Reading materials for RE PE

Hi

I recently joined a major RE PE firm as an analyst. My job is mostly modeling but I'd like to understand the other components of the deals I'm involved on. I'm totally lost on calls/meetings regarding:

Capex (technical aspects of it, like discussing a budget with a contractor for a building refurbishment, knowing how to have a rough estimate on it, etc.)
Tax (I don't think this is specific to real estate, but anything involving SPVs, structures in Lux / Jersey, etc.)
Legal (mostly legal review of the leases)

What I'm basically looking for is being able to understand all the common issues related to those fields (that we see every time in our DD reports) and be able to ask the right questions / understand the stakes for my deals. So hopefully no need for a 2000 pages book on each field :)

If you have any ideas of books / websites / pdfs that could be useful, that would be very nice !

Thanks

 

How long have you been there? From what I've seen you are going to learn mostly on the job. You learn something new in real estate every day

You can most likely find a book about construction, won't compare to experience but might accelerate things.

I think everything you mentioned will click as you keep being involved in these meetings/calls you are lost on.

 

Thanks for your answer.

I've been here for kess than one year. I agree with you, most people did that and of course, I hope that in 5-6 years, I'll have a good understanding of what's going on.

But this is so inefficient!! Listening to a meeting where people will tackle 10/15 concepts I'm not familiar with is a waste of time. It would be way better if I could read about those concepts in a book first, and then see how they apply to the job in real life through those meetings (this is what business school was supposed to teach me, but it (or I) failed :) )

Any advice on construction books? Anything on tax/legal ?

 

Just curious, but I just completed my undergrad in Finance and my uncle is funding/wanting me to get my construction engineering degree and work for about 10 years on the construction side. Would it be hard to jump into PE RE after gaining engineering experience like that? I would go so far to say I would maybe stay with the construction company and head towards project management and then I would be dealing with more financing decisions. But now we are talking 15 years on the construction side.

Would I be a good candidate to move into the investment realm if I got perhaps a top 10 MBA or CFA??

I would qualify for some of the top MBA programs after some of that experience, and I know Harvard likes Engineer undergrads, so I would probably have a better chance at these schools with my engineering degree rather than just finance.

 

Honestly Real Estate modeling isn't incredibly complex you should be able to pick it up fine. If you were intelligent enough to receive this internship then you will be intelligent enough to pick up the knowledge while on the job. That being said, if you are really worried about not having enough knowledge coming in and have money to burn, I would recommend the Breaking into Wall Street Real Estate Fundamentals course (I imagine this isn't the BIWS course you've completed b/c then you would have more than zero knowledge of real estate).

 

Apart from the obvious of knowing the important firms / competition (firms with portfolios in same cities / RE class, same size AUM, same business model, median margins), funds from operations (FFO) is an interesting and often-reported performance metric. At my time in a RE IB group, I helped the seniors sort out the differences in FFO definitions across different firms as they did not all use the NAREIT-definition and clients got confused when benchmarking against the competition. So maybe look into the FFO vs. cash flow issue as a real estate version of the "standard" companies' issue of cash flow vs. earnings to show you've prepared.

 
Best Response

Know the basic cash flow walk & a DCF valuation, which is pretty much identical for any industry when thinking Revenues less Expenses = Income. Simply put, Revenues (rental income less rent abatements) less a vacancy factor (5 to 10% of rev) equal your total operating revenues. Take this less Expenses, (which in a simplistic model would be 30-40% of Revenues. OPEX being the largest piece of pie + real estate taxes + insurance + management fees) which equals your NOI / net operating income.

For back of the envelope valuation purposes, you would take this NOI & divide by a Cap Rate to equate the "value" of the property in year 1 (cap rates vary significantly based on market, property type, proximity, & quality of building, but 7-10% cap rate would be a very modest assumption). For DCF purposes, you would take your NOI and subtract leasing & capital costs (tenant improvements + leasing costs + a capital reserve usually based on an amount per square foot of the building, say $.55psf). Model this for 10 years with your 10th year cash flow equating to the property cash flow plus terminal value ( your 11th year NOI divided by a cap rate). These cash flows will be discounted to arrive at your DCF.

Research cap rates, discount rates, DCF valuation, & waterfall calculation to brush up on your basic real estate excel modeling skills. Also read up about ARGUS, as this is an industry standard for valuing real estate.

 

I disagree with the advice the above (although all the specifics are good). Focus on what is in front of you. Kick ass on your work, projects and exams, and ease up trying to teach yourself everything you think you need to know about real estate right now.

If you were honest like you said you were, they hired you knowing you don't have any specific real estate knowledge. They expect to train you to do what they want you to do. Show up, be eager, don't ask stupid questions (ones you can google), do ask smart questions, work hard, and be likable.

 

Check out the Bisnow video series: https://www.bisnow.com/videos

They're all with Peter Linneman, and pretty good for a broad overview.

As far as the legal aspects of leases, just start reading through as many as you can and start to get a feel for them: what's the same, what's different, etc. Then, you can start trying to write lease abstracts and compare them to the (hopefully) pre-existing ones your firm has on file. This will help you make sure you're picking out the most important parts.

For construction costs, try to find some previous construction estimates for projects and look those over. Based on what's being done, you can get a basic sense of what things cost psf. While it's never going to be exactly the same, it should give you a rough estimate.

 

Also check out getrefm.com for REPE training and modelling and kahrrealestate.com for free videos on REPE. They do the classes, I've done both and liked them both. You sound like you are in the UK, and I think only REFM does remote classes. Best of luck!

 

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