Smaller firm or MF REPE? Starting own shop
I've got a few years experience in a big shop and I've enjoyed it. However I want to be more well rounded and big firms can silo you. As many of you can relate, my goal is to go out and start my own little shop doing REPE.
I could make a move to MF REPE but I feel trying to go out and finding a $10m deal is completely different to buying a portfolio of logistics assets worth $300m. If I was to go out alone I wouldn't be able to raise that type of money.
I feel working in a smaller firm working day to day on deals sub $50m I'd have a lot of experience in that range and stronger contacts with brokers, builders, banks etc. A big thing for me personally is to go out sooner rather than later and do this. Once I hit 40 I'll most likely have kids, mortgage etc and we all know starting a business is very hard with big operating costs.
The downside of going to a smaller firm is the pay (to an extent) and the lack of brand name to go out which would hurt funding wise.
Interested to hear everyone's thoughts on this. What's a better path for starting a small REPE firm?
If your goal is to do your own deals, it’s not worth the pay gap to go some place you won’t learn as much for your end goal objective.
your head is in the right place - go where you’ll get the best exposure to doing the work you want to do yourself!
Bump
Waiting until you have relationships with the people who will provide your capital is the best way to start an REPE shop. You're talking about work/life balance, but if you're starting a company on your own, that's not in the picture. You can't build a business and also think "I need to be phone down at 5pm".
More to the point, why is anyone giving you money? If you are 45 and have 15 years of experience, then sure, maybe a pension fund is interested in investing because they've been working with you all that time. Why is anyone thinking "hey, there's a 25 year old who thinks he can run a private equity shop, lets give him $50mm!"?
Similar to Pzymandias comment above, you need to be able to raise money. Having a large institutional name on your resume helps you do that.
I’m pretty sure you’ll be able to figure out how to close a $10mm acquisition after 5-8 years at a mega fund…
I am actually sort of in the situation that you are talking about. If you read some of my previous posts, my family is mom & pop shop that does smaller real estate investments and development (2-4 units; $1mm-$4mm) and my goal has always been to take over and grow the business. I recently started working for the top developer (20mm+ SF in the development pipeline) in my city/state (anyone in real estate or works with real estate developers such as architects, engineers, attorneys knows my firm) and we raise capital from the largest funds in the world ranging from Blackstone to pension funds. The downside? I am a cog in a very big wheel. We develop buildings in the 200,000 - 500,000 SF. I came to this firm to learn and take knowledge back to my family's business, but I am very quickly realizing that it is the equivalent of working on a cruise line and expecting to learn how to operate a sailboat. The skill set is just completely different. This company is training me to be a very good corporate monkey...not a savvy real estate entrepreneur (one thing I did learn from this firm is that I do NOT want to be the size of this firm...to become this size requires so much political capital and quite frankly luck).
I say this because you are completely correct in saying that running a company that invests/manages $10mm assets is very different than a firm that invests/manages $300mm assets. Sure, you'll learn how to UnDeRwRiTe deals, create presentations/pitchbooks, draft investment memos..but let's be honest...when you are pursuing deals on your own..these are the least of your concerns. For my family's business I literally just do Revenue - Expenses = Profit for my "underwriting." At the smaller scales, IRR is meaningless because you can achieve ridiculously high IRR's but small nominal profit. In terms of sourcing deals, your investment strategy will be very different than a megafund (you'll have to create your own investment strategy and also pick a market. This is very difficult especially if you've never seen a deal happen at the $10-$50mm level, so you have no idea what makes money..you're kind of taking a shot in the dark that your underwriting is correct and you didn't miss anything). In terms of raising capital, your potential capital partners are very different..you will not be pursuing institutional capital, but most likely from friends and family and HNW individuals. Now assuming you have an investment strategy, capital partners, and sourced a deal...you now have to execute. You are now not only the head of acquisitions/CEO, but you are now also head of asset management, CFO, head of investor relations etc... you are everything...but the MF you worked at only taught you how to plug numbers into excel and create presentations. Another major difference between the sub-$50mm level and the institutional level is the fees. 1% acquisition fee on a $300mm deal is $3mm...1% on a $10mm deal is $100k.
By working for a smaller firm, you will experience more aspects of the real estate business, which will help you when you are actually go off on your own; however, my advice is that you go the MF REPE path for now because that brand name can be very valuable in the long run and you also make a lot more money (i.e. more start up capital). After you've worked at a megafund, you can always move laterally or even vertically to a smaller shop. I would also advise that you invest in a smaller property that you can afford on your own first before taking other people's capital. There's a lot you can learn from managing your own property that will be valuable when going off on your own that you will not learn at a larger firm.
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