Leave Small Dev. Shop to Join Institutional Group?
Pretty torn over what to do. I recognize I'm in a fortunate scenario and am thankful for these opportunities, but would appreciate any advice:
Current Firm:
Current company is giving me equity in deals, a cut of development fees, and a small salary.
Total comp for 2023 is around $150k given a potential recession, with that likely boosting beyond $300k per year in 2024 and/or 2025 as deal flow picks back up. I work 25-35 hours a week and the work life balance is probably better than any career I've seen aside from my friends in tech.
We build small developments less than 20,000 sf.
New Firm:
This is a much larger firm in a different city doing a different product type altogether.
Salary is $120k and they provide a 5% profit share on all deals I source. This firm does much larger deals ($10M+ profit / deal), but the deal cycle is 4-5 years. Compensation for the next 4 years will probably just be my $120k salary / year, but beyond that, it could turn into $500k to $1M+ / year pretty quickly as my equity in deals starts to pay out.
I would need to be in the office Monday - Friday, with 50 hour work weeks, and back to a somewhat formal dress code.
They build 1M+ sf buildings on spec.
TLDR:
At the new firm, I have the chance to learn a new product type, explore a new city, and make a good deal more over the longterm. But I would sacrifice a sizable portion of money in the near term (next 2-3 years) and have a considerably worse work-life balance.
I like the idea of learning a new product type in commercial real estate, but not sure if I should just shut the fuck up and be happy with what I have. Any thoughts are welcomed.
Both sound super lucrative, offering a lot of opportunity. How did you find the new job offer or what brought you to it?
I'd lean more towards the small shop. I just think the smaller deal/development parameters leads to more experience that can translate to more for you in the future. the money down the road in the institutional shop looks good as well but i think its a harder guarantee and bigger projects take a lot more to workout and actually get completed.
It's an interesting story.
I tried to join this institutional firm when I first started in CRE. I messaged a partner on LinkedIn that was an alumni from my college. They said they didn't entertain candidates unless they had an MRED/MBA or minimum 3+ years experience in the industry, so it didn't go anywhere, but I remained connected on LinkedIn.
Fast forward 5 or so years and I went from brokerage to development and did well. Had a big year in 2022, but felt like I could be compensated better, so I reached out to some other shops (including this institutional firm) to see if they would like to talk. I just asked for coffee and advice on my situation, which the partner agreed to. When the meeting came, I told him about the deals I had sourced, the ROI provided to the firm, and one coffee meeting then turned into a bunch of interviews, and eventually the job offer.
I was transparent with my current firm during those interviews, which actually led to a better 2023 comp package, although I'm not sure I'd recommend being upfront with your employer about interviewing around the holidays (unless you want your EOY bonus to be held hostage).
Anyways, I totally agree with your point about experience at a small shop. The hands on learning I've gotten at my current job has been truly second to none. But the new firm would place me on a small (less than 5 person) team responsible for a major regional market, so I feel that the room for experience and education would be somewhat similar.
As you mentioned, I am more concerned about the deal cycle length and hit rate. At my current shop, if we put 10 deals under escrow a year, I'm pretty positive at least 6-7 of those will hit, and we'll be able to reposition almost all of them within 3 years. At this new firm, if I source 5 deals in a year, but only 1 hits, and it takes 5+ years to get it done – I would be playing a much harder long game.
I agree with the other commenter in terms of the smaller shop giving more leveragable experience.
On another note, how do you only work ~30 hours/week? Is there just not much to do? It's my impression that if you're working so few hours, AND you're at a smaller shop, your team is leaving a lot on the table. And maybe you're all fine with that?
We are more of a horizontal development firm in that we try to make a different party responsible for actually building the project 90% of the time (either by virtue of a ground lease or by hiring a development management group to lead that process on BTS deals).
The partners prefer to focus on finding the next deal, so our group is extremely good at off-market acquisitions and making money on the buy, and then teeing it up to our tenant or hiring a project management group to run development. We can handle construction, entitlements, etc., too, but we generally prefer not to get bogged down spearheading all of that if we can still have a lucrative margin, get someone else to do it that we trust, then divert attention to finding another new deal. It is a very small shop, so if one person is truly running point on development – and not just answering questions or providing directions to our tenant or external project manager – then it saps a lot of time from the company and reduces our deal flow. I guess we found it more profitable just baking fee development into the margin and spending time finding new deals.
But now that deal volume has slowed down, and we can't really do a whole lot to service our existing projects that are already being managed, I don't think we would have minded leading construction on some of the projects we started a year ago knowing we would have had more time now to service them.
That has contributed to lighter hours.
Damn, tough call. My gut is stay where you are.
Would jump if I were you. Obv you have a better idea of your work streams than any of us but I would be concerned w those hours and pipeline given recession. To play devils advocate.
I appreciate the contrarian viewpoint. I'm also relatively sure I could jump back to my current firm in a few years should all fail (granted would lose out on the deals and payouts I've got in the pipeline), which might not be a bad hedge to my bets. But am pretty positive I will not get another bite at the apple with this new firm if I turn them down.
So.... this is one of those hyper personal style things, both sound good but in different ways.... the major question... do you want to be in the institutional real estate world? If the answer is yes, then this is what that jump looks like, and the trade-offs you reference are the trade offs one usually makes to do such things! You don't say your age, YOE, or "life" goals (like do you want to move permanently to this new city, or want to eventually come back to current, or something else?) All that matters/factors in this.
The biggest thing I would think about is avoiding regret... like will you regret not taking this opportunity? Will it bug you 5 or 10 years from now if you are still doing small deals and knew you had the chance at the 'big leagues', will you always wonder 'what if'? These are the forces that make people pursue and take such opportunities, the flip side is you can take the job and then realize you really wish you had stayed where you were. Doing "cooler" stuff could mean shittier lifestyle and overall happiness (at least for some period of time). No real advice here, just pointing out this is the dilemma of life since you can't do both at the same time.
Will say, in this current situation of yours, you can probably do the "institutional" gig for awhile then go back and find a smaller/local operator to work for, and quite possibly with better economics, assuming you are not like 50 years old, you got plenty of options and time. Personally, I'd jump and take it (I mean, I basically did a similar type of move awhile back, and I feel the mix of benefits and pains of the decision but totally smart from a career perspective, lifestyle harder to say....).
This was extremely helpful and thoughtful. Thanks for taking the time to reply.
To your point, I think I would regret not taking the opportunity to learn another product type in CRE. It seems like a unique chance to get into a very profitable segment of development under a proven team and firm. Maybe I'll be better at developing this niche than my current segment, maybe I'll be worse, but I'd regret never taking the chance to discover that.
I'm trying to keep personal identifiers limited, but I'll just say I'm in my late 20s / early 30s and single. I believe I'll enjoy the institutional world and probably the new city, too. Long term I'd like to be back where I currently live, but I can give it a good number of years before needing to return. Maybe I'll fall in love with the new city by then. So uprooting my life, moving to a new place, and grinding hard on a new job isn't an issue.
Oddly enough, I almost feel like I do not deserve the worklife balance my current company is affording me at my age, and that I should be working harder hours and delaying gratification for a future payday that's more significant. Just how my mind operates.
Agreed on your thoughts with exit opps and career perspective. I think it opens more doors, while still allowing me to jump back if it doesn't go as expected. Thanks again.
^This... I frankly felt near 100% the same way around same age (I've got approx a decade more in age over your approx range lol). When I got the opportunity to take a major job upgrade (included a relo from secondary type city to major market), I took it. From a career perspective its been insanely positive and I'm not done yet clearly. In full honestly, parts of me miss my "old life" and prior city, and frankly I hope to find more equilibrium in-between them over time.
This is really the curse of having options and being upwardly mobile. Can't really say what you should do, I chose the "adventure" and am really glad I did, whether you will regret the choice or not is beyond me. But the final point I'll make is this.... making "big moves" requires risk taking, and this is that type of risk!
A lot of it comes down to what you want to do, BUT, I think you're making a big mistake in your "upside" math here.
Your current firm is giving you a pretty generous cut of all their deals. 5% is, frankly, a huge number, considering you aren't on guarantees and you don't have to kick in equity (I assume, since it's a profits interest). You also work awesome hours, the kind of awesome hours that might eventually allow you to buy and manage a bit of your own real estate. Additionally, those small developments aren't always sexy, but there are a lot of those opportunities, so it's unlikely that you end up in a situation where your role is superfluous for years at a time and you get laid off. And, of course, there is always the chance that you can ask for or get more equity in the future as your role and importance to the firm grows over time.
By contrast, as amazing as it sounds to get 5% of deals you source... think realistically about the number of deals that will be. Doing 1,000,000 sf deals... that space is super competitive. Why is someone coming to you and giving you that deal, versus any of the other hundreds of people sharking around? Yeah, when you lie in bed at night and think "I can have 5% of a $10mm pie or 5% of a $100mm pie" of course the latter sounds better. But you'll be doing fewer of them, almost certainly, and the odds that you actually are the one bringing that in are very low, unless this is a situation where if you're the first to see the broker blast, it's "yours". You are calculating future salary based on a bonus you aren't guaranteed to get, or frankly, not even very likely to get. Whereas your compensation at your current firm is a cut of the entire firm! To me, that is a no brainer.
Obviously if the New Firm is doing things you have more of an interest in long term, then do that. I just wanted to push back on the idea that the equity at New Firm is worth more than the equity at Current Firm; if anything, I would probably value it as substantially less, especially since if you start sourcing deals at Current Firm you could probably ask for additional equity for sourcing them.
A risk-free 5% stake in a real estate shop is emphatically not market, especially for someone who sounds fairly junior (just from the tenor, if you're 40 and an industry vet, apologies in advance). You also now have a meaningful stake in the growth of the entire company, something which you won't have at the new firm, for which your only interest will be the deals you bring in.
Thanks for your feedback. I should clarify that at my current company, I do not get any profit share on deals sourced by other members at the shop, but I do get a portion of the dev fees associated with all deals across the company. I only get a 5% profit share on the deals that I source (so that is the same with the new firm's offering).
A key difference at the new firm, though, is that I can source deals on or off-market. For me to get the 5% profit share at my current firm, the deal has to be sourced off-market. But at the new firm, I can use CoStar/Loopnet/Crexi to find deals and get paid on those, so long as the partners do not have an existing relationship with the listing broker.
My situation is somewhat unique. I was recruited directly out of brokerage by my current firm because I was drumming up a lot of good deals. I always wanted to be on the development side, so I jumped at the chance to switch when given the opportunity. And since day one on the principal side, I have been tasked with sourcing new deals, while picking up the traditional development roles as I've grown here. As a result, I have directly sourced 5+ deals in the last two years alone, with half of them from off-market efforts.
I feel pretty comfortable cold calling and drumming up leads. I'm confident I can continue doing that at the new company, so I believe I stand a pretty good shot at capitalizing on that 5% equity stake (so long as they truly allow me to prospect on a regional basis and not just a limited corridor where my farm is small). They will do deals smaller than 1M sf, but probably no smaller than 250,000 sf., so hopefully that variability gives me more space to prospect as well.
I do see your point about growing with my current firm, though. Also appreciate your point about being cautious towards how realistic sourcing deals at the new firm will actually prove to be. I am trying to glean more insights on that before committing to anything.
OK, well that was my misunderstanding. That is an important point!
Another consideration I would call into play is your current Principal's goals. Do they want to continue to do 20,000 SF developments, or do they have an appetite to scale and build a platform? There is already a track record of finding and closing deals, which is super important. If they want to graduate to 100,000 SF projects and you get to grow with that platform and still scrape your 5%, you might be in a better place already financially.
Working 25-35 hours per week, making $200-300k per year with the flexibility to do things every night and weekend and control your schedule seems like a sick gig. Having worked at a big company before, if they tell you 50 hours, you are almost guaranteed to work more, which sucks when you look back at your 30-hour weeks at your old gig.
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