GP vs. LP Day
Before I get the "Use the Search function" reply. I already did that, as well as google.
I currently work on the GP side of a company focusing on acquisitions. I'm curious about what a day for someone on the LP side (analyst/associate level) is like. My assumption is that its reviewing deals that we send over, but I have no idea what else they might do.
Thanks in advance.
Also interested, specifically the LP side of development
Specific to RE or other LPs as well? I know how it works for PE/VC FoF
I work in Acquisitions for a LP with $9B AUM. I used to work for a smaller but very active multifamily GP.
We typically invest directly with our core fund and form JVs (development, value add deals, opportunistic deals) with our value fund. I'm typically juggling anywhere from 3-5 deals at a time in various stages of underwriting, due diligence, etc. I work directly with the acquisitions officer and we form a team that takes a potential deal from initial analysis, full underwriting, JV negotiations, initial investment committee approval, due diligence, final investment committee approval, and hand-off to asset management. It's a much more structured process than when I was on the GP side.
We spend as much time analyzing potential investments than I did when I was working for a multifamily GP. More time, actually. The entire time we're working through a deal, we're receiving feedback from investment committee, portfolio management, and asset management that we have to react to and address, I never worked weekends or past 8 PM at my old job, and have worked many 80+ hour weeks as well as maybe 5-6 weekends over the past year at my new job. This isn't the norm, but it happens from time to time.
Right now I'm working on a JV 7 asset self storage acquisition, a multifamily development deal, wrapping up an office development deal, and just starting on an industrial development deal. To give you a flavor of the day-to-day, here's what I did yesterday.
Several morning phone calls with local brokers to discuss two deals I'm working on right now. We involve asset management and portfolio management on these calls, which are meant to vet assumptions, discuss the market, talk about sales activity, etc. This helps socialize a deal with decision makers not on the acquisitions team.
Finished building a portfolio financial model of seven self storage assets in three states in the southeastern US. This is the first SS deal we've looked at with our value fund. Sponsor is a major publicly-traded REIT who acquires or builds and holds forever. Thus the underwriting they sent us wasn't an actual cash flow model, just a proforma, which would not work in front of our investment committee. So I built a fully-functioning model from scratch using their assumptions as a baseline, then altered a bunch of assumptions based on our own internal research and views of the deal. This is fairly common. When receiving sponsor models for JVs, we often rebuild them from scratch or drop them into other sponsor models we like better. Love Cortland Partners' financial model.
Met with our CIO and the portfolio manager of our value fund to discuss the JV term sheet for the SS deal as well as where the underwriting was shaking out. Received feedback on assumptions, what to dig into deeper, what market information they needed to get more comfortable with the deal prior to investment committee.
Finished a turnover memo for an office development deal that we closed on earlier this month. Met with asset management and portfolio management to discuss key milestones to track over the next month/quarter/several years of development.
Worked on an investment committee memo for a multifamily development deal in New Jersey. Our IC memos are huge and take a lot of work to put together.
Any other questions feel free to ask.
Thanks for the detailed reply, that was awesome. Sounds like you have pretty heavy deal flow and the opportunity to work on a wide array of asset classes - which I definitely envy.
The company I currently work for does a lot of deals with HNW investors as opposed to true LP funds like yours (although its been done in the past and appears to be the future plan).
What is your level of involvement with the GP in the acquisition process and asset management function (if you have that experience)? I realize that question is vague, but I'm trying to understand how LPs and GPs work together (or if they even do) other than the LP providing capital into deals.
For instance, your day sounds pretty similar to my day (but with more deal volume than I currently experience) which I would not have previously expected.
Side note: I don't really know much about this, I'm relatively new to this.
BDcharlus,
Great post. If you don’t mind me asking, where is your office based out of and what’s your comp like?
Can you share the Cortland Partners financial model? How long are your IC memos and what makes them so long typically?
What did you do to prepare yourself for the jump from GP multifamily to LP with wide asset class exposure? Any tips?
There's honestly not a ton you can do. I dug into as much market data as I could for other asset classes and familiarized myself with the basics of how to put together a cash flow for office/industrial/retail, but looking back I really had no idea what I was doing when it came to modeling other property types. I focused on what I did know -- multifamily -- and hammered home the rationale that 1) I wanted to work for an LP and was only seeking out LP positions, and 2) I wanted to gain exposure beyond just multifamily. I think the powers that be at my current firm recognized that I had succeeded in my previous role, wanted to move into a different space, and surmised that I could get up to speed quickly if they gave me a shot. A lot of the time that's the best you can hope for in this business.
Can you go into more detail into how the "initial analysis, full underwriting, JV negotiations, initial investment committee approval, due diligence, final investment committee approval, and hand-off to asset management" is a more "structured process" at the LP you work for vs. on the GP side?
Yes can you please expand on what goes into your IC memos?
Sorry, can't share a proprietary financial model from another firm. IC memos are typically between 30-60 pages of written information and another 100-200 pages of underwriting, third party reports, market research reports, etc.
Jesus Christ that sounds terrible
I am an Associate for an LP that serves as the U.S. Real Estate program for a foreign IB. Much smaller and leaner than what @bd.charlus is doing. It is basically a few guys including myself. I'm the only young guy in the office and basically act at the liaison between GP's / 3rd parties and our foreign IB as well as screen deals. We actually have a few analysts that do the internal model back at the IB's home office over seas, but its my job to screen all opportunities that come our way. So, a deal will come in either direct from the GP or unsolicited from a mortgage banker, and will review the investment package and go through their models. I usually don't spend a whole lot of time on a mortgage bankers packages because they are just shotgunning it to a ton of different LP's, but if it is intriguing and is what we have been internally discussing on what we want to do than I do a deep dive. When our existing partners, those who we think highly of, send us a package, it is effectively go time and I tear the package and model apart. I ask for as much market material as they can give, reach out to brokers, and schedule a call with the GP to give us the story and the plan.
Since we are so lean, I am involved in basically everything. I help structure deals from recommending waterfalls to stress-testing models and suggesting added SC or HC contingency, added carry, interest rate swaps/caps/corridors, etc. I create the usual tables and what not and then help the guys overseas create and get them information for their IC package. If it is approved (never not approved if us U.S. guys recommend it), we put together term sheet and I am involved in editing and reviewing and negotiating venture doc's and OA's as well. I am continually tracking current developments and reading our GP's reports- which I always have a hard time getting. I am big on tracking contingency usage and I try to even read RFP's during lease-up. As a deal comes to close I am apart of any major decisions and will model exit sales prices and work w/ GP during marketing of building for sale and the whole disposition process. Then do calc's for net investor profits etc.
On a day to day basis, this obviously changes w/ deal flow. I do a lot of biz development and travel a bunch meeting w/ existing GPs, mortgage bankers, and try to grow and expand our biz with meeting with new GPs. I'm a typical looking white guy that has somewhat of a personality so they like to send me in and do some talking. We are usually juggling 2-5 deals (5-7 now - very busy) which are all at different stages so I am currently running around making sure I don't F up. Besides all of the above, I read A LOT of articles and try to define trends and see WHAT we should be doing and WHERE. This is what I do a lot, and internally we are always discussing what is next and what we like etc - Mortgage Bankers are good resources to this up to a point. I also am in charge of dispo our portfolio of distressed debt we gobbled up when the gettin' was good in the debt ex days of '09 - '11.
I am personally focused to trying to get the right product for our end investor. While yes Developers get paid big money to think outside of the box and get creative, LP's can as well in terms of where they want to put their money. It is here where I am always thinking about what to do next and where we should be.
I came from a REIT to this role about a year ago, and I love it. Always something new happening and I enjoy the hustle. Besides that, I have learned more this year than my combined year at a REIT and school. Been like a Masters program, really.
*excuse the grammatical errors. I am tired and it is time for bed.
Thanks JB159,
When you are the LP on the deal are you typically the sole LP? Or a part of a group of them?
How do you think your underwriting of the deal differs from the GP?
Sure thing.
We are the sole LP. We usually don't like being grouped with other investors as we want to have a loud voice during a major decision.
In terms of how we underwrite deals differently.... We constantly ask ourselves "Why are we so lucky? Why did the GP give us this deal and not someone else?" My job is to sniff out the BS and go through the assumptions. We are obviously not as intimately involved in a development / acquisition as the GP, so there are a lot of nuances that is hard for us to get and hard for the GP to explain. This is where really good GP/LP relationships are so important, and we really value those relationships. When I underwrite, the first thing I scrutinize is the budget - I will ask for a breakdown on the hard entered numbers within the Hard Costs. I usually like to try to see if we can beef up contingency's, add 25-50bps to their interest rate if they don't have a cap or a floating rate within their model, increase exit by 25-50bps. The biggest things I have been scrutinizing lately is the growth within the model, so usually cutting the usual growth assumptions at 3% down to 1.5% or something depending on my market research. I have also been stress testing models to see at what point if whole lot of things go wrong, do we still get our equity back. The last thing in the world a LP wants is a capital call, so we have been trying to increase Soft Cost contingency for Operating Deficit and Construction Loan Interest, so in that case if leasing takes longer or rates increase, the Loan is paying 60% or whatever of the capital call, not the LP paying 100%. If after we go through all the stress testings and add to contingency's and still yield a IRR in our wheel house, we will usually go through with the deal.
All in all, it is probably what you'd expect..
What are some of the websites that contain articles that you all look into every day to stay up to date on trends and what is going on in the market? I am interviewing for an LP Associate position in NYC
For the US - Bisnow, Globe St, The Real Deal
For Canada - RENX
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