Principal Side (REPE, Developer, Owner) vs Debt Fund

I’ve seen varying arguments for the future of real estate such as a quick drop in values this year/next year vs a much longer bear market due to rising rates and negative population growth.

Hypothetically, assuming the latter is correct, in terms of total compensation, would you rather be working on the principal side or for a debt fund doing mortgage lending. Many firms have both such as BX.

If total volume falls in the real estate industry (smaller funds and smaller transaction size), I’m wondering which gets hit harder: the owners or the lenders.

On one end, the owner probably has less capital and it’s assets are worth less. On the other, the lender’s loan sizes are smaller due to smaller transaction volume. However, with higher rates, the lender can earn more on their loans.

Reason I’m asking is because I’ve always had the goal of transitioning into REPE acquisitions or AM but now I’m having second thoughts with how the economy and market has turned.

 

My man, it's real estate.  If you're evaluating these things in a 12-24 month timeline, you aren't thinking about it correctly.  Real money comes from asset appreciation and income, not flipping properties every time the market ticks up another half point.

More to the point, there is always more money on the sponsor side over the long term, whether that is at a fund or a developer.  I guess if you're 32 and thinking about where the biggest potential bonus is going to be this year or next, it might be relevant, but even at that point, the real goal is getting carry, which has a 5+ year horizon to be paid.  If your so junior that you can't think of that yet (which isn't a bad thing obviously, it's where we all start) then whether or not your firm is going to mark down the value of their assets by 20%, or do 20% more/less business, or whatever, is completely immaterial, since your comp is going to be fairly fixed.

 

I'm just going to say this.

This industry has becoming more and more institutionalized. There are smaller operators, making money, and you can potentially make more on the principal side of a smaller developer or owner. BUT, for a junior "guy", the chances these payout big are small, even though every now and then you see someone on here at a developer with 5 YOE making 300k with participation.

If you can go for the big name company first, if given the option. Work like a dog for the first 5-6 years of your career, and watch the opportunities unfold.

 

Agreed. As things get more & more institutionalized, the small operator / merchant build model comes under more pressure. Those outsized promote checks get less and less likely, especially for juniors, and especially in a high or rising-rate environment.

 

A lot of this is going to depend on what kind of assets you are talking about. A high yield debt fund returing a 12% levered return pre-pandemic is more like a 18% right now just because of the sofr curve. Turbulence in the market means equity funds are down, but levered debt funds are generally up.

Contrast that with core, fixed rate loans, which is more of a fee/flow business. So less transaction volume means less fee generation.

Equity will always have more absolute ups and downs. Debt will always be more tempered.

But if you can get to a high yield debt fund, you get the best of both worlds.

 
Most Helpful

Qui sequi sequi quisquam porro qui. Est asperiores id accusamus neque. Tempore ea iure eius inventore debitis est.

Laborum vero provident provident dolorum et culpa quia. Perferendis et placeat ipsa nobis soluta et. Excepturi mollitia aut consequatur assumenda et commodi sunt. Quos voluptates sunt illum est veritatis.

Sit cum excepturi eveniet expedita. Et ab sit eos. Dignissimos qui earum voluptates nesciunt vel nemo harum. Unde nihil error est est cum. Et blanditiis nam facere sed itaque pariatur. Eos suscipit tempore et qui.

Veritatis maxime laborum eos atque. Et sequi omnis neque sit. Ipsa ut optio ut quam et pariatur. Voluptates adipisci esse sequi totam sequi dolores libero. Illo eum ab eveniet illum iusto.

Career Advancement Opportunities

March 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Goldman Sachs 19 98.8%
  • Harris Williams & Co. (++) 98.3%
  • Lazard Freres 02 97.7%
  • JPMorgan Chase 03 97.1%

Overall Employee Satisfaction

March 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

March 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

March 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (19) $385
  • Associates (86) $261
  • 3rd+ Year Analyst (13) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (66) $168
  • 1st Year Analyst (202) $159
  • Intern/Summer Analyst (144) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Secyh62's picture
Secyh62
99.0
3
Betsy Massar's picture
Betsy Massar
99.0
4
BankonBanking's picture
BankonBanking
99.0
5
dosk17's picture
dosk17
98.9
6
DrApeman's picture
DrApeman
98.9
7
kanon's picture
kanon
98.9
8
CompBanker's picture
CompBanker
98.9
9
GameTheory's picture
GameTheory
98.9
10
Jamoldo's picture
Jamoldo
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”