RE Interview Question
How would you answer the following question for a REPE role:
If you have $100M of capital in a 5 year fund, what deals would you invest in to earn your investors a 15% unlevered IRR over the hold period? (It can be multiple assets, product types, geographies, etc.)
I've been asked this question, or similar questions, in numerous processes for associate level investment/acquisition roles. Curious what some of y'alls thoughts are.
I think it's more about understanding the market now so for example for those returns maybe a pref equity investment in multifamily for example. Shows what you know you about what's going on and understanding of the capital stack risk/return metrics. I've usually said something like that as a general answer. Pref equity in multifamily in the Sunbelt - targeting a little under 15% but shows you know the market, also add because were seeing distress with xyz that needs rescue capital. It's usually a quick 30 second answer then they say ok and move on lol.
I think they’re trying to gauge your understanding of the risk/return spectrum for real estate.
So probably not core plays (Class AA office, multifamily, and industrial) and more of towards redevelopment and heavy value-adds? Development LP pref. equity perhaps.
Whatever you answered was probably correct if you have 2-3 years in experience.
Yeah 100%, for those returns you can only do value add and opportunistic/development from my understanding. If you're in the 0-3 years I think they just want to see you have an understanding of the capital stack, what's going on, try to tailor it to their strategy so shows you researched them.
I feel it's an easy answer, but I can also see people who are transitioning to RE/not up to date have no idea and it would clearly show.
How can someone not in CRE (but wanting to transition into the space) begin to think critically about questions like this? It may not be hard for someone already in the field but with not institutional RE experience myself, I would have no idea where to start.
I would start with a basic DCF Financial Modeling course and then more specifically the Real Estate Financial Modeling course that sites like WSO or BIWS have to offer. If you already have financial modeling experience and understand a DCF, then you can just do the real estate one.
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