Real estate investment trusts (REITs) are paying higher salaries to workers compared to traditional finance industry sectors such as banks and insurance companies according to a recent analysis by the Wall Street Journal (WSJ) of annual pay disclosures by U.S. firms.
The WSJ found that REITs and property companies such as Host Hotels & Resorts Inc. and HCP Inc. paid their employees a higher median income compared to some of the largest banks in the U.S.
The analysis revealed that median worker pay at Host Hotels & Resorts, a REIT which invests in upscale hotels was $183,956- the highest of any company and HCP a health-care REIT reported a median pay of $156,921 the third highest across all industries.
When comparing the median salaries of the top two highest paying REITs with those of the top two banking institutions – the median salary at these REITs was nearly 20% higher than banking giants Morgan Stanley and Goldman Sach Group Inc. which reported a median pay for workers at $142,604 and $136,513.
The WSJ reviewed more than 1,300 companies in the financial, real estate and insurance sectors including REITs, insurance, capital markets and consumer finance firms.
According to the WSJ, part of the reason why higher salaries were reported by REITs is because they generally outsource more lower-paying jobs which don’t show up on their payrolls while large banks that directly employ more tellers and lower-wage workers have to report these lower incomes in their filings.
JPMorgan Chase & Co., the largest bank in the U.S., paid a median of $78,923, the report found. Of the six largest U.S. banks, Citigroup Inc. had the lowest median pay at $49,766, about $10,000 less than the Midwest regional bank U.S. Bancorp. Wells Fargo & Co. posted median pay of $65,191.
According to data found on Payscale an online site which provides average salary compensation by industry, the average salary in the REIT industry is $72,000 nearly 12% higher compared to the banking sector which pays an average of $64,000.
While higher median salaries in the real estate sector may partially be caused by leaner operations and outsourcing by REITs, the salary boost in the sector may also be because REITs are recruiting some of the best available talent in the industry today. Typically REITs recruit candidates with strong backgrounds in real estate and tax law who are equipped with years of industry experience and these candidates demand higher wages.
Growth in asset values and historically lower borrowing costs may also be improving salaries in the sector. And the onward positive momentum in the share prices of REITs may help to sustain higher salaries as the relationship between REIT returns and interest rates turns positive again.
According to NAREIT, REIT share prices have tended to decline when interest rates rise causing the REITs to underperform compared to the S&P 500. Between 2004 through 2006, when the Federal Reserve was steadily raising its target for short-term interest rates, REIT share prices responded negatively.
But now with the Federal Reserve’s target for short-term interest rates to remain around current levels, it’s likely to create positive momentum resulting in higher share prices for REIT investors and better salaries in the sector overall.