My ideal job would be to do Asset Management for a value add REPE fund. I like the idea of working on property turnarounds. But you have to take the pitches that life throws to you. I have an interview for an asset management position with a core fund coming up.
My question is, is doing asset management on core properties as less interesting than value add as I imagine it would be? Generally speaking you are buying properties with the understanding that they should be relatively stable, so you won't be focusing so much on workouts if the acquisitions people are underwriting properly. What additional challenges might a core strategy present?
I've been interning at a value-added REPE fund for around a year and a half at this point, but have little core exposure outside of the few core retail properties we own and what industry contacts have told me...so keep that in mind while reading.
Is asset management on core properties less interesting than on value-added properties? Short answer- Yes. Long answer- Yes, but you'll probably wish that you were managing core properties at some point due to stress if you're at a value-added fund.
Value-added is more interesting due to the higher level of involvement with the actual properties as well as the higher risk/reward aspect.
Core properties are lower risk investments in the form of office buildings, industrial properties, retail spaces, and upscale apartment buildings/complexes. These properties are purchased in great condition with creditworthy and reliable tenants in a good market, so the properties are operating and minimal renovation/rehab/development work is needed . This simplifies/dulls the acquisition, and general holding process, as there's less speculation on future cash flows based on rough future renovation/rehab plans. In addition there's a lower level of tenant turnover in core properties vs. value-added due to the nature of the tenants and the types of properties themselves. This makes the tenant marketing and leasing aspects of the fund much smaller in comparison to value-added funds. In general, core properties safe(r) investments that quickly provide steady returns and require minimal initial and holding 'work' by comparison.
Value-added properties are 'diamonds in the rough' with some sort of dysfunction that is hindering maximum returns- be it physcal issues, management issues, or tenant issues. The properties are acquired with intent to fix the issues leading to higher cash flows that will be majorly used to pay off financing before the property is sold (unless you hold long term), and typically there's hope that the area's property values increase over that time. This creates a huge difference from core properties on the acquisition and management front, making value-added much more hands on. With value-added properties you're doing renovations, flipping houses/complexes/mfd's/rowhomes, doing rehabs, kicking out old deadbeat tenants, etc. The tenant turnover is much higher (12 month leases usually) making the tenant marketing and leasing operations much larger. With these properties you'll also have things that are regularly breaking/being broken by tenants that will need to be repaired, so you'll need to employee a maintenance staff rather than contract.
There's plenty of specifics I could delve into so feel free to ask, but for now I'll just leave this brief overview. In general, value-added is much more hands on and what I call 'doing real estate' - you'll be doing renovations, acquiring riskier assets, negotiating with contractors, directing tenant marketing ops, taking tenants to rent court, etc. Value-added has a greater management aspect with an overall higher level of risk and reward, making things all the more interesting.
Asset management with core properties does sound extremely boring. Especially if the property was bought all cash, which may be the case at some of these core investors. I can't disagree with you on the probable lack of interesting challenges.
Having said that, I don't think it would be that tough to go from asset mgmt at a core fund to asset management with a riskier player. Really any job like that is good, in this market.
It looks like part of your post was cut off.
Although most of this fund's properties are Class A, I don't think that they are all necessarily trophy buildings. So I assume that much of the group's work will be related to managing tenant rolls and capital spending. The one nice thing is that the fund owns a wide mix of property types (office, residential, retail, and even hotel).
The way that asset management originally was described to me is that it is the more "intellectual" part of the business, at least compared to acquisitions. I can see how this would be the case for value add, but for core I feel like part of the attraction is you're looking for properties that are strong enough where there isn't much risk from mismanagement.
They may not be trophy buildings but they're likely operational at the time of purchase...they're in much better shape by comparrison to the original condition of value-added properties.
How big is the fund you're looking at? employee wise and value wise. 'Managing rent rolls' is generally done with a specialized software that links up with quick books. I can't imagine managing rent rolls will take up a large part of your work since not much will be changing on a daily basis, even moreso with core properties since businesses/investment grade tenants are going to be largely paying rent in full and on time. Unless your fund is huge then rent roll management is going to be left to a few people at most.... we have about 400 units and one person managing rent roll. The fund's accountant will assist in rent roll management and do profit/loss etc.
I'm not sure managing capital spending is going to take up much of your time either, or what you think that would entail....this is largely the role of the accountant as well. You may be set in charge of more expensive repairs (elevator, ac) and take bids from different contractors to find the best deal, but generally day-to-day capital spending management involves entering receipts from Home Depot into a spreadsheet. Payroll is another aspect of spending management but that's something the accountant would do. Marketing contracts, insurance, taxes, etc are either on autopay or are paid at most once a month.
You may be helping with rent tolls and capital spending, but there just isn't enough work there to take up most of your time unless your fund either doesn't have an accountant or is extremely short staffed.
Another aspect that hasn't been mentioned has been learning about how partnerships/JVs are arranged and structured. Not sure if the fund you're referring to invests with partners, but if it is then you'll definitely be working with that stuff, and that'd be valuable experience.
that's a good point, legal structure is a complicated thing. My fund has principals who are attorneys so the legal end is taken care of in-house, but it;'s going to be expensive if you don't have that luxury. More legal costs are tacked on inevitably when you face rent court and taxes.
It sounds like he's talking about a big enough company that they'd have all their in-house legal taken care of. However, I recently interviewed for an asset management gig at a core fund and I think I remember their saying that a lot of time is spent on the waterfall modeling. Some of these funds have a sort of complicated series of IRR hurdles that have to be built out in Excel.
Thanks for all the comments so far. The fund is under the umbrella of one of the larger firms. Think BX, GS, etc. The fund has AUM of ~$10 B and I would have responsibility for > $1 B personally.
By managing tenant rolls I didn't mean updating the rent roll but rather doing work related to releasing, making sure tenants exercise options, etc.
The comment about JVs is correct--the fund does have a number of properties owned through JV. My understanding is that part of the job would involve handling issues that arise with the JV partner.
So, I have a unique perspective in that I have worked in corp finance, REPE asset management and REPE acquisitions. The AM gig involved the whole spectrum: core, core-plus, value-add and opportunistic. I would say, generally speaking, there is not a huge difference in an AM capacity between the two. Core to opportunistic will often involved promote structures (I just did a huge deal where the promote threshold was an ~8% for a core deal). The opportunistic strategies are obviously more interesting but there is something to be said about working on deals that show up in the WSJ, which tend to tilt towards core properties since they are often larger deals. It probably goes without saying that AM roles vary significantly from firm to firm (you probably do not want one with a heavy accounting function). And to that point, large core (or multi-startegy) shops will use their AM group for capital events/re-financings, restructurings and dispositions while many of the opportunity funds I know (and the one I work at) uses AM for accounting functions, ARGUS updates, business plans and budgets and uses the acquisitions team for most technical/modeling endeavors related to restructurings, refinancings and ultimately dispositions.
Good luck
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