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BOSTON-Coming off the heady real estate markets of recent years, it has been astounding how quickly the credit crunch has changed the real estate recruiting landscape. Shrinking talent pools and a dearth of experience has placed firms in a difficult, but not untenable, position. There remain talented professionals able to guide the industry through recessionary periods. Finding these individuals is a difficult task, but a necessary one for firms committed to surviving and excelling in today’s market.

A Bifurcated Market The real estate industry has bifurcated into two types of firms: those that overpaid for assets in the last 36 months and those that have not. For firms that avoided the over-priced assets, many are well-capitalized–there’s an estimated $300 billion of real estate private equity capital sitting on the sidelines–and ready to take advantage of market conditions. The general consensus is that once the market begins to firm, there will be some “vintage years” ahead for those firms that avoided the temptation of investing at the height of the boom.

From a recruiting perspective, these capital-rich firms are looking to conservatively build and grow their organizations by making selective hires, fearing the coming tumultuous years triggered by the current market drop. Primarily, clients have been looking for fill-in acquisitions talent with specific markets knowledge and asset managers who can squeeze value out of existing portfolio properties. This trend toward asset managers is especially true if a fund is staffed by “deal folks” who have never seen a market like this before.

While it would appear that the talent pool for in-demand professionals is significant, the reality of the situation is quite different. Within the marketplace, firms that have cautiously avoided overpriced assets are wary of individuals from organizations that in their opinion, made irresponsible decisions over the last few years. This apprehension has reduced the quantity of qualified professionals and made transition difficult for individuals at cash-strapped firms.

Workout Specialists, A Lost Generation:<The other area where the need for talent is acute is in the real estate workout market. Institutions are beginning to realize that there is a “lost generation” of workout specialists. Few professionals who entered the workforce after 1995 have had to workout real estate assets. Banks, insurance companies and other institutions have relied heavily on lending officers to attempt to restructure loans or otherwise work out troubled assets in the current market. These individuals, however, often have not had to negotiate with a borrower, taken a deed in lieu of foreclosure, foreclosed on a property or gone through a borrower bankruptcy. These “30 some-things” are superb salespeople, but too often they are not credit risk experts. As a result, many are woefully underprepared for the complexity and intensity of the necessary restructurings.

In today’s market, the deals facing lending officers are going to be especially complicated. Those who went through the major downturn in the late 80s and early 90s remember how hard it was to negotiate loan syndication workouts at that time. Today, CMBS structures not only have many traunches of ownership, but disparate geographic ownership. And the covenants surrounding these deals will be more difficult to workout than a typical owner/borrower transaction.

Faced with the added complexities brought on by modern finance, many institutions are being forced to seek sage workout specialist who gained their experience in the last major market downturn. Unfortunately, many of these specialists have moved on to other areas of the real estate business or have retired.

So, firms are faced with the looming question: How do you find the needed professionals in a dwindling talent pool? The answer lies in one’s natural network of connections.

There are no trade associations keeping track of the workout specialists of the late 80s and 90s, and the years of stability caused many talented professionals to leave the industry. Finding these professionals falls, therefore, on the personal relationships individuals built during the last market downturn. If you weren’t around for the last downturn, find someone who was and use their connections.

Yet, reconnecting with these specialists is only the first step. They must be convinced to return to the industry. As with most world-class talent, the key is compensation. Experience is expensive, but while less experienced professionals are cheaper, the ability to effectively work out deals is well worth the investment.

This isn’t a one-way street, though. Like the specialists who cut their teeth in the 80s and 90s, the younger generation of industry professionals needs to be developed to avoid this type of talent pinch in the future. To that end, workout specialists who are brought back should be used as mentors to train less experienced professionals. Collaboration is essential to long-term viability of the talent pool.

Clearly the real estate market is undergoing a massive realignment. While the readjustment to the economic realities of today has resulted in a contraction of the industry, there remains a tremendous need for experienced talent to lead firms through the downturn. The leaders are there. Now we must go out and find them.

The opinions of this article are the author’s own.

Alexander G. Thomson is a managing director and co-head of the Real Estate Practice, Americas for Russell Reynolds Associates. He was previously a real estate workout professional and is based in Boston.

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