Advice on M&A to RE jump?
I’m currently a 1st year analyst in a middle market M&A group. The plan has always been to switch to real estate at some point, but I’m not in any real rush. Not doing on-cycle, don’t want to work at a mega fund, looking for a more relaxed role at a growing REPE type of shop but not really picky. More just interested in the industry. A goal for the new year is to start networking and figuring out more specifically what I want to do within the industry, but I need some advice on what I should be doing in the meantime. Is it time to reach out to a headhunter? Should I study and get my RE license? ARGUS certification? Any general tips or advice is appreciated.
Do you want to take a big paycut? RE doesn’t pay as much as corp PE. You can do RE yourself if you’re interested in it.
No not really but what are we talking?
40 - 50% potentially.
Very interesting that you'd want to go from M&A to real estate. I guess not so surprising if you're looking for something entrepreneurial. Curious, why exactly do you want RE? What does your ideal RE career look like?
I did a REPE internship and really liked it. I think there will always be a demand for real estate, it’s applicable to my life outside of work, gives me an excuse to travel to places I wouldn’t ordinarily which I love, other than that idk. I need to get a better answer together than that.
A few people in my group did the switch from non-RE coverage/product groups to RE. Would say the biggest things you need to work on are: 1. Understanding the typical asset-level business plans for the major food groups by risk profile, in terms of entry/exit yields, typical costs of debt for assets at various points of their lifecycles, key revenue drivers (lease terms for ind/ret/off), margins, capex profile, 2. Know roughly what’s going on in the public markets because it’s pretty indicative of RE generally, where are the REITs trading, who’s doing great who’s punished, key transactions, etc., 3. Basics of PE (if you didn’t do a ton of sponsor stuff), typical fee/carry structure, how closed end funds work, and 4. Network with the right people who’s in the tier of the industry you are interested in, whether thats the LMM local groups, UMM groups doing niches, etc.
This is huge thank you. Any suggested resources you like where I can learn this stuff?
I think ACRE should get you in the door for 1. Just look on FactSet / CIQ’s real estate sections for 2 - CIQ has a nice newsletter thing that covers major transactions (usually has pricing, financing, and square footage info so you can figure out a lot of metrics from the newsbites) and the factset landing page for RE is great for general public markets news. CFI covers 3. For 4 I think LinkedIn usually works - in my experience most people are pretty receptive to juniors looking to jump industry so don’t overthink it.
I can't comment on the difference between the two, having never done M&A, but I have spent a lot of time in real estate development and real estate private equity. I'm more than happy to connect by DM to discuss what that's like and perhaps even share an IC memo or two.
Hi Do you mind if I DM you as someone who kind of sit in the same case? Many thanks in advance!
Yeah, here's some sage advice: don't do it.
I would think long and hard about pivoting. I’m going to come off as some doom and gloom schmuck soon if I don’t quit banging the same drum, but the long term math on this industry is not great.
What made it great is going to slowly but surely unravel over the course of the next decade, and (likely) only accelerate from there.
There is money to be made, but feels like we are at peak efficiency in sourcing/underwriting/pricing deals in most markets, and also have declining long-term fundamentals. If you needed a standard microscope to find solid deals before, I would argue the winners the next 10-20 years will need the equivalent of the fkn James Webb Space Telescope.
Things are fine now in plenty of places, but you have to think about your exit window (I’m pointing toward demographics primarily, but there’s a scenario where debt is also obscenely expensive compared to today (also the opposite case can be made there, and thats more likely, but I digress)).
If you’re dead set, I would focus on groups that target A+ product and locations (I mean like super core), or are comfortable purchasing with all cash and/or lower leverage. Probably better to be a generalist moving forward as well, really focusing on good dirt and actual “highest and best use”.
My mentor is a generalist but he's an expert in his market. The edge going forward is going to come from people like that.
I speak from the perspective of a current infra guy who did corporate buyout and repe for the past 5 years, so hopefully it gives a bit of perspective to your gloomy RE take.
Funny thing is, the factors you named (which are few and not sufficiently elaborated) also affect corporate buyouts. Why do you think money is flowing into infra and DCs and the focus shift from IRR to TVPI/DPI? Because corp buyout deals in general has declining IRR and difficulty exiting. Competition is stiff and there are only so many mega deals to do, and only so many clinic roll ups. Operational improvement being an alpha has produced lower and lower alpha. How much better can the financial sponsor improve a billion dollar well run company? Standard playbook of firing people and expanding into adjacent sectors likely has already been done to the bone by existing management.
Leverage has gone down and interest rates up. Leverage can no longer be relied upon. Think about that. 5% RFR + 3-7% spread gets to all in of 8-12%. Assuming a generous 100% FCF conversion, you need to buy at a EBITDA multiple lower than 8.5-12.5x (either entry multiple or stabilised multiple) to even make the leverage neutral on a fcf yield basis. This is getting harder as competition drive multiples up. Imo, the biggest supposed alpha I can see that works is bolting on at lower multiple to artificially drive scale up and achieve higher multiple from scale. Then it becomes a play of financial engineering more than anything else and quickly hits a ceiling on anti competitive laws.
Repudiandae qui et atque sint id. Enim nihil dolorum et laborum illum aperiam vel.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...