ER --> FP&A --> Real Estate Analyst ... thoughts?

All - wanted to get your take on an oppty presented to me. A little background, first. I worked at an independent equity research shop (250-300 stocks under coverage) for 5 years, then transitioned to a corporate FP&A role with a subsidiary of Fortune 200 company for 2.5 years (still here now). I invest in RE on the side (fix & flips, SFR) and have always wanted to be in a more corporate RE role.

Have been presented with an oppty to join a local (Midwest) REPE firm with about 10,000 units under management as an acquisitions analyst. I'd be working for the Dir. of Acquisitions, basically modeling deals, helping find off-market opptys, putting the investment packets together, closing, etc.

They've been acquiring 200-400 units a month with a value-add strategy. All deals are funded on an ad-hoc basis through one of two separate capital raisers, which can typically commit to a deal and fund within 7-10 days. The firms partners put up 10% as LP, the fundraisers raise the remaining 90% as GP. The firm itself makes money via property management (5%) ... that's what keeps the "lights on," as i'm told. They're in the process of launching a $20M GP fund.

Wanted to get your thoughts on 1) what you make of the firms financing strategy and how it differs from other shops and 2) the LT prospects of this role. Is this something I could do for 10-15 years, learn, grow and then strike out on my own if I have the necessary balance sheet?

Thanks!

 

No, the GP/LP split was correct but my comment may have been mistaken. They've raised more than $20M, but it's been on property-by-property basis. They own/manage over 10k units. My $20M comment relates to the fact that they are looking to raise a dedicated fund, vs. doing it on a property-by-property basis. Does that make more sense?

 

That GP/LP split is totally backwards. I'm sure they can do it like that, but that is a really weird structure. Also the partners investing as the LP's doesn't make any sense. Why would they, as the sponsors, not invest as GP's and partake in the promote for putting together the deal? I guess the way they have set up there really wouldn't be a worthwhile promote. I can't figure out why they would structure a deal like that.

A $20 million fund is tiny for an acquisition pace of 200-400 units per month unless they are acquiring SRO or manufactured housing units. How often do they raise funds? The point I was trying to get at was if this firm has acquired and manages 10,000 units they should be able to raise a fund bigger than $20 million. Something about this sounds extremely suspect.

 
Best Response

Sounds to me like they are an operator not a REPE firm. So they plan to raise a $20M GP fund that would in an ideal world be backed by $180M of LP equity from their capital sources to get you $200M of equity. I assume you would be able to buy ~$700M to ~$800M of real estate value with leverage.

When you say they are raising a GP Fund I assume you are saying they are looking for outside investors to be apart of the GP fund. I would assume the partners of your firm would need to take at least 20% or $4M of the GP Equity with the remaining $16M coming from investors with some waterfall to promote your company. My firm has done this several times as the LP within a GP fund with several prominent developers in the US.

If that is the case then the LP / GP terms were mixed up. But yeah I would say that is definitely an interesting gig if they have no problems raising LP equity which seems as if they don't have that problem.

 

Why is everyone getting so caught up on the $20M number? Like he said, they do a lot of one-offs, but decided to raise a fund. I'm working for a firm that did something similar. They do a lot of one-offs at about a $10 million equity check each time, but felt they should raise a $50M fund as well for the hell of it. Do about 60% of our deal flow outside the fund.

Is it all SFR? If so, I would really try to get with a firm doing CRE. It's a different ballgame to underwrite CRE vs. SFR. If it's multi-family, sounds like a great entry where you can get a lot of experience to then go out on your own.

The capital structure is pretty standard; however, the LP vs. GP does seem to be backwards.

 

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