Similar post to "Lending to REPE" but wanted get down to specifics on switching to RE Debt Fund instead
Currently doing balance sheet lending at large lender (JP, WF, BofA) and want to switch.
Is this a pretty common switch? Do funds like analysts with lender experience?
Which skills would be most transferrable?
What are key differences besides risk tolerance?
Things to brush up on before interview?
Any other input from associates/analyst in funds
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Yes, you can definitely switch. You’re moving from one lender to another - so the majority of what you are doing should stay the same. Banks are a great training ground to see large amounts of deal flow.
The differences are generally just risk tolerance. You may need a better understanding of certain loan structures and preferred return modeling if the fund does perf equity. But none of that is too complicated. Other than that, lending is lending. The debt fund just is chasing a different opportunity set.
Yes, the switch is both possible and common. Experience usually will help. The skills you'd carry over use are financial analysis/modeling, research, credit risk, setting up quotes/term sheets, reaching out to borrowers, etc so not a lot of change there. As pudding alluded to, if the fund has different strategies like pref/structured then you will have to model the return metrics which are not that hard to do. And besides, the fund will have a template for you to input that info - it's a transactions business so you're not wasting time building models all day, you're tweaking them (at least at my fund).
Major difference between the two I'd say is just the risk tolerance and the opportunities you lend on. Otherwise, it's still lending, debt fund just sounds sexier.
Very possible - our fund just hired a new underwriter/associate from a regional bank.
As others have alluded to, there will be a learning curve on the “investment” side, but if you have strong credit experience (underwriting and closing deals across a variety of asset classes/situations) you can pick those skills up quickly. Real estate debt modeling is not especially complex. I use existing models with some tweaks for most deals I look at, and rarely build one from the ground-up.
I would make sure you have at least an academic understanding of the puts and takes to structuring deals - risk-adjusted returns, what levers change your IRR/MOIC, etc. and really sell your underwriting experience in higher-risk scenarios. Banks generally only look at the cleanest stuff while debt funds can charge more for value-add or transitional deals.
Do you think someone could transition from a large life co (pgim/MetLife) equity team ( asset management) to a debt fund?
Yes 100%
Actually the majority of banks don’t look at the cleanest stuff. Especially the institutional banks - their money is usually the most aggressive on the value add deals. Their loan books generally turn every 3 to 5 years and they chase the value add loans hard which have shorter terms. Much of this is also driven by the fact that life companies have trouble competing on this type of product due to the long term nature of their liabilities. Most banks can’t get as aggressive as the life companies on longer term product (7-10 years).
Potentially, but it’s more difficult. Debt funds hiring for underwriting positions today (if they are at all) honesty have a wide selection of candidates to chose from.
There have been significant layoffs at a number of well known CLO/CMBS shops, and those folks are all out job hunting too. We interviewed candidates from bigger name brands but ultimately went with someone from a regional bank because he had good credit experience, good work ethic, and great references.
Bigger shops are more likely to take someone they can quickly slot into the role, smaller shops may be more willing to take a chance on someone whose really sharp, willing to put in the time, and is committed to being there as they scale (but doesn’t check all the boxes on the experience side).
If you’re really trying to switch, I’d focus your search on smaller shops and make sure your resume emphasizes any experience you have related to actually underwriting deals. If you’re not closing new deals, show that you’re underwriting asset value, getting inputs/assumptions from market participants, handling workouts or special servicing (always a plus to understand what can happen when deals go sideways).
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