Wanted to get feedback on experiences here. Has anyone gone from a hands-on sponsor to a hands-off LP before, and what were the biggest differences you found, what did you like more, etc?
I have 2 years exp at a bb, and have been in acquisitions and asset management for a small sponsor ever since. I do enjoy my current role, but am interested in working with a smaller platform (ie no property management company, ability to choose operators, more finance focused and client facing) placing and structuring equity.
Could anyone add some color on experiences of moving from a gp like Greystar type group to a Lp like blackstone or Carlyle?
I have a similar background. IB to Owner/Operator (OO) to LP Investments.
Pros:
I spend way more time doing what I actually like doing, which is underwriting/structuring investments and negotiating deal terms. Way less looking at property-level variances and some of the more mundane AM/PM work that comes with working at an OO.
Coming from IB, I felt like the hands-on type of asset management we were doing at the OO shop was very transferable to real estate but not transferable to finance. Working at an LP investment shop you spend a lot more time interacting with capital markets, rather than interacting with construction teams and PMs. You learn more about financing on the LP side, and less about the gritty aspects of maintaining/operating property.
Quicker pace, more repititions. Could be firm specific in my case, but I feel like LPs can move quicker than GPs for a variety of reasons. A lot of the groups from developers that we work with will be almost entirely focused on just one or two development deals at a time. For us, they're one deal of like 10 that any given Associate is actively engaging at the moment.
Cons:
Having experience at the OO side, it's tough being so hands-off in formulating the business plan and putting all of your trust in the sponsor to execute. You're a bit removed from the actual execution of the strategy, which is an exciting thing to miss out on for some.
It's fun being creative and formulating a value-add plan for a property. Having a true expertise in your market at an OO allows you to make bonafide smart investments throughout the cycle. If you do move to the LP side, always try to understand the sponsor's business plan and pick out which sponsors have a true expertise and recipe that works.
Working at an OO gives you essential skills you need to excel if you eventually want to start doing your own deals. The LP side does introduce you to valuable avenues for the financing side of doing your own thing, but if you don't know how to operate a property RE investing with your own resources might not be easy. Value-Add real estate is anything but "passive" income.
I went from a GP acquisitions to LP acquisitions and actually miss the nuts and bolts of the GP side. The LP side is about one thing: volume. It gets monotonous. On the LP sid, I definitely feel more in tune with what's going on at the macro level with the economy and capital markets, and it is nice to be able to explore and learn about new markets (that's what RE is all about). But I miss really being an expert on the property and submarket level that comes with the GP side. Now when I'm on conference calls with our GPs, managers, construction teams, etc....I feel like I never know what's going on and add little value, since I am focused on underwriting 5+ other deals.
What other value do you see? Your prior post didn't really dive into it either - yes, LPs need to understand and trust developers/sponsors. That is certainly part of their value, to their own investors. But when it comes to actually completing a project, the LP provides value in only two or three ways. Having their equity available when it's needed and without undue delays, and performing the balancing act of keeping their grubby fingers out of the day-to-day minutiae of a deal while also providing the sense that Big Brother is always watching. It's a delicate balance, whether you consider that one job or two.
Obviously if I'm investing in an LP fund then yes, there are a ton of things I want that LP to do. But at the end of the day LPs are capital allocators and not much more.
Which of these is specific to an LP? None, really. As in, the only time one seriously goes for financing is when a sponsor has their equity commitments soft circled, and thus can spend the time and energy on the next step of the program. No one spends the commitment fee locking in financing before having their LP equity lined up. If your point is that a deal with it's equity portion of the capital stack locked up gets better financing than on spec, then sure. But that doesn't mean XYZ LP is providing that value; the equity itself is.
Moreover, GPs often get better deals, because most intelligent debt brokers understand that GPs are driving that process, not LPs. An LP may get a lot of say but it's rare that the decision on financing isn't ultimately up to the Sponsor.
As far as winning a bid... well, again, why is this? LPs have those relationships and that reputation because people are convinced that they'll show up with their equity on time and without quibble. Which, as I said, is one of the value-add's that an LP provides, or rather, one of their only jobs. All these other fringe benefits just flow from that. It would be like saying that Sponsors add value by working on a project on a day to day basis. Sure, that is true, but it is intrinsic to the job they're being asked to do. To not do that means not being a sponsor at all.
Right, but the point is, they don't. You have to draw a distinction between a specific LP and the equity they're providing, the same as a Sponsor and their project are two separate concepts.
What gives you access to lenders and favorable terms are the fact that you have LP equity lined up, not that it's coming from a particular provider (in general). Yes, occasionally an LP has an especially cozy relationship with one debt broker or underwriter. But not across the industry. Sponsors are far more likely the be generating that value because lenders and brokers understand that in general it's more valuable to butter up the GP than the LP, because only one of those parties has day to day decision making rights.
Put differently, I am the Sponsor. I bring my project to two LP funds, both of whom are giving me identical terms and both of whom are reputable and can be expected to show up at closing with a check in hand. You are saying that for me (the Sponsor), LP Fund#1 has some value that LP Fund#2 doesn't. I'm asking you what that is, beyond the generic "access to lenders and deals". I already have a deal; I'm pitching it to the these funds, not the other way around. So that is of no use. And yes, it's possible that those guys have relationships with lenders that they can leverage, but while LP Fund#1 may be cozy with Wells Fargo, that just means that LP Fund#2 is likely to have a good relationship with Goldman Sachs. Or whoever you want to name. In other words, there isn't a difference in value there.
You keep saying that LPs have access to all this stuff without actually backing up that assertion. For there to be value, it has to be something their competitors cannot provide. I've been on the Sponsor side for a while and whatever they may think, LPs provide little to no value beyond their checkbook, unless you have an exclusive relationship with them whereby you get sole access to execute deals that they see. In which case you're almost a captive Sponsor rather than an independent operator.