REIT vs. Private REPE

I wrote this a while back on this similar topic

odog808:

I’ll take a shot because I have experience with both public REIT and REPE, business grad school, etc.

Public REIT things you prob already know but big picture and generally speaking:

• you’ll see more lifers in REIT generally. It can be a great lifestyle, great somewhat nurturing and accommodating environment as you are eluding to. There can be options to rotate into other departments.

• REIT departments tend to be silo’ed so you might be stuck in say research or Construction when you want to go to acquisitions or development. Still that is most work environments in CRE, but the stability of a REIT and lifer nature could open doors internally simply because you are ambitious.

• underwriting for REIT deals tend to be more property level and less so waterfall, unless there are SPE or VIE (special purpose entities, variable interest entities) and third party JV partners. Many REIT CFO’s take Wall Street analysts too seriously and attempt to keep a clean, non-VIE balance sheet. Too bad for you the analyst. Furthermore, because capital markets fund raising is normally via secondary stock raiseds, corporate line of credits, and bonds, your network with third party capital (JV equity and Construction lenders) will not be as robust through deal flow. So you can relax a bit and not have the constant battle scars of raising capital, keeping capital happy. Your CFO and treasury teams deal with that. Too bad though if you want to take a project cradle to grave, full cycle, since REITs seldom sell core assets. They will sell shittier assets in the name of recycling their capital. My other criticism is Wall Street (probably for good reason, and also REIT restrictions) tends to discourage a development pipeline more than 15-20% of enterprise value. So, you can analyze a ton of deals but because of the development pipeline size is “too big”, REITs must be very selective. Too bad for you analyst, who wants to build their deal sheet.

• REITs can have great systems. If you were fortunate like me to see all the workings of every group, you pick up some excellent systems building skills. Helpful for growing companies. Maybe one day your own.

• being in your own silo and “polishing the stone” and getting really good, can be very nice. I never got to that point of “I know everything” but at some point in your life, you might want to slow down a bit. Just do your craft and then go home.

• so you might be lulled into a feeling of comfort, good learning, and happiness. Lunch time with cool people, co-workers who are older, normal folks (none of them heard of WSO). Nothing wrong with that. I have some REIT stock from work and so far, returns are excellent (knock on wood). But be wary of regional REITs that are takeover targets. The day of reckoning when your bubble bursts is always a possibily. Odog808 has warned you. M&A cuts redundencies. Don’t need two construction teams, SEC accounting, etc.

• so you want to work for REPE, fancy developer and people who know what WSO is. Compensation on the private side tends to gravitate to liquidity events where you can make big money. That naturally attracts more aggressive and ambitious people, but also gives you a reality perspective at how real estate companies work outside the nurturing arms of a public company with access to public markets. You will still have reporting to do regardless of REPE or REIT (although less of you are in acquisitons; then it’s investment committee memos galore).

• so getting back to your questions. A lot of the underwriting and investment thesis, analysis are similar. Go above and beyond and model investor level returns. Try to value deals as a REIT with your cost of capital and yield priorities, but also look at how competitors would model, ie private groups that are more IRR driven. Let’s not fall into Mogillani-Miller mode and accentuate price bubbles (its human nature).

• on your own, via ULI and other events, get to know more private folks. Once you leave your bubble, you will have to play the real world private capital markets. Try to get exposure while you are willing to learn and others are willing to teach you.

• I would consider business grad school. It’s becoming somewhat of a requirement for the top brand name companies in real estate for associate hiring. I would get really really good at presentations, and power point for pitching capital and deals. That’s my advice. B-school should help.

• lastly, create your own investment philosophy. If you’ve only worked in one company your whole career, congrats, someone likes you. But if you’ve worked with multiple dealmakers, you’re going to be able to look back and say “how would ____ Approach this deal?” How would that differ from another senior exec?

• Develop your own investment philosophy and learn good judgement. Working at multiple shops and seeing the highs and lows of the economy will give you experience, perspective, Judgement. You would never have known unless you’ve been there. Which is why a real estate career is the long game. Need to love it. I never want to retire. I want to create and impact Place; preserve the past by making it compatible with the future. You can do that. Sorry for the verbal diarrhea. Writing this on phone with one hand and holding sleeping baby in other.