Industry Insights

It may be tempting to leave a vacancy unfilled in order to save money, but there are hidden job vacancy costs that will hurt you in the long run. Many of these hidden costs are substantial in and of themselves, but taken cumulatively, they could be catastrophic.

If you’re looking to calculate the cost of your vacant position or weigh the pros and cons of leaving a CRE position vacant, read on. Don’t run the risk of losing money you can’t reclaim.

A vacant position means payroll savings, right?

When someone in your organization moves on and leaves a vacancy, it might be tempting to leave it unfilled. After all, you have other people in their department who could share these responsibilities. Or perhaps you want to fill the position, b

ut now just isn’t a good time. At least you are saving on payrolls costs at present, right?

But as HR and hiring guru Dr. John Sullivan wrote about, the laser-focus on cost containment can create a blind spot for job vacancy costs that are only noticeable in the long term. This is especially true in sectors like CRE, because the emphasis is so often on cutting overhead. Yet overlooking these costs will inevitably cost your business far more than the payroll savings.

Typically, these job vacancy costs are overlooked because they are indirect, yet more expensive than you think. Trickling down, the liabilities of losing an employee or team member spread throughout your organization in surprisingly detrimental ways. This is why employee retention is so vital – especially in a competitive market.

6 Overlooked Job Vacancy Costs

These job vacancy costs fall primarily into six, specific categories. Each open, unfilled position will usually cost you in most or all six of these areas:

1. Revenue Costs

The most obvious job vacancy costs are of course related to the lost revenue from a position no longer being filled. Depending on the position, there may be associated costs from decreased response time, less innovation, underutilized assets, and inferior productivity that comes from others unfamiliar with the task filling in for the missing team member. A manager-level employee typically generates revenue equal to three to five times the amount of their salary. Leaving a position unfilled that paid only $50,000 annually could cost you $250,000 each year just in lost revenue.

2. Management Costs

Leaving a hole unplugged on a team means more stress and less productivity for team managers:

• Managers spend less time managing and more time filling in on less valuable duties.
• There is higher job dissatisfaction and turnover in management.
• A multiplier effect often results in less productivity teamwide.

3. Personnel Costs

Other personnel receive mixed signals when a position is left vacant. As a result:

• There are more sick days and tardiness.
• Employees spend more time trying to learn skills related to the vacant position and do not excel at their own.
• Quality of work decreases.
• There is reduced creativity and innovation.
• Frustration and turnover increase.

4. Customer Costs

Often, job vacancy costs surprisingly come in the form of a degraded customer experience. There may be less focus on the clients and customers. In turn, the reputation of your organization suffers. Long-term loss of market share is a common side effect of unfilled positions.

5. Competitive Advantage Costs

Eventually, if left unfilled, open positions communicate to analysts, potential clients, and potential employees that your firm is overvalued, vulnerable, or uncompetitive:

• Corporate culture and morale suffer.
• Partnership opportunities are lost.
• Resources and assets can be overlooked and underused.

6. Team Costs

Job vacancy costs can mean a whole host of disruptions and liabilities at the team level. These equate to silent revenue drains that compound in the long run:

• Team cohesion is undermined.
• Underperforming team members are often retained or even given additional responsibilities.
• The organization loses the ideas and skills provided by the unreplaced team member.
• Teams hampered by vacancies often miss incentives and are less engaged and motivated as a result.

If you’re trying to choose a CRE investing career path, and don’t know which one suits you, read on. If you want a career on the investment side of commercial real estate, this is for you. Understanding the advantages and disadvantages of each investment career and how suited you are to each path is crucial to your success.

We will discuss three primary career fields, break down the financial rewards and risks, and discuss key skills and considerations.

Choosing a CRE Investing Career Path

Maybe you’ve been considering a career in investment banking. Or perhaps you wouldn’t mind having a building or two with your name on the front. Or perhaps you are excited about working with capital and assets. Whatever brought you to commercial real estate (CRE) investing, knowing the path to choose can be confusing when you’re starting out.

The most common CRE investing career paths to choose from are in brokerage, lending, and on the principal side. Some have more risk than others, but also greater earning potential. And each requires different skills sets and work-style personalities to succeed. Let’s break down each to discover which CRE investing career path suits you best.

Brokerage

Working in brokerage is an open road to great money without a degree from a fancy school or a perfect GPA – as long as you know how to hustle and network. It allows you to work directly with assets and investors, generate significant cashflow, and eventually work for yourself making your own hours and schedule. Essentially, CRE brokers do what investment bankers do, but for properties rather than companies.

• Personality Brokerage is a great CRE investing career path for those who desire autonomy and have the persistence and outgoing personality to make it work. Brokers can work on deals for years at a time before seeing results, so persistence is essential. You will most likely be out and about rather than behind a desk most of the time.
• Compensation The sky is the limit when it comes to how much a CRE broker earns. If you’re are dedicated to the business and create and maintain a solid network of relationships and leads, you can make millions in a good year. Bare in mind though that most of these roles are solely commission-based, so your compensation is directly tied to your performance and ability to bring in and close deals.
• Key Skills Brokers in CRE investing must be good at sales. Brokerage positions rely heavily on the ability to work with people and move deals. Also, whether you work as an analyst or associate or have someone filling those roles for you, you must understand basic financial modeling and deal analysis.

Lending

Lenders are fiduciaries to their companies or capital providers. This path provides a great back-door route to the finance industry with or without a degree from a target school.

• Personality This CRE investment career path suits people who are rational decision makers with a lower risk tolerance. Successful CRE professionals in lending also enjoy building relationships with mortgage brokers, principals, and developers or other borrowers.

• Compensation Income is rather stable in both up and down times and is largely composed of a set base with some upside.

• Key Skills A lending career in CRE typically begins as an analyst or associate, so the ability to run financial models and perform deal analysis are critical skills for this role. Additionally, good people skills and the ability to build vibrant networks are indispensable to success in lending.

Principal

This is the CRE investing career path for you if you are interested in the ownership side of the industry. The principal is the firm or individual that puts up the capital to pay for the investment property. Working in this career path means you are the ultimate decision maker on moving forward with investing in deals, but it will require additional education and the ability to manage and evaluate investments.

• Personality A principal, or individual working for the principal, must have strong persistence, as deals often take years to finalize. Relationship-focused people thrive, as this role involves matchmaking. Additionally, it helps to have a flare for negotiating, because this role requires hands-on involvement in deal making and negotiation. An analytical and strategic mind separate the successful investors from the rest as coming up with creative business plans/deal structures to align with company goals is the key to a profitable investment.
• Compensation This CRE investing career path combines the best of both worlds, so to speak. There is typically a strong base salary as well as commissions and large bonuses, depending on your role on the principal side. The ceiling is even higher when you work for yourself rather than a firm.
• Key Skills This role requires the ability to physically inspect and assess properties. Financial modeling/analysis is of course necessary to ensure profitable deals. And perhaps most importantly, it requires strong networking and capital-raising skills. The ability to raise investment funds and network with high-net-worth individuals is of the essence in this career path.

Sources:

• https://www.buildingrecareers.com/single-post/2017/04/17/Everyone-an-Entrepreneur-Taking-a-risk-and-making-the-climb-to-reach-my-dream-career
• https://www.buildingrecareers.com/single-post/2019/07/22/What-is-the-ideal-work-style-for-your-personality
• https://www.mergersandinquisitions.com/commercial-real-estate-brokerage/
• https://www.mergersandinquisitions.com/commercial-real-estate-lending/
• https://www.buildingrecareers.com/single-post/2018/07/18/What-do-I-do-After-Graduation-The-Power-of-Networking
• https://www.commercialcafe.com/blog/tag/cre-term-principal/
• https://www.youtube.com/watch?v=iEb6E7FXk9w