting sent out a survey questionnaire for the purpose of gathering investment managers perspectives on the age gap. The survey consisted of a handful of questions, including our recurring market conditions question included with each survey. Participants vary in size, strategy, and location and represent a cross-section of real estate investment managers (see Survey respondent list for a representative group of participants). FPL gathered, clarified and analyzed responses to the survey and conducted independent research to develop this summary report. Due to company policies and/or unique aspects of their operations, not every participating company was able to provide information for every survey question. In cases where certain participants did not respond to a particular question, they were excluded from the reported statistics related to that question. Survey participants represented the following companies (please note that not all participants chose to be listed): AEW Capital Management, L.P. Almanac Realty American Real Estate Partners Bentall Kennedy Berkshire Property Advisors The Brookdale Group, LLC Centerline Capital Group Clarion Partners Cornerstone Real Estate Advisers LLC Eagle Realty Group IDI - Industrial Developments International IDS Real Estate Group INVESCO Real Estate Kimco Realty Corporation LaSalle Investment Management Newport Venture Capital Northwestern Mutual Life Insurance Company Prudential Real Estate Investors UBS Realty Investors LLC We extend our sincere appreciation to all participating organizations for providing valuable information. Contact Please direct all inquiries regarding this study to: Gunnar Branson Chief Executive Officer NAREIM 410 N. Michigan Ave. Suite N 30 Chicago, IL Phone: (312) gbranson@nareim.org Timothy Kessler Principal FPL Consulting 191 North Wacker Drive, Suite 2850 Chicago, IL Phone: (312) tkessler@fplassociates.com 2013 FPL Consulting, a division of FPL Associates L.P. All rights reserved. No business or professional relationship is created in connection with any provision of the content of this document (the Content ). The Content is provided exclusively with the understanding that FPL Associates L.P. is not engaged in rendering professional advice or services to you including, without limitation, tax, accounting, or legal advice. Nothing in the Content should be used in or construed as an offer to sell or solicitation of an offer to buy securities or other financial instruments or any advice or recommendation with respect to any securities or financial instruments. Any alteration, modification, reproduction, redistribution, retransmission, redisplay or other use of any portion of the Content constitutes an infringement of our intellectual property and other proprietary rights. The views and opinions expressed by each participants are such individual s own views and are not necessarily the views of FPL Associates L.P. or such participant s employer. 7