Question is basically the title
Let’s say you have the option of going to work in acquisitions at a very well established REPE firm (Centerbridge / Starwood) or an up and coming REIT or REOC that is currently small, focuses on one asset class, and the team is comprised of former employees of very well established REPE firms. Also, the small firms growth trajectory looks promising.
When do you go for the smaller firm? At a younger age, I feel that the established brand is a safer route. But when I’m in my 30s and have the chance to get meaningful carry, there’s a much better chance I go with the up and coming REOC.
What are your thoughts on situations like this? Are there any other criteria that would be dealbreakers one way or the other?
Small firm if they not only got the pedigree and experience, assuming you already have some notable deals to talk about. Have worked in that environment and will say it was the best decision I could’ve made.
Looking at their deals and their capital raising ability capital. Fit definitely matters.
Why was it the best decision you could’ve made? Would love to hear more background
I think you hit the nail on the head,
You go with the big firm first because you will 90% of the time learn more, and they will be more willing to teach you. In my experience moving from a big operation to a smaller buyside they expect me to know everything, and there are fewer people above you to teach.learn from.
So go with the big name firms until VP then switch and get carry
This is fine, as far as it goes, but I feel like it vastly oversimplifies things. It's not all that easy to just "get carry" somewhere, even as a professional with several years of experience under your belt. Moreover, I know it's trite, but it can be difficult to transfer from a high-paying job (in cash) to one in which you get paid a lot less and a lot of that comes in the form of carry, which won't be realized for years.
I mean, for a shitty comparison, look at Facebook. People who started there day 1 as junior folks got WAY more equity than extremely senior folks who signed on 5-10 years later. Part of getting paid, especially in CRE, is willingness to take on risk.
I would actually argue the smaller shop will be a better learning experience. No one will mentor you, of course, but you'll be forced to wear many different hats and learn in real time, which may not be the case at a bigger shop where there are more hands for each role.
Others have said it before and I'll repeat it; real estate is not investment banking. There is no real premium put on where you've worked previously; having been a project manager at Hines will not net you a meaningfully more attractive job offer than having been a project manager at a less well known shop. You should go where the opportunities and business strategy are most in line with your own interests, of course, but when it comes to long term "wants" in this industry, meaningful carry is the holy grail. Any place with a decent shot to become bigger/more successful that is offering you a carried interest in their deals is automatically a front runner, in my opinion.
I agree, carry is hard to get and your facebook analogy is good to illustrate that. But for every Facebook there are 1000s of other failed companies.
This is real estate, it's not like not like tech, carry is never going to make anyone a billionaire or 100 millionaire. Not in 10-20 years anyways.
I disagree about this is not IB. I was with a big time brokerage and when i transitioned I stopped getting the resume call backs from top REITS that I was getting before I chose to go with a small shop. But I can attest being at a small shop that you do more and wear more hats. 90% of workers in RE will never own RE(besides a home), so why someone needs that jack of all trades experience is overrated. You can get paid much better a firm doing one specific thing like acquisitions.
I had the opportunity to choose between a MF such as Starwood / Blackstone / Brookfield or an up-and-coming development shop (deals between $1 - 50M) that was absolutely crushing it.
I chose the MF because I believed that if I didn't, it would be very difficult to recruit for it again later on in life. If I kill it at the MF, I'll potentially have my pick over where to go next, whether to stay or jump ship with the firepower of a brand name everybody in the industry can respect. If I don't kill it at the MF, at least I'll learn from my mistakes and see that it was never meant for me. Either way, I've learned a valuable lesson about the industry from an institutional POV and about myself. More importantly, I'll have made a bucketload of money to pay my loans off and support my family with extra to spare.
On the flip side, I definitely enjoyed my time at the smaller shop much more. I learned from people who were best-in-class locally and knew their shit 100%. I was in an environment where I could ask questions constantly and always be learning. There was a ton of responsibility handed to me from day 1, and I felt like I really made an impact on every deal, and my underwriting was respected. I would absolutely love to work at a smaller shop later on in my career when the potential to earn carry is a more realistic possibility.
My opinion on this is simple, you will get more opportunities to go to a smaller/newer shop. I.e., this is NOT a once in a lifetime opportunity in most cases (could it be ground floor at the next Blackstone, sure it's possible, but not probable). Further, the more senior/skilled/exp. you are from the named firms, the better terms you will get at a smaller shop (i.e. how valuable are you really vs. just being cheaper due to lack of exp?).
If you are thinking of working for a small shop, it's really important to understand and be comfortable with how it is funded. Both in terms of funding to do deals (i.e. its GP equity and funding for pursuit costs as these can be big $$$), and funding for operating expenses (i.e. your salary and benefits). We are somewhere in late cycle, stability of operator and depth of resources is key in any job decision, especially now.
There is no free lunch, the big firm could lay you off in a downturn, but then I'd argue easier to join other shops (smaller, etc.) with the brand rep. In fact, if it was a "public" implosion that made you lose your job, headhunters will literally scan LinkedIn when they get new ops (if its a bad downturn, don't expect it that fast, all hiring will slow/stop).
Good luck!
I would add, regardless of age, that the opportunity to wear a lot of hats with no one to show you best practices for those hats can range from frustrating to a nightmare.
Seconded.
I agree and would skew to the larger shop earlier in your career, but I’d place more weight on the team, leadership, and my immediate supervisor.
BIG SHOP ALL DAY! You can do deals in various market cycles, learn and work with smart people while getting access to the best data and information! I personally care to solve problems and work with really smart people than make crazy boat loads of cash. At smaller shops, you sometimes have to deal with nepotism and bad leadership that won't provide training at smaller shops unless it's in leadership's DNA. My last experience was 6 months at a small shop where the head of acquisitions had no idea what a discount rate was, the owner updated a model to 5% YoY rent growth in a multifamily deal, and it was just a bunch of moron cowboys... IT WASN'T A FIT!
Small shops usually don't have access to capital or training, also some founders just lie to get talent in the door. No matter how entrepreneurial they claim to be, $$$ and name recognition / credibility will win the deal unless you significantly over pay. Also, lower cost of capital at larger firms
If you can join a small shop with an institutional mindset, you understand investment thesis, can work with really smart folks and the firm has real access to capital, I WOULD SAY GO FOR IT!
Opportunity to wear a lot of hats is overrated. You can move from acquisitions, to capital raising, to asset management if you network well and do good. I made this mistake earlier in my career to jump from large to small shop... stick with the big boys. You might not make F.U. $$$, but you will live a happy lifestyle.
Absolutely go to the big shop. You never know how any job works out. If you go to a big shop, and your role doesn't work so well (maybe it's the boss, the team, the mandate, whatever) you can more easily switch groups and areas. And with a big brand on your CV you have created more value and status to yourself as an employee, as well as giving yourself lateral mobility. If you go to a small shop, unless they are giving you a big slice of the management company to own, I just don't see why you'd do it. You're getting an inferior brand, fewer resources, likely lower pay, and fewer internal opportunities.
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