Numerous studies have shown how diversity brings better returns and increased governance, but we have never seen a huge push to increase diverse talent within the real estate industry – until now.
In our recent survey on this topic, we found that 38 percent of total respondents across the real estate industry indicated that they are experiencing outside pressure over diversity. Among real estate private equity firms and real estate investment managers, the pressure was significantly higher, at 75 percent and 58 percent, respectively.
While this could mean the industry has seen the light, thanks should likely go to the institutional investor and the pension consulting communities. Look no further than the 2017 CalPERS & CalSTRS Diversity Forum, which the two largest US pension plans – among the biggest global real estate investors – hosted last month. The conference brought together investment and corporate executives to discuss diversity-related initiatives and best practices.
With the spotlight on capital invested from the public purse,
there is nowhere to hide for managers that wish to continue working with this source of capital. This problem cannot be solved overnight, but investors want to see managers evaluate their situation, create an action plan and implement change. The diversity topic is certainly one that seems to be front and center in US agendas today, and we are starting to see it filter overseas to Europe and Asia – hardly surprising with the global flow of capital in the sector.
So how does a manager tackle the diversification problem? The answer is threefold. First, identify and retain existing diverse talent within your group. This might require internal sponsorship, external mentoring and coaching initiatives. Be open to moving talent around the firm to create growth opportunities and provide further training across functions.
Second, ensure external recruitment efforts have an unbiased strategy and result in a diverse shortlist of potential candidates. Obviously this is easier for some functions, such as portfolio management, asset management and capital formation, than others, like acquisitions. For the tougher functions, get creative. Are there internal diverse candidates that can get up to speed? Can you place more junior diverse talent into these functions so the problem can be eliminated with time? Can you be more open-minded? Can you transition people from the advisory side to become principals?
Third, make strategic hires of best-in-class diverse talent with the goal of moving them into leadership roles over time. Our leadership consulting group has seen on-boarding coaching be particularly effective in supporting the short-term integration and long-term success of diverse candidates. Interestingly, with so much succession planning happening across the industry, it is a great time to establish or re-evaluate diversity efforts. And remember, diversity hires need not only happen in full-time roles. Adding diversity to boards and strategic senior advisor positions are all impactful strategies.
The question now becomes, where can you start? A number of larger investment management firms have created internal working groups to focus on training, mentoring and events. If this approach is not an option, connect with existing diversity networks in the industry such as the Women’s Leadership Initiative and the Commercial Real Estate Women Network. If you hire recent graduates, plan to reach out to a broader network of schools to increase the likelihood of finding a diverse slate of potential employees. Additionally, a number of the diversity networks run programs each year. Senior leadership should get involved as mentors and ensure that potential mentees from their firms sign up and actively participate.
Change is coming, and although this change might have resulted from outside pressure, most private equity real estate firms and investment managers are starting to embrace diversity initiatives. As investors have put the pressure on managers to add diversity to the ranks, managers should do the same and insist their operating platforms and service providers – brokers, lenders, and advisors – join the program or risk losing business.
Diversity change in the real estate industry has moved at a rather slow pace over the past decade, but given the current push within the industry to address it, expect momentum to pick up significantly in the coming years.