Hello All -
I’m in the process of interviewing for REPE shops. One thing that I could never quite get a grasp of the different tiers of AUM. I know Blackstone is the top dog. Brookfield and Starwood are up there too but not everybody is them. Around what AUM, do you consider a fund to be small, mid size, upper mid size, or mega fund? For example, is $1B AUM small and $10B AUM UMM? Just throwing numbers out there. Thanks for the help in advance.
All pretty relative since those levels change pretty often. You might have a firm that has a couple hundred properties that small shopping strips of 3-5 tenants and each are worth $10MM to get $5-10B AUM and you might consider them LMM since they aren't doing institutional deals. Meanwhile you might have a shop that only has 10-15 properties in the portfolio but each is worth $75MM+ with $1-3B AUM and considered more MM or UMM. If we are being honest, there's 3 tiers and they aren't overly helpful. The top tier is Blackstone, Brookfield, Starwood types that have more money than nearly everyone. The bottom tier are firms that just started out/have only a couple hundred million in AUM since they either don't have a track record yet to raise the capital or just family offices that are trying to preserve family and friend's wealth. The middle tier is everyone else. The top tier can buyout other REPE's/REITs or massive portfolios, the bottom tier can't really compete on public listings with anything over $50MM without stretching themselves too thin, and everyone else can usually find a way to make most deal sizes work for the right deal.
If you're judging where to apply based off of AUM, then I would recommend pivoting off that strategy and look more-so at their credentials, portfolio, and deal flow.
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For me, it depends what city, property size/unit size, and deal size. And it really is a venn diagram with overlapping parts.
I'd say on the credit side, if you have $1Bn+ it is institutional. There clearly is separation between megafunds, and everyone else in the sector. Even though you may lend on sub $100mm deals you are still seen as institutional.
Equity it is $100mm deals, 100k SF, or 100 units, depending on the city. Anything below is middle market, however you can get middle market firms that play in the institutional space occasionally. so if you have $4Bn in AUM, and a handful of deals over $100mm or 100ksf, then you could be considered institutional.
This is just my opinion.
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You are correct, I thought I covered this in my second paragraph. I should have included Mezz, Pref, and LP debt instead of just credit. "Even though you lend on sube $100MM deals you are still seen as institutional". And not for nothing, these guys are sharp.
Hate to be "that guy" but does it really matter?
What will be important is whether the fund has strong deal volume and if you enjoy working on whatever strategy they're executing on. Yes, Blackstone is top dog - but that's broken down into many smaller books, all of which do their own thing. And frankly, the Midwest Value Add fund at Blackstone (if such a thing exists) may not be better or even close to as good as some local fund based out of OKC. Again, the details are made up there, but the overall point isn't. All of this has to be evaluated on a more granular level than total AUM. Is your sector of the company run by a guy who is also new? Maybe the reputation of the Core+ got built on the back of a really heavy hittter, who has since moved on. So while they may have a ton of AUM, the deal flow will dry up and they'll lose a competitive edge over the coming few years. Etcetera etcetera
Also worth noting, though it's unrelated, that Blackstone probably lost a billion dollars of marked to market AUM in the last 24 hours on the basis of the StuyTown legal decision alone!
I didn't hear about the Stuytown decision, what happened?
Ruling came down in tenants’ favor that limits BX’s ability to deregulate units. Massive loss of potential GPR growth.
Typical "not a lawyer" caveat, but as far as my understanding goes.
When Blackstone bought the property (for $5.1b I think), they made an agreement with the city to maintain a certain amount of the units affordable, some of which would burn off over time. Under the rent stabilization law at the time, they were allowed to deregulate units once they hit certain rental thresholds (which ended up being around 2,700/unit, but the way that gets calculated is immaterial here). That agreement was meant to last ten years, which means it would be expiring very soon, like this year or next.
However, in 2019 the State (not the City) changed the laws surrounding rent stabilization such that you can no longer deregulate units in any circumstance. Blackstone had argued in court that their pre-existing agreement with the City of New York took precedence, or whatever the legal term is, and that they could still deregulate the units that had been agreed upon when the regulatory agreement burned off. A judge ruled yesterday that the previous agreement doesn't get grandfathered in and that in effect it is subject to current law.
My point was that Blackstone bought this building for 5 billion or more, and I can nearly guarantee you that their underwriting contemplated a massive increase in rents at the end of that 10 year period. As a rule of thumb, rent stabilized assets in NYC lost like 20-40% of their value in 2019 when the laws changed, so applying those rough numbers means Stuy Town is worth a billion or more less than it was.
Super interesting legal argument but I actually think it's the right decision, even if it's going to lead to some real problems for residents of rent stabilized buildings in the future.
Think you went off on a tangent. I was never basing my decision off AUM. I just wanted to understand it better and its relativity.
Ah, got it. To be fair, the innumerable posts about which shops are most prestigious, and "should I go to Fund A or Fund B when Fund A has eighteen dollars more of AUM but pays less?" have jaded me into thinking that every post about AUM is a question about job decisions.
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