Running your own shop
I already know there are threads about this topic with some great info. Starting this one to ask what would it take for you to start your own shop development or repe? Also do any of you do your own deals on the side to build a good base/track record before thinking seriously about going off on your own? Have you taken other steps to be ready to go down the road?Interested to see what you guys have to say, for me it’s a pipe dream at this point but fun to day dream about sometimes. The ability to set up my own shop one day is also a big reason why I want to be in real estate instead of more traditional ‘finaance.’
It is easily possible to your own deals or invest in deals of the firm you're at to start building a portfolio/experience - just read your contracts carefully
Start small
I’ll add to this as unlike some other businesses, the upfront capital needs is large and credibility is needed. Not sure if mentioned already, but you should find a good partner, ideally 10-15 years older than you, with either a Balance Sheet or Veteran Experience but limited in the area you have expertise. The scenario is you have 10-15 years of experience and know your stuff and meet this partner and do something great together.
Opening my own shop is my goal and I feel that I’m actually on track to do so in the next 5ish years. For context I’m currently a Development Manager at a smaller firm that does both private equity placement as an LP and development acting as operator on our own deals (pretty unique in the RE space). I’m posting this so other younger users can take some of my techniques they find useful as well as others more senior can add some suggestions.
Generally the biggest challenge for those looking to start their own shop is raising the initial equity for both start up capital and deals. Developer fees (and acquisition, asset management, etc.) are key to getting stable cash flow to support back office and fixed cost and until you’ve got 2-3 deals going or at least 1 big deal you’ll be stretched from a staffing perspective.
The four most common paths of operators who have raised equity I’ve seen who bring us deals:
Now all of the above is important because if you aren’t wealthy to begin with you’ll want to figure out which strategy is viable for you individually based on your background, network and career opportunities. For example if you’re already in a wealthy area or have someone in mind who has means and may be open to mentorship then start building those relationships now so when you go to make the jump you’ve got their support.
Other tips, suggestions and strategies I’ve implemented to set myself up to run my own shop in the future:
These to me are the key ones but there are plenty of other things you can do to set yourself up mentally and professionally to run your your own shop. That being said I’m interested to hear other suggestions as you can always improve.
Amazing answer, exactly what I was looking for. Thanks.
You mention working at a smaller shop can be beneficial, I agree with that and would actually prefer to work at smaller shop with good deal flow. I feel that it’s the best way to really learn all the aspects that go into a deal and it’s easier to stand out/move up earlier on. A lot of people are fixated on landing at a MF, that has its own benefits but don’t think it’s the best course for a person who wants to do their own deals down the line.
On a related note how do you feel about B-School? An mba has its benefits in terms of developing a strong network and some shops prefer one, but what do you think? If given the opportunity should I go for one or instead do some of my own deals?
One big distinction I want to point out is that the above are (in my opinion) the best ways to advance towards your own development shop.
If you want to open your own REPE firm then that path is significantly different and although you still ultimately would want to run and control deals as much as possible prior to splitting off on your own there would be much more emphasis on developing your pedigree and personal brand as there is a greater need to sell yourself to institutional/sizable investors and that is something they value.
The MBA decision relates to this as it would basically be the requirement for someone starting their own REPE firm however I think it has minimal to limited use for someone starting a development company. From what I’ve read and researched, an MBA’s biggest value comes to those who are making a career pivot (i.e. moving from engineering to real estate), moving/changing locations or regions and further building your network.
For development purposes there is some value in having the MBA distinction and the brand name of stronger graduate programs when you are pitching yourself to investors and lenders (essentially they are betting on you when you run a startup) but as I detailed above development is best learned by doing and although shops can be extremely competitive in their recruiting it is still totally feasible to be hired out of undergrad by a development firm. Your best talking points and evidence you can succeed/run developments is pointing to a previous portfolio of success.
Thanks for the insight, really appreciate it.
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