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

As this forum has been very helpful over my career, I thought it might be helpful to give back and do a Q&A on questions where I can offer a reasonably informed opinion. Questions come up here a lot on where to start / where to go etc between IB / development / REPE, ease of transitioning between them, differences between them etc. I've worked in all 3, so happy to answer questions on each.

Will answer questions as long as it doesn't give away too much which could identify me (you'd be surprised how crazy small RE can be... I've worked with 2 people on the RE forum, put that together from their posts), where it does I will state this and provide hopefully sufficient info which may be helpful to answer the question. For background, I started in IB, moved to development in a top developer / owner-operator, then moved to a European RE focused team in the special sits arm of a UMM / MF

Comments (28)

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  • VP in PE - Other
2mo

Drop was c. 20-30%, but hours went from 60-70 a week (increasing to 80+ when busy) to 50 with low weekend work. Hours beyond 50 were down to me working harder than I needed to rather than deadlines. Development hours are typically pretty chilled, consistently 40-50 rather than peak to troughs of IB / PE given they're deal focused. I'm not majorly focused on comp. I earn enough to live a comfortable lifestyle and most of my friends aren't in finance, so there's no expensive "keeping up with the jones" type finance purchases.

No, growth profile in income was pretty low. Base growth was lower than IB, and bonuses were a lot lower (20-30% vs. IB which is what 50%+ as a junior up to 100-200% as you get more senior?). Development is a long term game, and you make real money through promote. I've seen several 7 figure promote payments split between 3-4 guys in development shops who went out on their own. Promote is also available in the top firms obviously, but you wont have as a big a cut as there's more mouths to feed. Risk-adjusted, you have much lower chance of going bust in a top firm vs. going out on your own so the economics are fair taking this into account. Only way I can see someone being fired from a top firm is if they materially fuck up a project whether that's on the way in (missed something in DD) or during execution (fundamental mistake).

I did 2 years in development and started to get bored. Learning curve is long but slow, projects can be 5+ years from acquisition to sale. I saw a limited range of deals (1 asset class in 1 city). I wanted a broader scope (capital structure, asset class, market etc) and more deal experience. In the 3 years I've been in REPE, I've done 10+ deals. In the 2 years I was in development I did 2, and you could easily do 0 in that timeframe.

  • Analyst 1 in RE - Comm
2mo

Did you feel behind the curve when you jumped from development to REPE?

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  • VP in PE - Other
2mo

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.

  • VP in PE - Other
2mo

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.

  • Prospect in RE - Other
2mo

Hi, thanks for doing this Q&A. I'm a student based in UK, interested in real estate - if you're in Irl I think we've talked before. Top target and real estate PE internships but looking at starting in IB before the buyside due to limited number of RE grad programs. 

  1. Were you in a RE coverage team or something else? I understand IB teaches ppt, excel etc fundamentals, but how hard was it to learn development modelling as developments/assets require different models than corporate structures.
  2. Which IBs are strong for RE coverage? From my networking I understand some combination of: JPM, MS, Roths, DB, GS with Laz and Evr sometimes thrown in because of name brand.
    1. How would you compare starting at Eastdil vs a traditional IB? 
  3. How flexible are RE "special sits" platforms really? Is it mostly NPLs and projects that have been bankrupt/unable to finish and finishing them? Or it rescue financing? Are there more "special situations" that I'm missing when I'm trying to understand what special sits RE really is? 

Thanks. 

  • VP in PE - Other
2mo

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.

  • Prospect in RE - Other
2mo

Ah ok I'd previously talked with someone who has an incredibly similar background to you.

If you think of it simply, all you're doing is cashflowing out a budget.

This makes sense – I think the difficulty comes into play when it's a multistage development, with a million things to sensitize for but from your description it sounded like your dev shop internalized alot of that and didn't need to model what they knew. If you're able to, why waste time modelling it.

I don't do much corporate stuff so wouldn't speak to a lot of IBs.

Do you wish you did? This is the dilemma I'm working through for myself right now, trying to figure out the nuances between asset and corporate RE investing. Obviously there are only a handful of shops that have the capital and know-how to execute a REIT take private, a Bx Hilton deal type – but I'm wondering, isn't it interesting to be able to have that flexibility to go after asset and corporate deals? I don't think I'm the kind of person to really enjoy development, and I don't know if I'd ever really go out on my own and start my own fund. I think a set up similar to a King Street (just using as an example) has is my ideal medium-to-long term: very small team, near complete flexibility with capital to "just go hit the returns by investing in RE" and for that I imagine you need to have asset and corporate level understanding. 

Understanding the nuances between corporates and assets is informing my decision of sellside starting point which is why I'm drilling down on this. My (limited) understanding is that balance sheet banks (GS,MS,DB,JPM) will land the takeprivates, the major corporate level deals. The boutiques (Laz, Evr, Roths especially) still work on corporate level deals but from what I've heard, there more focus on the assets. And then there's Eastdil which is probably the best starting point if I'm interested purely in direct buysides, but will give me the least corporate experience. 

If your fund was looking to hire someone at entry level, would you weight balance sheet/boutique/Eastdil above the others?

2mo
xavif26623, what's your opinion? Comment below:

Thank you for taking the time to do this!

1. How do you get an "edge" in REPE? As an outsider, it feels like there aren't too many value levers to pull, especially on a stabilized asset. Is there a lot of creating thinking that goes into the modelling?
 

2. What is the day to day like in development? Is it mentally stimulating?

3. What characteristics do you think make someone well suited to IB, development, and REPE? If you were a sorting hat and had to decide which role to place someone in, what would you base your decision on?

  • VP in PE - Other
2mo

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.

2mo
xavif26623, what's your opinion? Comment below:

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.

Thanks!

2mo
dfrom90s, what's your opinion? Comment below:

Thanks for the post, I've been mulling a similar career move for a while now and there aren't many that can answer my questions as they don't have the background/experience I'm looking for.

I've been debating getting an MBA to make the transition somewhat seamless, but lately I've thought that the path below might save me 2 yrs of lost income, and might be more practical. I have a non-traditional background (Urban Planning was my major), I'm currently in development (3 yrs) & before this role I worked at a big nonres brokerage where I looked for off mkt opportunities and built a client list for brokers. I'm not currently an analyst, although I do practice on my own time since understanding how to model is crucial. I've been exploring investment analyst opportunities at other local shops so that I can get a few deals under my belt for a year or two to speak about, then transition over into traditional REPE or even general PE. My ultimate goal has been to work at a shop where I at least have the opportunity to get promote in the future. Thoughts?

Would love to connect directly and send you a PM if you're open to that. Let me know!

  • VP in PE - Other
1mo

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.

2mo
pkkjkjkjkjkjk, what's your opinion? Comment below:

For which roles do tech companies like FAANG hire people who have an IB background?

popopop
2mo
cdwvestri, what's your opinion? Comment below:

After reading post I wanted to pick your brain about your path.  Would you go back and start in IB again if you had the chance to do it all over? Do you think that was beneficial to your foundation in RE?  I am presently a multifamily developer for a subsidiary of one of the largest national home builders in US. Prior, I was with a small REPE shop in the SW region focusing on opportunistic multifamily investments (direct investments at the project level). Both of these roles were demanding of finance and capital markets knowledge however it was with an emphasis on a project and  portfolio level (not directly managing the fund(s)). Yet, I've come to realize at this stage in my career that the finance component of real estate is the most stimulating to me. What do you think the best approach would be in order to break into real estate IB or potentially a real REPE shop??

1mo
Fuck Love, what's your opinion? Comment below:

For REPE, do analysts create models from scratch for the underwriting process or are there typically pre built models? How much of your time is allocated to strictly modeling? 

If you know how to create a basic model, but not an complex one, is this usually something you can easily learn on the job or is there any sort of guidance in terms of teaching those concepts? 

  • VP in PE - Other
1mo

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.

1mo
developermonkey, what's your opinion? Comment below:

When you were recruiting for REPE, how'd you sell yourself and why you wanted to transition and how development experience benefited you and made you a good candidate? Was it difficult to get repe interviews coming from development?

  • VP in PE - Other
1mo

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1mo
developermonkey, what's your opinion? Comment below:

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