Is development overrated?
Most of the posts on this forum are geared towards REPE and the hype around working for a big fund which I understand with the big salaries, big bonuses, and more structured recruiting overall. Curious to hear if you think an average REPE career is the clearest path to making the most money long term. On that note, what is the hype around development? I get you could theoretically start your own firm at some point but 95% of people won’t do that and building buildings is cool…but when down to brass tax you aren’t making the REPE money and overall your comp relies on very inconsistent bonuses. What is the point of doing development in the hopes of maybe one day making it big?
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A case for Development over REPE is that Development can be much more intellectually stimulating. The projects I work on involve intense public outreach/local politics to obtain approvals, need to understand the current environmental laws and zoning codes, requires hiring and leading a team of design consultants to deliver a fully coordinated and cost effective set of plans, then overseeing construction, then leasing, etc. And of course underwriting and modeling the deals. I enjoy working on multiple projects in completely different stages.
My REPE peers get paid a lot at a young age, and are excellent at financial modeling and pitch deck creation, but they don’t have as good of a grasp on how to plan for and execute a business plan, and would have a harder time doing their own deals. For me, after just a few years in Development, I have closed on numerous value-add deals that I work on outside my W2, and utilize the design/construction skills that I learned in my job.
I think there is an argument that "REPE" is finance while development is Real Estate. The thing with development though is you're likely underpaid from the start, but it gets picked up with carry down the line... unless that carry doesn't hit then you're just underpaid.
I don’t know but the partners I work for make a whole lot more money than any PE founder and MD…the money is definitely there. The MDs at my firm make just as much as the MDs in PE and it’s mostly cash. Less carry. Which means paid up front.
Shouldn't be the dealbreaker - but don't forget about the tax advantages ( depreciation shield, 1031 bennies) you get being a developer. A lot easier to ^^^^ your net worth in a few years w/ development imo.
There’s almost no reason to choose development over finance roles in REPE. I am a development professional. The payout is way too late in the game. Your peers in the finance roles cash out earlier and enjoy compounding interest.
Have you worked on deals outside your W2?
Thanks for the repeat monkey shit. Indeed, I outright own multiple multifamily and retail properties in the second ring suburb I grew up in.
Whoa, I didn't throw MS. I can't even give bananas to anyone... idk how this forum point system works tbh. It was a genuine question.
Assuming you are posting in good faith, asking a RE professional if they have taken part in deals outside of their W2 is a very pointed question, do not mention the W2. Most people who are strictly W2 in their 30s are not really in development, according to some critics, and have no skin in the game (I mostly agree). Next time, I would ask "Have you been involved in deals outside of your office?"
Why in the world does mentioning the term "W2" matter? There are plenty of people who are W2 employees in their 30s who are in development. It's incredibly rare for anyone outside of the principal at a development shop to have "skin in the game."
I mean, I'm all for being polite until the situation warrants something different, but this seems like a really, really thin-skinned hill to die on.
Guy sounds like a major pussy
“Someone is wrong on the internet”
My man, you got offended because someone used the term "W2" to reference being an employee. If you are that thin-skinned, you probably should just sit back down quietly instead of compounding the embarrassment. Honestly who cares? If you are this sensitive to "prestige" shit then go to the IB Forum or something.
I have more money than you precisely because I care about these things.
Lol. And this, fellow monkeys, is how you know when someone has lost an argument but doesn't have the balls to just admit it. You have no idea who I am, what I make, where I am in my career... so obviously you have no idea whether or not you have more money than me. The only thing we both now know is that you certainly don't have a better argument than I do.
His question was pointed and most people would write it to belittle, I certainly would. If you don’t have skin in the game or equity you’re not a real estate developer. You merely work for a real estate developer. That jump is a big one for most and one of the reasons I caution entering this field. Development is a rich man’s game
Lol what a cornball.
This is... a pretty jaundiced take, to say the least. First off, it is not at all clear that my peers in finance roles "cash out earlier". I certainly would agree that in my 20s, people on the finance side made more. However, I don't think it's entirely correct to be claiming that making an extra 25-100,000 a year for a decade is going to be making a huge difference when it comes to long term financial situations.
If you are solving for "earnings before 35" choose finance every time. If you are solving for "potential lifetime earnings" I'd argue it is not particularly clear which is more lucrative. I'd argue quite strongly that the top 5-10% of developers, at least, are worth way more than their comparable peers in REPE. For younger or mid-level people, you may be right. But in terms of ceiling, or even realistically achievable ceiling, development blows REPE out of the water.
To be fair, $25-100K extra a year for a decade, is a meaningful amount of money to just about anyone. Specifically, to those in their 20s-30s, who might be burdened with school loans, don't come from family wealth, want to achieve the big milestones (wedding, travel, buying a home) at a reasonable timeline. There's something to be said about getting more "wins" under one's belt at a younger age, I think it builds the foundation (both in terms of confidence and financial security) to take more calculated risks in the middle-later stage of one's career.
Don't get me wrong I clearly see the upside case in development down the road, but at the end of the day that delta in early career earnings can be enough to get one on the right track financially, which in turn could result in more freedom/optionality to really step back and think through the next stage of your career as one hits 30-35 years old. In short - the right answer is different for each person. For what it's worth I think development is more enjoyable and that's why I'll stick it out, but I do find it hard to not have some feelings of jealousy when hearing the comp figures my REPE peers are making at the same age.
@DevMonkey Why are you so pressed? lol. I'm reading all your comments on this thread and I don't understand why you're so offended and so determined to make the argument that REPE is better than development (which objectively is not true). Did a development project recently blow up during these rate hikes and you're on here to shit on development because maybe you suck at it and you're about to file for bankruptcy?
If you're talking about strictly working for someone then yes, REPE definitely pays more in the junior level and maybe mid level, but you also very conveniently left out the demanding hours in REPE. Not everyone wants to work 80hr weeks. And as Ozymandia has already mentioned, there are way more people who go out on their own and do small renovation/developments on the side than those who raise funds. As I already commented, it is much easier to be a lone wolf in development than it is in REPE. One can reasonably save a couple hundred thousand dollars and pursue a renovation project, in fact, I have a friend who has done this and made a couple hundred thousand in ~1 years time, so idk what you mean by the payout is too late in the game...you can development/renovate a property then sell it and move on to the next one... Or you could play the entitlement game and literally make 10x, 20x, 30x on your money if you know how to play the game. I've seen dirt poor immigrants become multi-hundred millionaires through development. I know of a ~30 year old who went from renovating triplexes to developing 400 unit apartments in less than 10 years. I know many more people who have become multi-millionaires through development, but I don't know a single person who raised a fund.
Development rewards those who take risk. That is not for everyone. And for those people, REPE might be the better path. But for people who have a higher risk tolerance and are more entrepreneurial, development can tremendously accelerate your earnings. And no...development doesn't necessarily mean building 500 units. You can make a lot of money developing single family homes.
Ew
I know multiple lone wolf developers. One syndicates and can do big, institutional deals. The other one has a wealthy individual partner and works on smaller sized deals. The point is development is a very niche skillset that can be done on your own and be extremely lucrative. I think that is the attraction for many. Much riskier than trading existing assets though.
If you’re not at the MF or mega developer level I’d argue there’s not this massive disparity in pay. And in terms of being an employee - successful developers probably make more than successful acquisitions guys outside of that mega space.
In my view the best middle ground is to work for an opportunistic sponsor that is backed by a discretionary fund (hard to find). Can work on deals across the risk/return spectrum, meaning anything from stabilized to heavy value add acquisitions, all the way to fully approved or unentitled ground up developments.
Better pay at the junior level and still get into the weeds, plus sets you up to be in more of a sourcing role later on for either a developer or traditional repe fund because you’ll have a great mix of capital markets experience paired with actual property level operations/construction knowledge.
Have good examples of these types of sponsors?
I'm in one of these seats and confirm all of the above. In terms of experience I haven't learned as much as I do here every day in any of my other jobs. Acquisitions, development, capital markets, ops & asset management little bit of everything.
Basically took the words out of my mouth. Getting experience doing everything you’ve said and more. Tons of deal flow, good mix of macro and micro-level analysis, still get to visit project sites and do property tours, sit in design/construction meetings, very involved in the acquisition/entitlement/DD stages, etc. Enjoying it a lot so far (even if it’s a bit overwhelming/requires long hours).
Better pay until you hit a glass ceiling and realize that the owner’s aren’t going to promote you/pay you any more because…well…it’s a family business/glorified mom & pop shop at the end of the day.
I assume you have better owners than I did, but once I hit a certain level it became obvious that they couldn’t afford to pay me more salary, yet they needed me to continue to put in longer hours and take on more responsibility to line their pockets.
While I agree that the experience you gain is great, imagine after 3 years of fundraising a discretionary fund that high interest rates upend your entire pipeline because of cost increases and destroy returns for your discretionary fund because cap rates are expanding (to the point where you have to return capital). Real estate is too cyclical for the amount of time required to become “great” at it. I have since moved on to corporate finance.
Hoping there’s a better ending to your journey but interested to get your perspective on surviving the current market!
Ultimately the job that makes you the most money is the one that you are best at. Someone who works in real estate development and loves their job is going to make more than someone in REPE who is only doing it for the money in the long run. That being said, all else equal, REPE pays more at the junior level, but generally the trade off is hours. When I was working for an institutional developer, my hours were typically 45-55hrs/week whereas REPE is typically 60+. As for going out on your own, something many people on this site can't seem to grasp is that development isn't building 500 unit buildings or nothing...you can make a lot of money in development at much smaller scales. There's a reason there are SFH developers. Development also allows you to do deals with less money because you can acquire a rundown property/land at a lower basis and then use a construction loan to build it (at smaller scales, you can get 100% construction loans) and then sell it for a profit. But in REPE, you are buying properties that are already built and maybe stabilized, which is more expensive because all the work is done for you. So for example if you buy a run down property for $1mm, put in $500k of construction and gut renovate it, then sell it for $2.5mm for a $1mm profit. In this scenario, you only need $200k of equity (80% LTV with 100% construction loan), but if you were to buy a similar property that is fully renovated at $2.5mm, then you would need $500k (80% LTV) and it will be a long time before you make $1mm profit which is why REPE is a volume business and you need a lot more capital to make it worth your while than in development whereas in development, you can make a killing on just 1 deal. Now ofc the downside to the development strategy is risk and it requires work, but development is a business where you can be self sufficient and not rely on anyone else. You can reasonably save $200k-$500k and then go pursue some renovation/small development projects rather than need to raise millions from investors
Agreed with the above about working an an opportunistic fund. There are discretionary funds that play in all asset classes and risk spectrums and it makes it more interesting. The deals you're chasing change by the quarter. Sometimes you'll be focused on down the fairway value-add multifamily and other times you'll be coming up with preferred equity structures, all depending on market conditions at the time.
However, in hindsight, I definitely wish I went into multifamily development in an attractive market. I know many guys who are lone wolfs in their city while their company is headquartered somewhere else. They run a handful of deals within their city, know all the right people just by only having to focus on one product and market, and at some point they will make a big promote check (multifamily development ALWAYS ends up paying big at some point within a decade). So long as you are not the founder and taking the hits on the chin in the bad markets, your promote should eventually pay out in a meaningful way.
Other reason is that being an expert in multifamily development in a good market is one of the best ways to go out on your own early and successfully. You can know the process in and out by time you're in your early 30s and being in a good market means there's going to be lots of capital you can find that wants to be in there. Working in REPE is more difficult to go out on your own, especially if you're working on multiple asset classes and markets. It just takes too long to become a true expert when you're always looking at different products and cities, and the capital you'd have to raise for it is much more institutional versus there if you want to go on your own in multifamily development, it really wouldn't be that hard to rally a few people with money around a small project of yours and go from there.
A lot of people mention the differences in the work between REPE vs. Development. I don't know if anyone else thinks about it the same way, but I've found that I just like working in Real Estate and I just make my perspective that the fun part of it is just finding ways to make money and do the job well, whatever aspect/job that may be. I haven't worked in development, but I've crossed acquisitions and AM and found enjoyment in both from this perspective, and I think I would find the same in development.
What is a discretionary fund?
It means once the fund is raised, your firm doesn't need any approvals to deploy it. Sometimes capital allocations are non discretionary, meaning you know you have the capital available, but you can't buy anything without the final approval of your investor every single time. It slows down the process and your investor can blow up great deals you have for whatever reason after you've been working on them for a while
First off, if you're in development for the bonuses you're doing development wrong. You make money in development through deal participation.
Second, "building buildings is cool" is kind of the point. At some level, if you can make X doing one thing and Y doing another, and X and Y are comparable enough, you're better served doing the one that you are most interested in and/or better equipped for. I thrive in the chaos of development. I love meshing the creative with the technical. I enjoy that every deal I do, I learn something obscure that I can take to the next deal. Bottom line, I'm pretty good at project management. Why would I go into "REPE" where I don't get to experience anything I enjoy, don't get to excel because my skillset isn't as good of a match, all for marginally better bonuses in my 20's?
Anecdotally, I know far more absurdly wealthy developers than I do "REPE guys," for what it's worth, and most relevant to me, I know a lot of relatively wealthy developers who live really cool lives and work like 20 hours a week. That's my goal - doing a deal or two at a time, answering emails from my ipad in a coffee shop, and going to the beach every afternoon - not putting on business casual and being in the office 4-5 days a week scrolling through spreadsheets.
It is a finance site that is largely geared towards college students and young professionals, so this is hardly surprising. People want to ask about interviews, or the culture/pay of where they're interviewing, or fantasize about getting a job at one of those big firms... so the disproportionate focus is going to be on places that pay big bucks, pay big bonuses, and have name recognition. Not on the way more locally fragmented development business.
In what sense? If you mean "the path that most resembles traditional finance roles in terms of progression and pay" then yes, absolutely the clearest path. If you mean "the path with the highest reasonable ceiling of net worth," then categorically the answer is no. Development has the potential of being more lucrative for a small percentage of sponsors.
Development is more challenging and more complex, it requires exposure to and (relative) mastery of many, many more fields... as someone else said, the "building is cool" is a feature, not a bug. People go into development because "how do I maximize my lifetime earnings down to the penny" isn't necessarily what every single young professional wants. Enjoying your work/life balance, being stimulated by your work, touching different aspects of a deal... of of those are extremely valid reasons to forego immediate or even medium term earnings potential. It's not like you make minimum wage! If I make $200,000 instead of 225,000 but I'm not miserable every single day; you better believe I'll take that trade-off.
You don't get bonuses in development, or you do, but that isn't the route to wealth - participation in deals is the way you make the big bucks. So yeah, my salary might be 25% lower than my colleague in REPE, but over the long term, the idea is that I'm being paid in appreciating assets and participating on the ownership side.
And to reiterate again; at higher levels, development is absolutely as high paying as REPE, and going out and starting your own firm, or being an important enough member of a team to warrant meaningful ownership, is not out of the question or even statistically unlikely. What you seem to be solving for is "assuming I die in a car accident at 35, what career path will pay me the most." Which... is fine, I guess, and some people don't have the risk tolerance to take their own risk, and would rather be W2 employees their whole life. In that case, toil away at a fund and risk someone else's dollars! If you have the ability and the personality to take actual risk, go into development and make vastly more.
It’s hilarious to see how hard development people try to sell the dream.
Go look at a Forbes list and tell me how many "REPE" guys you see on there, versus how many developers.
Doesn't take much work to sell the dream when the development dream is objectively better
Who's selling what dream? The question OP is asking is if development is overrated and if REPE is objectively better/more lucrative. Most folks on the development side are simply saying that it depends and it is not so black and white, which i feel is a pretty tempered and reasonable take. Development is more suitable for some people while REPE for others then they offer examples on how development can be more or equally lucrative. How else should people in development answer the question?
Perhaps I am wrong, but based on your comment it sounds like you may be on the REPE side. Are you living the dream? For those in REPE who work 60-80hrs+ is that the dream?
Idk that I agree with 95% of people in development will never do their own deals or start their own firm.
I think over 5% of bankers/PE guys end up trying out the investment property thing at least once. The real question is what percentage of the plenty that try will end up with gnarly cost overruns, maintenance & repair fuck-ups and other headaches such that they get scared straight into being an index / money market investor for the rest of life haha.
Dev & Real Estate in general is really hard to paint with a broad brush. There's a huge difference in paths depending on where you are. An up-start regional firm where you have low cash & high carry comp is a different risk/reward than the risk/reward of being at Hines or Speyer, which I'd argue is a more similar career path to general REPE. One thing I would point out is I worked on huge big box industrial developments for a while for one of the big Owner/Operators, and there was very, very little that I learned that I feel is transferable to doing my own small residential deals or even small industrial deals. It's just such a different picture doing development from the bully pulpit of a major firm than actually being a RE entrepreneur.
Always examine the source of these kinds of claims and opinions. It's being made by a person desperate to reassure himself that working awful hours at a boringly repetitive job for an extra 50k a year is 100% the right choice. If he was honest about the actual prospects of entrepreneurship in real estate, he wouldn't be able to justify that choice.
Is he wrong though? What percentage of people in development will end up doing their own deals? Yes, a good chunk of people who work for a development company will have participation in their firm's deals, but most people in development are never going to go out on their own and that's totally fine.
No it’s not overrated - money is there for those that are good at the job.
I think a better question is where you fit in better. I’m a strong believer that you will make the most money in your career doing what your best at.
Money wise, you make less in your junior years, but there is a lot more on the table as you get experience. Your ability to impact outcomes when you work for a developer is much larger than being at a REPE shop - in my experience you get paid for this once you start creating tangible business impacts. You have to remember development is opportunistic returns and shops that execute this well make the most money out of anyone in real estate.
Personally I think you learn more and become more valuable in your 30s in dev than REPE, but that’s just my biased opinion.
I happen to agree, those I'm also biased, but I think there is a pretty simple explanation. Development touches a lot more professional verticals than REPE. Not going to master all of that, but it takes a lot more time to understand how the various pieces fit together, and become an expert at anticipating that, than it does in REPE.
Review your 1,000th offering memo or negotiating your 100th PSA doesn't involve a lot of scope for self-improvement. Going through your fifth or sixth development deal from soup to nuts means being able to apply lessons more and more effectively, if only because you haven't gotten as many reps in.
Development doesn't have to be 15-20 years before making big bucks. Very possible to be $500k+ before 35 at the merchant build multi-family shops.
With potential to get to a real big number depending on promote structure and performance.
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