Private Equity Fund - Real Estate Fund
Hello monkeys,
Total newbie here. I have an interview with a real estate fund within a fairly large private equity fund next week (i.e. this fund is totally committed to real estate), and I was wondering if any of you had any tips for preparing for an interview? I am currently working on why real estate as opposed to other branches of finance, etc, however I have very limited real estate experience. What are some benefits real estate has over others except limited volatility, its a fairly safe store of value, ability to build up a large asset base with a limited amount of capital (especially now with rates low and a lot of excess liquidity and cash available)? Does anyone know of any specific topics/valuation techniques I should study and brush up on before next week? I was also going to write out some questions about the current commercial real estate market. Thanks again for any help, and I apologize if I seem naiive. Thanks in advance.
Cheers
Anyone have any experience in RE or RE related interviews/jobs? Thanks
As far as modeling, properties tend to be valued using either DCF or cap rates. Check for old RE threads, you'll see some of your questions answered there, then come back and elaborate.
A key benefit in investing in real estate is that its value increases as interest rates increase, or in other words its a hedge to interest rates.
My bet is that you're going to be asked questions about real estate in a portfolio context since it's a private equity fund so I would think about those kinds of questions.
I'm not sure I agree with this statement.
Assuming a normal spread between the risk free rate and the cap rate, as interest rates rise, cap rates rise, whch pushes down real estate values. Also, higher discount rates will push down your DCF value. In addition, higher interest rates make real estate less liquid and will lower demand.
Exactly, that guy was completely wrong LOL
You're going to want to know about building DCFs and perhaps development models. You're also going to want to know some of the basics about how individual real estate assets / land are appraised (comparables, etc).
I think the "why real estate" question is a tough one in general... but i usually say that I like to "contribute to the urban landscape and leave my own, tangible, physical mark on the city"... and some other BS like that (this makes more sense if you're investing in development deals not just office buildings that already exist, etc). I also am pretty interested in architecture so I mention that I "love" architecture, but I am a lot better at math than I am at art, so I choose REPE instead or design.... you can make this comical and also show humility.
International Pymp, thanks a lot for your insight - I appreciate it. Do you know of any resources where I can get some sample comparables/development models or at least how they are structured - so I can bs an answer if they throw me a "run me through how to do this" type question? Thanks again man.
I hate to push another site's stuff on WSO, but its a little bit light on the RE knowledge.
Had an interview with a RE develpment company and RealEstateFinancialModeling.com is a great site with lots of help modules for creating these models. They have some basic stuff on development up on YouTube:
Start here:
I hate to push another site's stuff on WSO, but its a little bit light on the RE knowledge.
Had an interview with a RE develpment company and RealEstateFinancialModeling.com is a great site with lots of help modules for creating these models. They have some basic stuff on development up on YouTube:
Start here:
A couple things: -familiarize yourself w/ the current commercial RE market and what has transpired over the past couple years/how it pertains to CRE...e.g. there isn't a lot of "excess liquidity" in MOST CRE spaces (the outlier being multifamily due to the GSE's & FHA and the return to strong rental fundamentals in good markets), as you mentioned...know what you're talking about, and if you don't, don't act like you do...just let them know you're excited about CRE and willing to learn. -Understand the basic concepts behind valuation, as IPymp mentioned, ie DCF, capitalization rates, comps, etc., but I wouldn't waste time studying models beforehand - they'll teach you those skills. They just want to see that you have a good finance background and a basic understanding of real estate. - Find out what the shop does - what do they focus on? Do they raise big $$$ from pension funds and invest in lowly levered Core multi & office deals? Are they an opportunity fund focusing on distressed deals? Are they mainly focused on investing in public REIT securities? You don't have to know the ins and outs of what they do, but know the basic CRE food groups they invest in and what the overall investment strategy is. - Lastly, why real estate? Put together a good answer...and don't say limited volatilty, especially if you're interviewing for a highly levered value-add/opportunity fund that just got crushed during the recession...
Hope that helps. Good luck.
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