Alternative to Starting A Shop
Has anyone worked for a developer and eventually internally JV’d a new vertical or left and pitched a new division to another firm? Seems like a potential way to share risk while providing tons of monetary value and the firm providing guarantee backing and pursuit costs.
For example the firm focuses generally on market rate development, but you have 8+ years of value add multifamily acquisition experience and you work on a structure where you get a small salary and collect 50% of fees and 50% of the promote. Has anyone does this and what has it looked like?
Happens all the time; however, I wouldn't bank on 50% promote / 50% fees seeing as how the company, not you, is the primary financial backer. Conceptually you're in the ball park, economically a bit of a reach.
What are the economics generally or whats been your experience? I was stretching with 50-50. I could see 10% fees/10-20% promote.
Feels about right - could push it to 15 / 15.
An alternative to starting your own shop, as in development shop or acquisitions shop, is to become a CFO-like role of an asset intensive start up.
Your real estate experience and skillset becomes valuable. Your financial modeling, company structuring background, capital raising, pipeline creation, location analysis / market analysis, all of it is very transferable. Even your experience working in a bootstrapping, low liquidity environment with a bunch of misfits and uncertainty - all very transferable. In fact you have the mental flexibility, long term thinking, and vision to excel.
I do recommend you learn accounting. That is the most basic value add you can provide from Day 1 - doing the accounting yourself and then overseeing a finance team. That in itself pays for your meager salary at the start up.
You all think too much in a box.
I’ll let you in on a little secret. The fastest way to expand right now is not development, not acquisitions, it is leases. Right now is a solid time to be signing long term master leases if you have a growing business that has product market fit.
For example, I’m bullish on full body MRI scanning centers (big in Asia, why not the US?). There’s been a few start ups since 2018. A CFO type person on the founding team who can run a finance department, manage company growth pipeline, negotiate great leases, envision and communicate the growth story and systems, create clinics that are inviting and a great experience, reduce risks, manage insurance coverage, etc.
You have the upside of a company that can grow and grow (reminds me of the PE vs REPE debate - why not have both!). You can utilize your skills and have skillset leverage (get a bigger piece of equity). You can get away from the “box” thinking, nepotism, herd mentality, hostage to the macro environment, that plagues traditional CRE. You can participate in brand building, and diverse structures and situations. You can go international. You don’t have to take personal guarantees.
The alternative to starting your own shop, is thinking of your real estate as a skillset, not a career. And to become professionals in “asset intensive” industries (GI Partners as the LP does that with data centers, they even acquired a chain of British Pubs before COVID). And then work with experts on a team, and “go beyond real estate.”
One reason why I love real estate and why this experience sets you up for multiple options is your ability to create. Few finance career tracks leads to the creation of a real world product, service and experience.
There are a world of opportunities than “buying an apartment.” Learn accounting. A MBA can also be helpful.
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