Senior Folks: promote wiped?
For senior folks who grinded it out for a half decade+ to get promote, likely a lot of that promote will not be realized. How do you position yourself in the environment today, look for new funds given you’re no longer tied down to some extent?
Should have made better deals buddy so your promote wouldn't be wiped out.
The world is not fair!!
Cap rates were supposed to go down from 4% to 2% per our proforma. It's not fair! How else do we make our investment work!
Wait what? I can't just can't lower my exit cap rate to whatever I want so I can smash through all of the different promotes hurdles? I thought that was how real estate works..... :(
That's the name of the game. That's why you value it at $0 from day 1. If you keep grinding it out on your career, you will also probably hit a 5 year streak where the market was so good to you that everything you bought was easy and profitable and you get a huge promote check.
Not totally wiped, but definitely going to be making a lot less than I thought I would be on the deals.
That's the game though. You know the deal when you step up to bat.
These threads are why I sometimes wonder if it would have been better (financially) to go the REIT or CorpFin route. At least your RSUs don't go to $0.
Eh, I mean you can reasonably expect them to not go to 0, but the same sort of risk is there. Ask someone in a public office company today who lost 80% of stock value vs. a few years ago or someone who worked on the retail side in mid 2010s with stock that started to vest in late 2018/19. The same sort of psychology hits. While technically yes you receive a discrete # of RSUs which you can sell rather than hold and receive some compensation. Timing in market cycles can completely influence how substantial or insubstantial it is
I'm not saying you're wrong, but when you look at most REIT stocks, they're down 5%-25% YOY. Promote in most deals (purchased/developed recently) is down significantly more than that, if not wiped out altogether. Seems like the downside is protected at a Corp or REIT much more than at a private owner/operator. I'm curious how RSUs are allocated in good years. Is it equivalent to having big promotes hit or less-so? I don't know the answer.
LOL, yea that's totally not true. Companies do go bankrupt.
Sure, but how many public REITs have gone bankrupt lately?
Just keep grinding it out... Sucks, but it isn't guaranteed money. The market is a fickle mistress. Goal is to tactically reload as the market deteriorates. The next promote cycle will come and may even better than the previous one.
These are the times where actually having a strong real estate mind/gut and being a good operator/developer is so important. We've built the trust and made a ton of money for our LPs. They understand that some items are outside our control but we continue to control what we can and show up everyday.
There will be plenty of opportunities in the next 5-10 years to make life changing promotes.
I know several people that have jumped ship recently because their promotes were wiped and they golden handcuffs are off. You win some, you lose some.
Lot of that going on, particularly folks at larger investment managers that invest in multiple asset classes. Know of several folks at large megafund shops that focus on multifamily but their fund had allocations to all asset classes and office, retail, etc. have totally effed up their promote so now they're looking for a new home.
Chalk it up to the game, dust myself off and try again.
Several people at my firm jumped ship once the golden cuffs are off, but more decided to stay. Sometimes it only takes one great deal to earn back all the "lost promote" from other deals, especially if you are doing large deals ($200M+).
Sometimes it only takes one deal to destroy your promote as well as the entire reputation of the firm. I've seen this more than I have seen your version.
Yes if it's a fund a structure where the promote is crossed. If you have deal by deal promote it won't be an issue.
Yet surprisingly some of these guys get second chances...
Look at GreenOak, it's former MS guys who destroyed their real estate platform.
Wasn't Sonny like deep in Japan RE when a nuclear disaster happened... talk about a fund blowing up
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