Crossroads: Tradition or Ambition
I'm coming out of a top 15 MBA very fortunate to be in a position where I'm presented with such a difficult decision to make. WSO, you have been my light and savior for years, please help me reason through my options this one last time.
Choice 1:
I could accept an offer at a BB and go down the traditional banking path into PE/HF.
I also have a consulting offer, but between that and banking, I'd rather do the latter.
Choice 2:
I was approached by someone through my network with an offer to partner with them in starting up a RE fund. This is a family friend and a person I trust with my life. The other partner is an established older guy, he will definitely be adding value in certain ways. I'll be receiving a huge chunk of the fund's management company equity, coming in as a 1/3 partner. Between the partners, we have secured at least 20m first round. We have access to debt and foreign investor interest and also possess connections to VCs and HFs. 100m+ AUM is definitely foreseeable after a few years of results --- if the fund lasts that long. Standard fee structure comparable with REITs.
The management company is very lean: I'll be in charge of acquisitions analysis/modelling & general operations including hiring my own analyst team later on. Other partners are bringing in principle, investor relations, and real estate knowledge. FP&A and compliance will be outsourced in the near term. In terms of work-life, I'll be busting my ass regardless of field.
Being a partner in my 20s sounds fantastic, but my initial leeriness with the obvious risks involved is only natural. I could cash out on all the hard work I've sunk the last few years climbing from an unrelated field of work into the world of Investment Banking. Or I could put my chips back in the game and bet the farm.
My risk-adverse nature, while admittedly more suited to real estate investments than equities, perfuses me with hesitation arising from the following questions:
The fund isn't overly ambitious, but is trying out an untested business plan. What do I do if the fund implodes? How will that look on a resume?
I already exhausted my get-out-of-jail-free card in the form of my MBA. This was my second and final chance at breaking into IBD. Realistically, there's no way I could break back in later on, at least not a BB. To be honest, finance was my dream, and I technically made it. But now I'm at a stage in my life where there are no backups. I don't think even corp fin will be on the table with a long stint in a nontransferable background like Real Estate.
Am I being overly pessimistic as to my perception of the apparent the lack of contingencies? Are there exit plans than I'm overlooking? Who wants to be associated with being a part-manager of a failed fund? I don't want to be waiting tables again after I put in all that hardwork and 150k in my MBA. But there's no way I can ignore the unlimited upside of Choice #2 if I could only be made to see that the fall isn't all that far if I miss the leap.
This cognitive dissonance is tearing me apart.
Please help.
I would go the real estate route. Much more upside potential. Having said that, you haven't said much about the untested business plan - what is it exactly? If you were starting up a fund to simply develop real estate, it would be a no brainer - the answer is to do it. You'll be making multiples of the salary you would make in banking after just a few years.
Can't speak on it because of NDA but it's core/value-add in a specific market where returns are more weighted on appreciation than NOI, hence heightened underlying risk due to volatility. Small development projects are also in the picture, but only after a 3 year track record. I've done the mental math, and earning potential is clearly enormous if everything goes right, but if I was to perform an actual analysis, I wouldn't know how much I would have to adjust for risk. One thing I am concerned about is the lack of experience the 3 partners have. One partner comes from a banking background and the other was a successful residential broker with some profitable personal investments under his belt. No ex REIT or REPE prodigies here. I only have some basic modelling experience from summer stints in acquisitions and equity research. In fact, I'm the only one with RE finance experience. The thing we have going for us is that we respect each other and are all pretty intelligent.
That is why our business plan is untested, and no matter how many consultants we hire, or the pro formas we punch out, who knows what the hell is going to happen. It's kind of stupid that we're being trusted with so much money in the first place, but hey, we're good salespeople.
I also have the added pressure of letting my friend down if I did banking, since we've been brainstorming this business plan together for years (at least its well thought out), and he even sold it to our soon-to-be investors.
I'd go with banking, if you have the most experience out of all the partners and you have only internship experience i'd be cautious. You can always get into real estate after doing banking and make a shit ton of money at prestigious shops, but it'll be hard if you go with the start-up and fail.
do you have a background in real estate?
I misspoke, I have some experience in Real Estate per se, just not in the acquisitions/transactional area. Worked as a CRE credit analyst prior to MBA, so at the baseline, I know how debt works. I can leverage up our acquisitions once we've found our footing. Also I spent a summer at Delotte S&O, didn't like it, but was good at cases. I think they just wanted a strategy guy to round out the team. One of the partners was also a badass realtor making 7 figures selling houses. No idea as his to investing acumen other than a few properties he owned since pre-2008 that have quadrupled in value. He's also bringing in a lot of capital and investors backing him. He's our real estate veteran, just not numbers savvy like me and: Other partner quit as soon as he made VP at Goldman. He's just an all round smart guy and likens real estate transactions to miniaturized M&A. I'm am still the least qualified out of the three.
It would be great to do a 2 year stint in banking, force myself to see that I probably hate the business anyway, and then go back into RE. Thing is, it would unfair to make the partners wait for me to execute my hedge. They'll move on, and I'll never have a direct entry to a C-level position like this maybe ever again. I'm making no mistake, we'll be building from the ground up.
Background of the team is a little concerning in my opinion. The business is very relationship oriented so not having that big rolodex could be a challenge. I would add that as you target larger capital sources, team background will be hugely important, especially until you develop a track record. You probably also want to think about timing - where do you think the market will be in a couple years and how might that impact your business plan? There is plenty of capital to go around now, but good deals are getting harder to find.
I can tell you that while I'm not the same scale as you, I am working with 2 partners as well investing our own money and levering it up. We focus on SFH, I guess you can call it value add/opportunistic since we're gutting the places.
You will run into all sorts of issues you don't understand because you simply don't have the experience. We made mistakes but we're okay with it since we knew that and its our money. No amount of modeling will help when you buy a place and 2 months later you find a plumbing issue that a really experienced guy might have known. Not saying it will be the same but hope you get the idea, its pretty dam hard to get it right.
I would go with the best traditional banking job you can get and bust your hump to get as much institutional knowledge/skills as you can. That position will serve as the bedrock for all future endeavors. The operation you described sounds pretty fly-by-night. Perhaps there is a non zero sum game way where you can go traditional and be a consultant/adviser to keep your foot in the door for equity and position if things take off over next 2-3 years.
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