Acquisitions vs AM Experience for Starting Own Shop
Which experience / career path would you rather have if the ultimate goal is to start your own shop? Obviously both would be best but switching after 5+ years in one function into the other isn’t always smooth.
Interested in hearing what people think!
Never worked in AM, but if I had to pick one over the other, then I would pick acquisitions to learn about investing strategies/ideas, DD process, pitfalls to keep in mind in the acquisition stage. When investing in anything, choosing the right investment is probably the most important step. Often times when you make a bad investment, you are doomed from the start. Doesn't matter how good you are at AM if you missed a huge pitfall.
I think AM is better but that's probably because I asked myself the same question you did a couple years ago and decided to go the AM route instead of acquisitions. My thought process was I personally can control a hell of a lot more from a strategy perspective in the operational weeds than if I'm 10,000 feet up waiting for rates to drop or net migration to pass some arbitrary threshold.
Your first deal is going to be paid for either out of your own pocket or your very very close network. Unless you're senior director level + I'm not sure those LP relationships are going to matter for your first few deals so all acquisitions will help you with is hypothetical underwriting reps and modeling...but how many shops are making a new model for each deal from scratch? You're adjusting a template here and there for 50% of the deals.
I think a lot of acq guys would benefit from AM work that is probably popping up now. You get to see first hand how much "cushion" you need to mitigate risk and what that risk actually looks like in the real world. At the end of the day, real estate is easy, you make it hard on yourself by trying to maximize your profit and setting goals at UW. But that's how we all get paid.
This isn't to minimize the acquisition process in the slightest, you make money on the buy. If you overpaid, you paid out your profit to the seller on day 0. But if I had to pick one or the other, I'm going asset management.
Not minimizing AM at all and ultimately when you start on your own, you need to be proficient at everything, but the goal of working in acquisitions is not to hone your financial modeling and underwriting skills as this is a very small portion of the job esp when starting your own shop. The real benefit of working in acquisitions for helping you start your own shop is seeing many different types of investments and business plans. It's similar to how many brokers/IS eventually start their own shop because they have seen many different types of investment strategies. If you work for a shop that has a solid investment thesis/strategy that you wan to replicate and you can only work in 1 of their teams, then you definitely want to be in their acquisitions team where you will see the investment criteria, thought process, and business plan for each investment. You will see why they chose to kill one deal, but go through with another one. Once you understand their investment strategy, then you can figure out the asset management on your own or outsource it. So for example if their strategy is value add and you've acquired a property that fits the same investment criteria, you can go out and get 3 bids from contractors to perform the value add even though your competency is in acquisitions. However, it's tougher (not impossible) if you start in AM and want to start your own shop, but don't have an investment strategy and need to think of one on your own. It's much easier to copy someone else's. I see this a lot in the development/construction side. A lot of construction guys could run an entire job from scratch...but they don't have an investment strategy. Once you give them a project to manage, then they are good to go, but if you ask them to identify a good development project, they don't know where to start or even how to assess what makes a good investment. However, as a developer, if I can identify and lock down a good project, I can figure out the construction side later ie hire a contractor.
Bottom line is you want to work and become proficient in the disciplines that can't be outsourced. You can outsource property management, construction, asset management. You can't outsource development and acquisitions because these functions are the brains of the operation.
Agreed 100%, and I've said this many times but 9/10 times, in my experience, it's been investment/acquisitions people who start their own shop, not AMs. I think that's also just the nature of who lands in each role. People who succeed in Acq are bigger risk takers and have the conviction to put deals together and sre confident enough in the strategy to sell it to investors. Starting your own shop you have to be a great salesman.
I think this is a really dangerous mentality. Third party property management is bad enough, but to also outsource your asset management is a recipe for disaster.
When you boil it all the way down, the entire acquisitions process is really just an attempt to guess how well you can manage an asset. Every assumption and (most) deal terms are completely irrelevant in a vacuum - they exist to give a guidepost as to what the deal will look like in 1 or 5 or 10 years. If you can't actually hit those numbers, then the entire work product that goes into a deal from the acquisitions side of things was a complete waste of time.
WSO is really, really heavily tilted towards finance-adjacent roles and way less towards the operational side of things, so of course the bias here is to prioritize acquisitions and underwriting, but I really think that's the wrong way around.
I think whichever makes you the most money, so probably Acquisitions.
In 5 years you'll be ready to run your own deals either way, but no one is giving you money to do so until you're 15 years in and have the bankroll to sign guarantees.
Acquisitions at a shop that's more entrepreneurial. I'm in one like that now and while I'm not completely on the weeds on AM after we acquire the deal, we are a small enough shop that I hear everything going on and can provide input where I see fit based on what I know from acquiring it.
If you can only pick one, 100% acquisitions.
Source: I do everything at a very lean shop. From acq to debt to AM to leasing to minute BS.
Ideally a combination of both. Everything from leasing, opex, etc is AM but structuring, sourcing, exiting is all acquisitions. Both are critical to maximizing success in a deal. During downturns AM is more important because you can’t just do cap rate compression to drive returns. But it doesn’t take a genius and either skill set will be very helpful
Either because you can partner with someone who has skills you dont.
I would think asset management all the way. Acquisitions is super easy, and most of the pitfalls can be avoided with good legal counsel.
No one does well because they bought right. Or rather, that isn't a skill, that's a function of where the macro environment is for a given market. The guy in the 90th percentile and the guy in the 10th percentile will be equally skilled at identifying and underwriting those deals.
Real estate deals are made or broken in the asset management. That's the business, that's the job - managing real assets. The acquisitions part is just guessing about how well you can do the rest of it. The actual work happens after closing.
Congrats on the AM job!
Two counter points (i) if you overpay for something based on lofty assumptions, even a great asset manager will struggle to meet expectations (ii) most of the top shops are run by former deal guys.
Lol. Not specifically in asset management but I have a healthy appreciation for what they do.
This is one of those points that sort of falls apart when you really think about it. First off, even experienced acquisitions guys often overpay. When you've mispriced a deal is when AM becomes even more important, because not letting that extra 1% of revenue slip through your fingers because unit turns take 4 days longer than they should is of outsize importance. And yes, if I way overpay it's unlikely I'll hit my numbers no matter what. But if I get the steal of the century and my asset management is shit I won't make a dime, either. Unless I bought so so low that I could flip a contract for a major increase.
Because the acquisitions team gets more exposure to the capital markets side of things, and so have the connections and network to raise money? This feels like it's confusion correlation and causation.
Acquisitions roles are sexy and fun. You get to look at lots of deals, get to interface with powerful people, get to execute transactions and read legal documents and pitch investors. It's exciting, there is lots of money flowing, it can be a high stress/excitement environment. Asset management is far more drudgery, by contrast. It involves saving pennies and monitoring overtime and making sure collections notices are being sent out on time. It's boring! So of course the smartest and hard-nosed people get drawn to the more exciting part of the business. That doesn't mean it's more important.
Even with an equal pay package, most people would prefer to be a movie star than a garbageman. But the, uh, "sanitation expert" is still doing a job far more important and far more necessary, even if they're not the ones appearing in magazines and movies.
My first thought is most of this thread has never done a deal with their own money. I can’t count how many shops are underwater because of poor asset management.
Amen.
To someone who bears no financial risk, asset management is meaningless. To someone expecting a distribution every year, or free cash flow off which to size a cap rate, it's the most important thing.
Most people on this site don't own their own projects. You can usually tell which people have by where they fall on questions exactly like this
Acquisitions. I do everything at my shop including AM. You need to be a killer at the negotiating table and finding the diamond in the rough in terms of the right deals/opps, building relationships, salesmanship to LPs etc. You won't get that on the AM side. All that said, AM is a very important skill as well so having exposure to both is ideal. You can always partner with an AM guy if you start your own shop and you'll have a bigger piece of the pie.
I think probably both (hate to be that guy) or partner with someone that complements what skills you lack. I think there is so much valuable experience from deal structuring that you really won’t see on the AM side. On the other hand, there is a lot of operating experience that you won’t see on the acquisitions side.
If either/or then acquisitions. You get to learn strategies, get reps, make sourcing relationships, get experience selling deals to IC. All that stuff is paramount to starting a shop. You need to sell to investors and brokers while sourcing deals. I think having only AM experience is a disadvantage on that front + it will be difficult to raise money if you don’t have a sourcing/acquisition track record.
More important is the type of shop you work for. A small gp where everyone wears all hats is going to be better for learning than an institutional LP regardless of your role.
It’s easier to be involved in asset management if you’re in acquisitions vs. the opposite. Meaning if you take an aqu role I doubt anyone is going to stop you from helping to make sure the asset you bought is on track.
In general though I think all real estate skills somewhat a commodity to an extent and if you are a sharp person you can figure it all out. What you are looking to gain is relationships with brokers and LPs debt etc. those are not learned skills, you either know people to make it happen or you don’t. You don’t get that exposure in asset management.
I would say it’s a 65%/35% split AM/Acq of importance.
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