And while most REITs do not qualify as taxable entities, sometimes they do. Consider what happened when Affordable Residential Communities decided to sell 40 of its properties last year. As a REIT, ARC could sell no more than 7 properties without incurring 100 percent taxation on gains. Therefore, it had to change its status from a REIT to an operating company — exposing it to Financial Accounting Standard 109′s complicated income-tax disclosure requirements, and requiring then-CFO Kreider and his staff to take a refresher course in tax-accounting rules.
Breaking In Brokers
Internally, real estate CFOs deal with a distinct set of stakeholders. The industry is so deal-driven, says Staubach’s Leiser, that “as CFO, you have to have a marketing and sales mentality.” At the same time, however, “you have to understand what the salespeople are trying to accomplish in order to arm them with financial knowledge to get the deal done,” he explains.
The task of assembling an optimal sales force often falls to the real estate CFO, so much so that Al Petrillo, CFO of commercial real estate firm Studley, has even developed a mathematical model to evaluate senior-level potential brokers. “When evaluating a broker’s potential future value, you must consider his standing in a particular market, what clients he’s worked with in the past, what deals he’s done, his personality, his reputation, whether he works with a team of professionals or by himself, and so forth,” says Petrillo. While he is mum on the specifics, Petrillo says that since the model was implemented in 2003, “Studley’s management team has had a greater than 90 percent success rate in recruiting brokers able to meet their targeted goals.”
Even though brokers do most of the deal legwork, some CFOs have the final say on transactions. When it comes to evaluating a deal at Cedar, for example, Kreider must decide whether it is feasible depending on its liquidity and financing. Others, like Leiser, get involved when the company is buying out a partner or acquiring one.
Newbies Need Not Apply
The complexity of the industry makes it tough to break into, says Williams. “Seldom are real estate companies willing to look at a candidate with no prior experience,” he says. More often, new CFOs come from banking, where they have dealt with real estate firms; from an accounting firm where they serviced real estate clients; or from another real estate sector.
One possible exception, however, is the growing commercial real estate sector. In the first four months of 2007, that sector posted a record $157 billion invested, up from $97 billion in the same period in 2006, according to the National Association of Realtors. “As demand for talent increases, employers will be forced to look outside the industry for CFOs whose experience and core skills are transferable,” says Ajilon Finance’s Marx.
It’s an exciting industry, says Petrillo. “You’re not making widgets; instead, you’re molding ideas, making deals, and you definitely have a seat at the table.”
Laura DeMars is a reporter at CFO.