Need to prep for RE PE funds that buy operating companies and securities (in addition to real estate assets)
Hey guys,
I am an MBA student who spent the past two years working for a real estate PE fund that focused on buying individual real estate assets and portfolios. Some of the larger RE PE shops not only look at assets, but also look at purchasing whole real estate companies (more of traditional corporate PE) as well as real estate securities (kind of like RE focused hedge fund work).
Does anybody have any recommendation on how to brush up on those two skills? I feel like the investment management preps from WSO or TTS will probably be too granular for the securities portion, and the general PE preps will be too granular for the operating companies portion.
Appreciate any advice.
I'm interested in this as well.
The BIWS real estate course has a case study of AVB. You could, in theory, rejigger that piece to an lbo model.
How each shop views this can be very different. Some groups with large real estate teams will just value the real estate (asset by asset) others will keep it more broad strokes on looking at corporate level financials. For the first option, try and put together an asset by asset roll up model then build off of that.
I'm by no means an expert on any of this so if someone else wants to chime in and provide guidance, I'd be interested as well.
I'd think about it three ways - the technical metrics, corporate strategy, and the landscape.
Metrics are pretty much the same down to noi as with individual properties/portfolios. However, on the rev side, a REIT or re opco has more room to optimize revenue and set pricing strategy through rev mgmt. Likewise, on the expense side, there's more room to minimize through procurement (economies of scale). Below Noi, things get different. Corp g&a matters in a re company, so ppl typically go down to adj ebitda to capture it. Also know core ffo and affo, and why they are important. Note, unlike noi or ebitda, ffo includes interest expense, which is a very real cost for a company. Also, ppl will pay a lot of attention to the balance sheet. Total leverage ratio and net debt to adj ebitda (fwd and trailing) are the big ones.
For the above, I'd suggest looking through green street advisors definitions, which includes a ton of important granularity and is available online.
Qualitatively, when investing in companies you need to have a strong view on the competitive niche/strategy. What geographies are they in? What quality of asset? Do they do development? Are they transitioning from one focus to another? The ppl who invest in re securities are very risk avoidant and like simple strategies, hate development, and advocate formulaic approaches to capital allocation.
Know what companies are the major players in an industry and how they trade relative to each other - implied cap rate (nominal and economic), ffo multiple, affo multiple. Who's the best in class mgmt? Read some research reports and you should get the idea.
Really important for you will be to understand the current state of the public market vs the private - BC that's a lot of the arbitrage the big pe firms exploit. Easy thing to do is read up on what BX has done and the strategies they employ. Follow through the years - companies like Hilton, Brixmor, Equity office. There are some different approaches they will employ based on the situation.
I know this kind of rambles and leaves a lot out. It's a big topic that ppls entire careers focus on (including mine), so it's difficult to hit everything. But basically, read green street metrics, look at research reports, read old news articles. You can even build a company model, but I might not prioritize that. As Jim Rome says, just have a take and don't suck.
Edit: in metrics, I forgot to mention NAV - which is a huge omission. Green street definitions can be found here: GSA definitions
Consequatur velit omnis itaque perferendis ut voluptatibus quidem. Nisi dolorum laboriosam quaerat officiis. Ratione nam est voluptatem dolorum et repellendus sunt sint. Repellendus aspernatur nulla atque adipisci consectetur.
Deserunt nemo laborum odit similique aut accusantium odit. Inventore molestiae ea voluptas aut voluptatem veritatis temporibus. Veritatis dolorem fuga voluptatem unde quae. Harum ab deserunt qui voluptatem molestias in minus soluta. Reiciendis aut ipsum cum tempora. Illum labore sit ut optio consequatur dignissimos nulla. Exercitationem repellendus tempore veritatis ut quia aut.
Velit nam eum dolores quaerat inventore doloribus qui. Minus ea itaque provident ut repellendus in. Similique totam quisquam vel voluptatem illum. Itaque provident laudantium maiores officia consequatur repellat aperiam.
Laboriosam reiciendis dolore expedita qui in quam maiores. Sit iste quis laborum architecto quis in. Dignissimos facere iusto nihil aut. Et error alias maiores sint odio tempore exercitationem.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...