Skill set from REIB/REPE to Development

Why don't most people that plan to be developers start out working in REPE/REIB to build finance relationships to fund their projects later on as a developer? I hear allot that they require different skill sets, but I don't see how because it seems that if you can break down what a good investment is you should be able to be a developer with no problem. What are the differences in skill set that are required to succeed in both? How often do people make the transition from financier to developer?

 
Best Response

While there are indeed very different skill sets between development and real estate investment, a critical factor in deciding between the two is your personal risk profile and deal flow patience. Developers take on significant risk, especially with political approvals. Development deals also take several years to come to fruition. Investment shops take on a different type of risk and look at several deals each week.

As I work with our students who are making decisions between the two career paths, we spend quite a bit of time discussing their personality and then determining which career suits them best.

While there is certainly value in building relationships on all sides of the deal, you don't need to work directly in the sector to do. Real estate is about networking and building a strong cadre of contacts will get you the introductions you need.

 

Thank you for the response.

Personally the development side of the industry is allot more intriguing to me. It seems though working directly for a developer out of school won't earn you enough to save enough to eventually start your own developments. I'm pretty interested in the finance side of the business; but my end goal is development. It just seems more logical to work in the finance side of the business to save and then make the switch to on my own. I understand that the personalities of the two career tracks are different but what about skill set?

 

"It seems though working directly for a developer out of school won't earn you enough to save enough to eventually start your own developments." What makes you think you need your own money to start your own developments? Do you really think that John Q. Developer scraped and saved and pinched pennies over the years and is now using his own equity?

Also, do you think the 180k you'll earn at some opp fund will make it that much easier to save up a few million bucks than the 125k that you'll earn at Related? (I am completely making up numbers here, btw)

 

REIB’s do not have in house development teams, but there are REPE funds that do. Larger REPE funds that are “involved” in the development process are normally responsible for allocating capital to a series of general partners, they aren’t actually running the day to day development process.

Imagine being in Blackstone’s shoes, you raised over $30 Billion from investors last year and you have to spend it ASAP, it makes a lot more sense to find guys who already have deals ready to go, than try and spend all of this capital yourself with in-house transactions (especially since most deals don’t pan out).
Go here” http://www.wallstreetoasis.com/forums/the-pere-top-50-private-equity-re… and research which of these companies develop and let us know what you find.

The skillsets are different b/c REPE firms are typically screening deals all day trying to get cash out. Most developers are always looking for more deals, but they have to actually build these things, not just build a detailed cash flow model in excel and running a sensitivity analysis. This means working with government authorities with entitlement issues (zoning/permitting), trying to get special financing (TIF/abatements), working with architects /engineers/planners on building design, issuing RFP/RFQ’s to shit load of consultants and trying to pick the best ones, overseeing the construction process, taking REPE guys out to strip clubs so they will give you cash, etc..

I asked myself similar questions a couple of years ago and after having dinner with a number of high earners (REPE guys, bankers, developers) I came to the conclusion that you become a developer by developing, not by allocating capital to the guys who are building. Yes you will likely take a pay cut for the early part of your career, but would you rather: 1) Put your own money at risk and develop a property with no true ground up development experience or 2)Use some one else’s money and use your experience to create outsized returns in a risk adjusted manner?

In my opinion getting a job at a REIT is a great way to get experience on both sides of the fence b.c you could work on in-house development projects and also partake in JV's investing in different parts of the capital stack (mezz, preffereed equity, maybe debt, etc..).

 

I agree with REValuation on this one. Why skimp and save and try to develop something on your own when you can just use other people's money? Your best bet to see both sides of things (and not get "pigeon-holed") is to work at either a large REPE shop that does a lot of value-add/opportunistic investing (a la development) or try and get a gig at a developer/investment firm like Tishman, Hines, or Related. As REValuation mentioned, you get to see both sides of things - development projects in-house but also JV deals where your firm operates the property and you raise a majority of the capital from a REPE firm.

It is what it is.
 

I agree with REValuation and RealEstateNerd.

The problem I think you'll find doing your own development deals without well-rounded experience doing development work, is that there is a lot more to it than financing a deal. Developing/managing your relationships with governmental entities to approve and permit the project (and with architects and engineers to make the project feasible within any design constraints imposed), understanding the construction process (and how and where to VE a project), understanding the legal side, and understanding how to market the project to get it leased/sold/stabilized/managed are all just as important as getting the financing squared away. Financing may prevent you from getting off the ground, but the other areas can just as easily prevent you from making money.

Some developers may focus more on some of these areas than others, but I have found that it is a largely cross-disciplinary process compared to what REIB may do.

 

How about coming in from the legal side? If a JD/MBA ultimately would like to get into development, preferably at an entrepreneurial level, is working at a big law firm working on land use and zoning/RE transactional a good route to take? Or would trying to join a Tishman Speyer type post-MBA associate development program be a better path? I'm debating whether my ultimate goal is to have a solo practice while developing/investing on the side, a la stephen meister in nyc.

 
jagpaw:

How about coming in from the legal side? If a JD/MBA ultimately would like to get into development, preferably at an entrepreneurial level, is working at a big law firm working on land use and zoning/RE transactional a good route to take? Or would trying to join a Tishman Speyer type post-MBA associate development program be a better path? I'm debating whether my ultimate goal is to have a solo practice while developing/investing on the side, a la stephen meister in nyc.

for the love of god, please stop asking this.
 

Cool, appreciate the comments. And lmao I know I know, my bad prospie. I've been obsessive about this decision because even contemplating skipping big law at my school is considered blasphemous and is extremely unconventional. Not to mention the $200k in loans I'll have over my head and the $50k difference in salaries between the above positions. No amount of posting will make the decision easier lol, just gotta go with my gut in the end. And I agree, JD/MBA is very rarely worth it, but I'm already in the thick of it so I think I'm just gonna ride it out. I think if I play my cards right and focus on building my network/skills I won't have any regrets.

 
Slothrop:

I'm jumping on this bandwagon. I wouldn't think switching to a project management role at a CBRE or JLL would necessarily be the best way to make the switch. I'm sure you'd learn a lot about actually running a job, but in the words of a very successful small time developer I know: you can hire someone to do that.

Right, you want to learn at the level of the conductor (developer). Developers come from one or a combination of three fields in my experience; construction, finance and/or law. I've seen a lot of people try to diversify themselves by getting experience or taking classes in a combination of two or three areas but you risk overdiversfying your skillset and wasting time doing it. Best bet would be to join an actual development firm, leveraging your finance skills to do so, and learning the other aspects of the game as you go.

 

That's the only reason you want to go into development? I'm sorry, but that seems like a horrible idea.

Why not leverage your investment position into an associate position in a development firm focus on acquisitions and redevelopment?

That's a middle ground, and maybe later you can work on ground up development. But you'll be sacrificing long term success, imo.

 
edragon:

That's the only reason you want to go into development? I'm sorry, but that seems like a horrible idea.

I don't have a dog in this fight, but the OP doesn't sound that unreasonable. What in the world is so wrong with wanting to feel like you built or created or something? I can definitely relate to that. Furthermore, it's not like he's in high school. Unless he's lying, he already works on the equity side.
 

After you see some of the back end returns generated by the more experienced GP's, I don't blame him. I think alot of fund analysts have seen their share of obsurd promotes and had the same thought...

 

why don't you guys think about this? With LP involved and a high leverage on debt, developer sometimes only put s 3% of the total construction cost. With JV structure with some Non-Profit organization who owns the land already, the return of developer is huuuuuge! This is what experience in construction, planning and law paid off.... Equity or debt side never get that return as high as a developer...

 

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