Which real estate role/discipline do you think will be more in-demand over the next two decades: development or asset management? I hold the mindset development will come back, but not convinced it will be as strong as the low-rate era of 2010-2021. If there's less overall development happening in years to come, even after things pick up (whenever that may be), do any of you think asset management would be a smart career pivot? Please say why or why not, what your long-term view is, and how it influences your own career outlook. Genuinely curious what you all think about the future of both disciplines.
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To add some of my own thoughts to start it off:
You just ended your own thread by answering your own question. Have a SB, I guess.
All valid points, side note your second paragraph opens with a paren and never closes it.
Here's my thoughts. Outside of industrial, which is less demographic dependent and more the whims of the global economy (but still demographic dependent), I think development will only get harder and harder to make pencil. The overall US population is going to decline, meaning there will be less demand for housing in general, and that in tandem with AI will likely mean a shrinking demand for office. On top of that, construction costs are extremely high at the moment and I don't see a world where they come down any time soon. So you will need substantial growth in rents across product types in order to justify the higher construction costs. I think that's 10+ years away so should you just focus on buying underperforming assets with a story behind them for the next decade versus learning how to buy and entitle land? Because only very limited, best of the best projects are going to come out of the ground for the next decade (in my opinion).
Making the obvious caveat that everything in real estate is market and submarket dependent. Sure, Texas is continuing to grow, but its so easy to build in Texas that its seeing no rent growth because supply is routinely meeting and even exceeding demand. But if you dial into Uptown Dallas, there's a lot of obvious tailwinds from the finance industry moving major operations there that will likely push rents in both the near and long term because those jobs can afford higher rents and don't need to move to Plano to find an apartment they can afford and are willing to splurge in exchange for a shorter commute.
Thanks for the thoughtful response. It does seem difficult to imagine development roaring back like it had been given the reasons you mention like slowing demographics. Agree with your caveat that there will be "pockets" where development will get hot based on one-off demand drivers that transform a single neighborhood or submarket, like corporate/industry clusters and relocations and what not (compared to a larger national trend).
The issue with pockets is that everyone in their mother will be in on it. Its too obvious. Easier to pursue underperforming neglected assets in good submarkets with good fundamentals than going through the long term brain damage of buying land, entitling it, value engineering it to keep costs down, etc.
I know its a meme but you don't want to be stuck in a back office role like AM, especially in this market
A shit market is arguably a better time to be in a back office role. Firms still need their properties to cover P&L while dealmakers are sitting on their hands.
It's not like you'd be missing out on massive earnings either, since no one is earning them.
Yes, from a job security view, you are right. But good luck ever exiting AM after being there for 3+ years.
I’d do 5 years of development just to get the skillset and experience (not to become a career developer). 50/50 time split in land acquisitions and project management; hopefully, a couple full cycle development experiences. I would skip AM and instead aim to be a CFO with development and capital raising experience in a growing industry that would value those skills (asset intensive industries are numerous). I look at AM being CFO of a property or portfolio, whereas CFO’s of actual companies benefit from skillset leverage (meaning their skills within the organization are rare and better rewarded) and the financial upside of a business is greater than properties, which are limited by units and square feet (and time and attention as an AM; more akin to an hourly professional vs someone who benefits from scale and leverage). There is more financial upside and learning. One thing that benefited me was I first started in Big4 audit and accounting was my focus before. If you like financial modeling, I think you might actually enjoy learning accounting. Learn accounting on the side (if you can sit for the CPA, do it) so you can manage an accounting team. That’s the easiest way to get paid and justify being on payroll. Then position yourself for reward season.
I think development can be a great learning opportunity (I do it myself), but 5 years is not going to be enough for a few full-cycle developments. Maybe you can get two in if you're doing quick industrial builds or SFH, but most projects are going to be 5-7 years from land acquisition to disposition.
I settled on 5 years, but could be more. I just think also that 5 years plus whatever else you would do before development (investments or some random corporate job), that being 5 years as well, wanted to see if that development experience could be wrapped up within first 10 years of post-college work experience. So, by mid-30’s, you are in the position to pivot to a different industry, ready to be on the path to CFO (or at a start-up, CFO off the bat). I’m being mindful of the age in which you have to pivot.
So even though 7 or 10 years would be better learning for development, 5 years is the sweet spot. I think two full cycle is enough, and there is a lot BS time during pursuit/pre-development that you can learn concurrently with younger development deals (ie LOI, PSA, density studies, conceptual drawings, getting pursuit dollars from GP owners, dancing around with LP’s who will stretch you out anyways to construction loan close before paying for pre-dev).
May I also ask for your advide for people starting their career in a prime debt fund? Thanks always for the insights!
Depends on which fund and their structure. At my fund AM is valued highly (we are high yield/opportunistic debt). I sit equal to our head of strategy/production and report to our head PM. I’m very well compensated and have a ton of autonomy. I also happen to work at a fund that does a bunch of construction loans so get to evaluate a lot of development business plans along the way.
I won’t say that getting here was easy - I had nearly a decade at boring life companies (felt more like just cashing a check there than autonomy/getting to make decisions). But worth it long term. Early 40s MD with a 7 figure salary is a dream come true.
PS: If you are at a LifeCo/core fund/REIT, it is different as most of those places treat AM as babysitters because those funds are just coupon clippers.
Hi MoneyEUMonkey, I don’t have a lot of experience with debt funds. They fund some of our senior living developments. And back during the Great Recession, I helped my REPE start investing in A and B notes as an analyst. I studied what KBS Realty and Guggenheim were doing. Obviously this sector has grown and grown.
I also have a friend who works at one of the larger debt funds and he seemed to be excited about land deals and even a hotel renovation (getting to work on managing the project; I guess they ended up owning the asset).
And, I’ve helped owners find hard money lenders.
You can kind of see the progression of private credit, through my limited interaction. Firms diversifying into buying notes, to mezz lending, to specialized asset lending (like senior living). To professionals working in this space expanding their exposure to land loans and managing assets in REO situations.
A really good reality check background is working on workouts. Even seeing how Bankruptcy Law works. I learned a lot.
Maybe tagging along with my asset intensity expansion theory, I might keep an eye on the world of equipment financing that improve productivity (how does a hotel chain purchase a fleet of delivery robots at scale?). Energy financing. Project finance (actually I took a MBA class about this, because I had an idea of arranging capital for infrastructure projects in the Asia-Pacific from my hometown Honolulu). So, understanding political, currency, and technology risks. Usually in the US we don’t think about political and currency risks.
Find ways to becoming an expert in an adjacency other than just lending, and combine them to be unique.
Just brainstorming.
Adding some additional context- have been doing development for coming up on a decade. At a large institutional firm now, and have an opportunity to add asset management responsibility in addition to existing development responsibility. Not really what I joined the firm for, and not something I've done before. Not sure I have much desire to do it. But curious if anyone thinks it's a worthwhile skillset to learn...especially if there's less and less development in the future, outside of specific pockets or geographies that get quickly transformed and supplied (great if you're local and see the trend first, not as great if your firm is national and second or third wave to the submarket). Maybe the answer is just do it and have experience doing both. Just don't want to add something I'm not interested in or passionate about that could reduce capacity for pure development, which is where my experience, skillset, and passion lie. Would love to hear additional thoughts on asset management trajectory into the coming decades vs development.
I can't see any downside to trying it for a year or two.
I think there are some obvious headwinds in development, but for someone early in there career (under 30) I wouldn’t be to concerned. Things will differ by asset class, but in the simplest terms possible - new buildings will still need to be built lol. Not trying to be mean to asset management guys but it’s a pretty boring career IMO with way less upside on pay. Also, becomes pretty hard to pivot out of after a few years, as you just don’t have the necessary network / skills (even at a top fund). While in development you’re still thinking like an investor, running deals, and building the right network. Im in acquisitions, but would almost always hire someone with land acquisition / development experience over one with asset management experience. Would also likely hire a good capital markets broker over an asset manager as well.
Curious your thoughts on the capital markets broker. Do you mind if I pm you?
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