Q&A - IB Analyst > Development Analyst > REPE Associate / VP

UK

Nope. I underwrote a lot of deals as a development analyst so I had plenty of modelling experience. My technical knowledge such as entitlement / procurement processes was well ahead of other REPE analysts with the same years of experience which was very helpful as my fund focuses on heavy value add or development opportunities.

Main difference was the depth of analysis for IC processes. REPE IC materials tended to be more detailed and every major assumption needs to be supported by a lot of data. In development the IC process were a lot more straightforward as firm knew the staff leading the deal were market experts and there’s a higher level of trust as a result.

I’ve no idea how it works in the US, but it doesn’t look like REPE participates in the on-cycle bullshit of PE. If this is the case, reach out to the relevant headhunters and get discussions going on making a move. Make sure you have a good story on why you want to do REPE rather than traditional PE.

I'm in the UK so not sure if we've crossed paths before. I was in a product group which covered all sectors, we worked with sector coverage teams on transactions. 

Development modelling isn't difficult, if anything it's easier to model than corporate structure or a multi-tenant asset with a convoluted tenancy schedule. If you think of it simply, all you're doing is cashflowing out a budget. You can overcomplicate this if you want to add greater granularity, but it's going to make minimal difference to your return metrics. If you're good at modelling, reality is you should be able to put together a simple model in 1-2 hours which can indicatively tell you at what entry point the deal makes sense. For development opportunities in traditional property types, I can usually screen these in <1 hour. Once you've seen enough deals, you should be able to estimate high level return metrics based on timeline from entry to exit and profit on cost which you should be able to calculate on paper.

I don't do much corporate stuff so wouldn't speak to a lot of IBs. Likes of the BBs are going to be mostly focused on REITs as they make their fees from M&A / cap markets, the advisory shops such as Lazard / Roths / Evercore etc seem to be more involved in asset level transactions given they can't underwrite cap markets transactions for REITs. I'd take Eastdil vs. a traditional IB as I think asset level knowledge is more important than doing follow-on equity issuances for a REIT.

Typically very flexible, once you can hit a certain return hurdle (typically mid to high teens) you can do it as long as the fund isn't overexposed to that market / property type. Funds wouldn't want to limit themselves to narrow mandates such as just NPLs, if that market turns beyond the mandate metrics they'll struggle to invest. A lot of special sits funds will invest equity in vanilla group up development projects where there isn't a "special sit" type angle (i.e. no complexity or distress). In short, I'd think of special sits RE as anything on the risky end of projects - ranging from rescue financings through to development equity.

There aren’t that many edges or levers in REPE. The best way to generate outsized returns is to buy cheap, the best way to be able to do this is have an on the ground presence in some shape or form in many markets and having the ability the more quickly when an opportunity comes up I.e. an IC process that isn’t overly bureaucratic and drawn out. Anyone can throw some “creative thinking” into a model so this doesn’t add an edge.

There’s no set day to day as it really depends where you are in project life cycle and if you’re role is cradle to grave or focused on a specific stage (acquisition, entitlement, construction etc). You probably spend close to half your day in meetings / site walks etc, and the rest making sure the team (professional team, contractor, property manager etc) is on top of what they’re supposed to be doing and dealing with any issues / fire drills which are coming up. There’s always problems to be solved. Development is far more mentally stimulating. REPE becomes pretty cookie cutter after a while, although the occasional deal does come up which does require creative thinking.

IB and REPE are similar in that they suit transaction people. Main difference is risk aversion, in IB you don’t have skin in the game so it can be less stressful. If you don’t like the idea of having your name against underperforming investments which need to be fixed, stick to IB. The worse IB aspect is you have clients and they can be demanding so you have less control over your schedule. Development suits people who are more entrepreneurial, like problem solving, and are long term focused. Development projects are a marathon rather than deal sprint, you need to be able to stick with it for several years and focus on proactively identifying issues and addressing them before they become problems.

General PE would be a tough transition. I think it's only really feasible when you're young and at a very strong REPE firm and you lateral to a PE firm a tier below. Or you're at a REPE firm that does a lot of operational RE such as healthcare or leisure and hospitality, makes it easier to transition to a traditional PE shop that does asset heavy transactions.

If your target is getting promote I'd focus on staying in development rather than transitioning to REPE. To get access to real carry in REPE you need to hit VP and then it can take years for real money to vest. You'll need to stay with the firm for this to happen, and most firms are smart enough to have you reinvest your money in future funds. You're not getting material cash until the end of your career, there was a great post in the PE forum on the real life mechanics of carry / coinvest. Promote on the other hand is often deal by deal and you can access to it much quicker without the firm being able to get you to reinvest it. Also easier to jump firm to firm for better promote opportunities as it's paid out deal by deal rather than fund lifecycle.

I'm not sure as haven't looked into it significantly. When looking at job posts before out of curiosity, seems like they value IB skillset in likes of business / sales strategy and operations, strategic finance, FP&A, corporate development etc.

Tough. Haven't seen it done before but my sample size is low, most people I know went directly in or came via routes such as big 4 CF / TS before IB.

Depends on firm. Larger firms often have templates with all the bells and whistles included. Also depends on the transaction, if you're working with a credible GP on it they'll often share you a good quality model which you can work from. If you're working with a less credible firm you'll probably pull one together yourself. I've built a few from scratch which I use for screening deals, reason being I know exactly how it works and it gives me the answer in <1 hour. If we're going to do it, then I'll put it into a more advanced model which has all the functionality / IC outputs I need.

People either seem to get modelling or they don't. I find it very straightforward but I've done a lot of over the years. Key point is to don't overthink it and keep the formulas simple. Junior staff seem to love building complex formulas to prove they're good at Excel, this isn't beneficial to the rest of the team as it's harder to audit it and ensure it's working correctly. A formula shouldn't be longer than your index finger is a good rule of thumb. If it is, break it down into more rows to make it very simple to follow.