Question - Would you rather work on a top RE credit team or a top REPE shop? What are pros and cons of both?
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Based on the most helpful WSO content, here's a breakdown of working on a top Real Estate (RE) Credit team versus a top Real Estate Private Equity (REPE) shop:
RE Credit Team
Pros:
Cons:
REPE Shop
Pros:
Cons:
Key Considerations:
Both are excellent career paths, and the choice ultimately depends on your personal goals and preferences.
It’s all subjective, but for me it has to be on the equity side. With ownership comes risk and stress but is more stimulating and exciting in my opinion. Only thing I’d do with credit would be distressed debt investing.
REPE guys make significantly more money than credit. Even in down years.
Lmao we got "mentor" profiles just saying whatever these days I guess
You better check yourself before you wreck yourself
Not sure why so many downvotes. At an MF and this is true. Can expect the same base but a 25-40% haircut on the bonus.
REPE.
The top credit guys are just financial engineering deals to work. IMO its a finane job first and RE job second based on experience I've had with some Debt fund folks
What do you mean? “Engineering deals”. Using a repo isn’t rocket science. I like credit because you see a variety of Sponsors and deals and each has unique problems and you seemingly can make a lot of money. Sure there are probably richer equity guys.
It's a beautiful Friday afternoon and I'm bored so allow this lurker to offer his 5 cents.
You have spoken like a true equity guy.
There's no doubt doing equity is the "sexier" thing but most acquisition folks don't understand that being a credit guy is actually being a RE investor first and a lender second (so, the opposite of what you just said). But I would agree that unfortunately, your average lender is more a salesperson than a true RE investor. You'll usually find more intellectual prowess the more sophisticated the underlying capital (i.e. from bank to debt fund).
I've seen first hand equity guys who get tasked to do credit and they just fall flat on their feet cuz they don't know how to structure for the downside (even though presumably, they were on the opposite end of the table as a borrower). The assumption is debt is easy but I would wager most equity guys can't be a good credit investor. In fact you see this play out more widely with many equity-first REPE shops trying to get into CRE debt and ultimately not being able to scale the business and doing a bunch of bad deals.
Of course, to be objective, I'm not saying that a debt fund guy can do equity overnight. But what is most striking to me is that as a debt fund guy, you get to see a whole lot more of the investable universe than an equity guy. Let's say an equity guy reviews 100 opportunities a year, chases 20, and closes on 2 of them. Then, you live with those 2 deals for the next 5ish years. The debt guy, on the other hand, has reviewed 500 opportunities, chased 100 of them, and closed on 10 - and most importantly those 10 deals are with legit REPE sponsors like a BX, Brookfield, KKR etc. Fast forward this dynamic over one's career, I would argue that a truly astute credit investor has more broad exposure and "library" of experience to become a better real estate investor, period.
With regards to compensation - maybe on average equity makes more money than debt - but the reality is if you can make your way to the partner level on either side - you've done well for yourself and should be happy.
And just cuz equity may make more on paper - recognize that your carry can evaporate overnight simply due to timing of the cycle and nothing to with how good of an investor you are. Whereas on the credit side, promotes are far more stable.
Lastly fwiw - I have both equity and credit experience and have lived the pros/cons of both sides.
PMd
Nice comment. If someone was interested in RE credit but doesn’t have a “target” background what would be some good roles or types of firms to start out at?
Whoever pays me more
Really depends on your personality and what you want.
I’ve been a credit guy my whole career, but have been forced to become an equity guy as we’ve taken back properties post COVID. The equity side feels more cookie cutter to me; I’ve taken back hotels, office, retail, and industrial and pretty much all the business plans have been similar - lease and sell. Maybe if I was a long term equity holder and could get into portfolio construction or long term wealth preservation/transfer, it might be more interesting.
I enjoy the “financial engineering,” portion a lot. It is fun to try and figure out how to make a levered 20% return for a 40-65% slug of equity when you know the mezz doing the 65-75% is making ~16% and your equity sponsor is making a 14% (but they still signed on the dotted line).
It is also interesting to get to see the breadth and depth of deals. I work on international deals and do opco/propco financing alongside more standard mortgages at my fund (and we are asset type agnostic). I’m not stuck in a single sector like a lot of equity people I know who spend their whole careers only doing office, retail, or multi. I don’t get so far into the weeds trying to work with property management to raise rental rates $0.50/SF or on tenant retention, but I do get quick looks under the hood of operations/thoughts on major business plan decisions.
Credit can pay just as well as equity at the top of the field (and sometimes more because your carry doesn’t just disappear when interest rates change). If you decide to go credit, what you should be looking for to maximize pay is a dedicated RE Credit group inside of a larger Credit platform, not a credit group inside of a RE platform (think Bain or Slate vs Brookfield or Starwood). Starwood is sort of in the middle because they have dedicated credit platforms, but Barry is 1) crazy and 2) hates paying people.
Credit it is sort of like being a lawyer, less about what specialty/asset class you cater to, and more about how you think. You are definitely at least one step removed from the asset, so is really comes down to what you want to focus on.
PMd
Thank you for the perspective. Do you have any more examples of RE within credit platforms?
How are you making 20% on the senior credit? The only way I can think to do that is through a CLO (but even then that return seems too high). Or maybe you simply work for a bank that’s inherently highly levered? I’ve always thought the banks are getting the best risk adjusted return in the stack.
I’m at a high yield debt fund that does mostly construction lending. Right now, we are mostly in the high teens as 20s are harder to achieve, but we still catch one here and there.
We closed on a condo construction deal down in FL late last year. 7th deal with this sponsor and because of that, they came direct to us. 60% pre-sold. 3+1 at sofr+550, 350 floor). Point in and point out (on full commitment). We also have a mechanism where we cut the commitment as they sell units and receive deposits. 75% leverage at sofr+250 from a warehouse, 1% in, no exit fee.
We pick up 900 bps from leverage + another 166bps scraping fees. That gets us to a 20%. However, because we are getting the point in and out on full day one commitment, have the delayed draw and commitment cutting mechanic, we were projecting a 23% IRR.
Hi thanks for sharing! Do you mind if I PM you as someone who's about to start his first job at a CRE credit position? Many thanks again!
They are so unbelievably similar, people are really splitting hairs. I work at a firm where everyone does debt and equity. Equity deals are generally more work, more risk, higher upside. Debt deals are quicker to close, a little bit easier to underwrite and obviously lower risk and upside.
But it’s not like I put on an entirely different hat when I underwrite an equity deal. Sometimes we look at a deal from both a pref and JV equity lens. I honestly can’t believe people make such a fuss over this.
I also get paid very well despite primarily working on debt
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