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Exactly the same orientation towards underwriting in both. As in, people who don't know what they're doing spend way too much time on the underwriting and way too little time on the execution, and the people who know what they're doing generally don't give a shit about the underwriting past a certain basic point.
The only difference is that the risk factors, and thus the returns, are different for both strategies.
Facts! Execution is the key to development. Getting through land use and zoning approvals, plats, tree mitigation, variances, etc.
Yes, totally agreed. My understanding is that in development execution (design, entitlement and budget control) is more important than UW once passing the initial stage.
However, I'm not familiar with Core / Value+ so still assume those strategies have less focus on execution, do they?
I wouldn’t say that they are not focused on execution, it’s just different. They are just more focused on increasing income and lowering expenses of an existing asset.
For example submetering units for utilities, new property management, upgrading finishes in units to justify rent increases, etc.
This falls more into the realm of asset management as opposed to ground-up development. Before “Rona” definitely had recruiters hitting me up to to do asset management. Some of those ground up development skills seem to be transferrable but don’t know about vice versa. This is from a multifamily perspective. Can’t speak for other asset classes.
Well, the initial stage is underwriting and after that it is all execution.
This! I always tell the younger investment guys. I give two shits about the 25 bps you are trying to solve for. We have a $5m contingency for "Off sites" without talking to anyone at the City. Now get your coat and boots on we have a meeting. But also. The smart guys at investment committee should pick up on holes in your budget to flag this kind of stuff. Your YOC or IRR models do not matter as much as knowing the big risk factors.
development and heavy value add, is much harder than core to underwrite. Core is very basic, in structure and modeling, and execution. Development is much more difficult in modeling/budgeting and execution. I learned so much more when I switched to a more development focused role.
If we’re just equating underwriting to modelling, core can often be more complex depending on the asset in question. A large office tower / complex with 20+ tenants requires a lot more detail / inputs etc than a 200 unit multifamily development.
If you’re also including DD as part of underwriting, development underwriting is significantly more DD intensive. Have to get comfortable with a much longer list of assumptions.
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