Debt side to acquisitions
Is this a common path or change. Debt does pretty similar underwriting correct? If I start with a debt fund can I eventually move to a buy side esp if it’s a well known firm
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Shouldn’t be too difficult, the experience you get from a debt fund would be a great place to start if you want to transition. If you network/grind it out you will be okay.
However, transitioning to the some of the more prestigious REPE firms (Blackstone, Starwood) would be more difficult.
If you're at Madison Realty or an Ares type, yes you absolutely can do this.
Related question: how much harder would the same switch be if it was from a CMBS position?
Yes 100%. Debt modeling and equity modeling is the same thing. The only main difference is the equity side cares more about operating expenses and capital expenses. But you can make the change easy. Don’t let anyone tell you otherwise (which is unfortunately pretty common).
I’d say the underwriting is similar but the modeling is different. A lot of banks use stabilized scenarios for sizing and don’t worry too much about monthly cash flows. They also don’t model return waterfalls or anything like that.
The core skills are transferable and the differences in modeling aren’t hard to learn though. You’ll be in a decent position to be articulate in an interview coming from debt.
Who said OP works at a bank? Debt side doesn't automatically equal bank.
Debt funds certainly worry about value-add scenarios and model waterfall returns for just about every deal.
The terms of a JV have zero effect on the debt. All that matters is that there is enough income to service debt - why would the lender care that the GP gets 20% above a 10% irr?
Why are you bringing up joint-ventures? Where were those mentioned prior? And the rest of your comment really just shows you don't know what debt funds do.
Edit: appreciate the MS. Let's hear the argument as to why lenders only care "that there is enough income to service debt".
Any pref/mezz deal will have a waterfall structure and IRR component to it as well. Seems like another IBer talking out of his ass about an industry he knows 0 about.
REIB analyst brah - there are pref deals with waterfalls but those are traditionally done at equity funds. For example: at square mile, a group that has both debt and equity funds, their equity funds handle their “structured equity” deals that you’re talking about. These pieces often have no contractual debt service payment, but instead they get a preferred return (say 7%) from whatever cash flow is available and then above the preferred return they get x% of cash flow up to a capped IRR, say 16%, and then all cash flow after that goes to sponsor (this is just one example of a structured equity deal - obviously many ways to structure it).
Debt funds will make an 85% LTV loan with a 7% interest rate. Sell 65% LTV of the loan to a life insurance company at less than 7% rate (to account for the lower risk of being lower in the cap stack) and then hold the 65% to 85% LTV piece at a higher than 7% rate. They effectively create a preferred piece on the back-end that yields a high % interest - say 10-12%. But the borrower just sees an 85% loan with a 7% interest rate. These types of loans are debt funds bread and butter. They’re more debt-like given the preferred piece gets a monthly debt service payment, there’s no waterfall, catch-up or any of that nonsense.
Not to mention there are plenty of straight pref / mezz pieces that take a flat interest rate + PIK each month (also no waterfall for those).
Obviously there are dozens of debt funds out there and maybe some do the structured equity type deals that I described in my first paragraph. But it’s definitely not true that ALL debt funds do those - the majority of debt funds just make high LTV, high interest loans, sell a senior portion of the loan and retain a junior portion of the loan to juice their yield.
Don’t be so salty brah :) You got to learn something new today
See my response to Analyst 2 below :)
OP didn’t say where they work and a majority of RE debt is through banks so thought it was fair to share that observation. Calm the fuck down
Sure, people make these moves often. A lot will use an MBA/MSRE/D as part of the bridging mechanism, very common with that step added.
I made the same move. Granted i) I do acquisitions at a developer, ii) I got recruited by a headhunter, and iii) its a small family office
Who was recruiter/firm?
What type of equity funds would be realistic moves if coming from a strong debt fund?
Any. People make the moves all the time from debt to equity and equity to debt. It’s all the same at the end of the day. You just play in a different part of the stack.
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