Question for others on the institutional side of RE..
Does it ever feel like “not” RE to you? If that makes any sense. I often feel it’s a lot less entrepreneurial than development or working on smaller properties. Your basically thinking as the property as an entity which sometimes feels like just corporate finance.
I'm still relatively close to the physical real estate (tour buildings/developments, meeting with other people in the market, etc.) so I wouldn't say that it feels like corporate finance. The part that strikes me (and relates to your "less entrepreneurial" comment) is that when you are at a big company, there is a lot of bureaucracy, and a lot of silos, so you won't touch every part of a deal like you may at a smaller company.
I second this.
The feel of a private real estate investment firm VS a REPE Goliath is radically different.
I third this. Just avoid companies that chain analysts to a desk, not being able to go on site tours, or meet with brokers / lenders / operating partners.
The distinction that I believe that you're alluding to is that between an operator / general partner / sponsor vs a capital allocator / limited partner. Most institutional firms fall into the latter category. While you see a wide swath of deal types (product type, market, capital stack, etc), you may lack the skill set required to excel in doing your own deals (if that is your end goal).
I guess so... there is still a handful of LP equity providers that bring their analysts on site tours/meetings. Completely agree that working for an operator better prepares you to do your own deals.
Disagree. I worked for a MF-focused GP and now work for an LP. Everyone on my acquisitions team lives and breathes CRE 24/7, 365. I'm actually as much in the weeds if not more so at every step of the acquisitions process than I was while working for the GP--and the GP is one of the most active MF GPs in the US.
Is there more bureaucracy and red tape? Sure, we're a fiduciary. But we're still immersed in CRE all day, every day. Maybe my case is the exception rather than the norm, but it's a data point nonetheless.
What does someone on the LP side do on a day to day basis? I never really get to hear from the LP side and what it consists of.
Varies by the firm. Generally junior folks will be involved with some/all of the following:
Acquisitions 1) Underwriting deals - screening with "BOE" static proformas, as well as subsequent "deep dive" underwriting. This includes extracting market data from broker materials, online real estate databases (CoStar, REIS, RCA, Axiometrics), local market participants (investors, brokers) and other online sources
2) Composing letters of intent to directly acquire, or joint-venture on property investments. There is a bunch of other legal documentation that gets worked through alongside your transaction and external counsel, but that is during the DD stage.
3) Engaging and managing third-parties, generally to produce reports that can be used to assess near-term, non-recurring costs or components of project feasibility (property condition report, phase I/II environmental report, construction consultant report, etc)
4) Preparing investment committee materials - each firms has different internal processes for deal screening and initial/final approvals, but almost all firms LP equity capital providers that I know of require a comprehensive IC memo and its subsequent IC approval prior to posting a hard deposit
5) Working through DD - essentially confirming that the business deal that you were presented and signed up is in fact what you will be getting upon closing. This means confirming that the $X in stated net operating income is a substantiated figure based on in-place leases, historical operating statements and general ledgers, utility bills, property management, leasing and other relevant agreements. During this stage of the investment process, you also need to firm up your u/w and work through advancing whatever required legal documentation. Deals will time-to-time get re-traded during this stage based on findings.
Asset Management 1) Approving (major) leases, capital expenditures, and development draws
2) Overseeing operating partner on business plan implementation - some LP equity capital providers are hands off with respect to this, while others are more hands on
3) Working with lenders and mortgage brokers on procuring financing - LP equity capital providers are particularly involved here, as it is one of the few areas where they can "add value"
4) Searching for areas of top- and bottom- line growth opportunities. Maybe this means installing some sort of ancillary revenue program that a property is lacking, replacing existing vendors with lower cost vendors, and whatever else
5) Quarterly valuations for the LPs invested in your funds/deals
6) Managing fund contribution/distribution model
Good comprehensive list. I am on the debt side, while I am not on the underwriting side now, I used to be in underwriting. Your points 3, 4 and 5 under acquisitions are literally what underwriting analysts/underwriters do on the debt side. I remember working on comprehensive asset summary reports that our credit committee would review before signing off on loans. I also reviewed every lease, tax bill, utility-bank account statements, comps from costar, reiss, and reviewed third party reports and incorporated info from those reports into our ASR's.
Worked on the institutional side at two megafunds and now am an owner / operator. Institutional RE investing isn't real estate investing, it's financial engineering. Not to say the bricks don't matter, they do, but those places have to put out so much equity and they're measured on IRR rather than actual nominal profit. What does that mean? Essentially it means that if any deal of size (say, $100M+) comes out there are a bunch of firms that will bid on it and the one that gets the best debt terms will win it by 2%. When you're UW deals you focus on value-add renovations, capex, etc. but you don't execute that - your operating partner does. When I went out on my own it was eye-opening to realize how little I knew about how physical real estate actually worked. It's one thing to know how to budget $10k in renovations for an apartment in a model, it's another to have to physically go to WalMart and buy the back splash and tile.
Mind if I shoot you a message re: LP --> GP transition? I am contemplating such a transition.
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