Thoughts on acquisitions vs. development

I always thought I wanted to do development. I work in acquisitions now. Below are my random thoughts I welcome any input. Curious to hear from others who have considered both. 

  • Development is more entrepreneurial and higher risk. Requires a certain skill set which seems like it would take longer to build (very "apprenticeship"-like space IMO). 
  • Acquisitions - seems more feasible to go buy a smaller deal on your own vs. run a development. 
  • Development can produce a bigger carry check but how much is survivorship bias? Curious on average who makes more…acquisitions or development guys. Probably not a clear answer here 
  • Development seems like a nightmare sometimes - cost escalations, labor shortages, whiny GC's, etc. Many moving parts which can be tough to manage
  • Lower initial comp in development from what I've seen. So unless you want to stick around to MD or go do your own deals ASAP and get rewarded on carry, maybe comp is better in acq (seen some crazy numbers thrown around for REPE assoc. roles lately) 
  • I like how with acquisitions, you don't need to live in the geography that you cover. I value flexibility and optionality and while broker contacts, etc. may be local I like the idea of owning/acquiring real estate across the country from anywhere. Like I could live in NYC or Miami and effectively do the same thing if I am covering Midwest/eastern markets.
  • I think design is cool. I think I could get that fix from a heavy rehab of a townhome or something vs. having to go do development. Not sure I would need to go build an entire development skill set to eventually have a fun time redeveloping / renovating small-scale townhomes/condo projects/etc 

Comments (17)

Apr 26, 2022 - 9:43am
WSO Monkey Bot, what's your opinion? Comment below:
Jun 30, 2022 - 10:19am
CREnadian, what's your opinion? Comment below:

Chiming in on your thoughts... Long and short of it is these are pretty different career paths that appeal to different personality types and people with different goals.  This will come across as though I prefer development (I do work in it) but I actually have no preference either way, these paths suit different people.

REPE/acquisitions is a far more finance-oriented, corporate job. It's fast-paced and you're always on the hunt for the next deal, but the scope of your role is much more limited (thus it prepares you less to be an entrepreneur). You will focus more on the macro environment and economic/industry trends to guide your decision making, and you won't learn nearly as much about the nuts and bolts of real estate (again, less prepared to be an entrepreneur if that's what you want).

Development is real estate, through and through. To succeed at high levels you need to understand how to source deals and identify a good deal, but you also have to have an intimate understanding of everything real estate, from leasing to operations to strategy, as well as have very strong project management skills and ability to navigate politics. It's a broader, more well-rounded skillset, but you could also argue that it requires less rigorous intellectual analysis from a finance/investing perspective. REPE is much more specialized and thus generally teaches you to be better at what they do - investing.

To your points...

1. I would agree entirely with this point.

2. 100% yes again, but I'd ask the question of which is easier to make real money on in the long run. It takes much longer and many more deals to build substantial income/net worth by buying your own smaller deals.

3. Assuming we're talking corporate and not entrepreneurship, then acquisitions guys. At the junior levels base pay is substantially better. There's also just more deal flow so potentially even from an entrepreneurship perspective. It takes more luck and fewer people have the stomach for it to make it in development.

4. Yes. Right now is a great example of it being a headache to be in development. But acquisitions can also be a headache when there's no deal flow and your firm is breathing down your neck to bring in new deals.

5. See above.

6. Lots of development shops have guys running deals in markets outside where they live, they just travel frequently and/or hire someone to run the day to day in that market.

  • Analyst 1 in RE - Comm
Jun 30, 2022 - 11:20pm

I agree with most of the points above but acquisition roles at GP vs LP (REPE) could be quite different. Acquisition roles at GP would also allow you to source deals, build relationships with brokers, speak to tax consultants / insurance brokers / asset management / construction team, etc. You get to tour the properties with construction guys to understand where you can add the most value to the property and you refer to all these feedback collected to make a decision on the potential investment, which I personally think is the most exciting part of the job.

Acquisitions at LP would be mainly responsbile for allocating capital and is more finance-oriented and face-paced. You would be working on many different deals at once and learn about different asset classes and markets.

Unless you're in a sectors with lower risk like class B multifamily / student housing that are recession resilient in some ways, development is much riskier since typical development projects take 2 - 4 years to build and nobody can accurately predict how the economy would perform in the next 2 - 4 years. I personally would rather work at a LP fund and allocate capital to GP developer and let them take the risks.

Jun 30, 2022 - 11:48am
CRE, what's your opinion? Comment below:
Associate 1 in PE - Other
  • Development seems like a nightmare sometimes - cost escalations, labor shortages, whiny GC's, etc. Many moving parts which can be tough to manage

This is the main decision point right here, imo. Development is a nightmare always, not sometimes. Everything that can go wrong will and you have to lead and backstop a team of consultants who know more about what they're doing than you do but will still mess up once a month at least. 

Does that sound like a challenge to tackle or something to avoid? Are you up to learning how to anticipate pain points to minimalize cost and schedule problems? Are you able to make multi-million dollar decisions at a moment's notice? Are you capable of maintaining the vision while everyone else is lost in the weeds? 

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Jun 30, 2022 - 3:37pm
redever, what's your opinion? Comment below:

So a few thoughts on this....

- Acquisitions is a department/function within the broader industry/business of "investment management", where development is an industry/business itself... so no offense to OP (as I get what they mean from a job/career path perspective)..... these are not really equivalent for comparison 

- Related to the above..... whom you work for (like what kind of firm, how is it funded, etc.) matters TONS. Doing acquisitions (or originations, the debt side equivalent) for a large institutional, multi-strategy/fund player (like PGIM, CBRE GI, etc.) will be quite different for a small single fund/strategy operator. As would be working on a major institutional development project for a major institutional type developer (like Hines types) vs. a small local development firm that is more dependent on JV-equity. The expectations, scale, resources, etc..... similar jobs sure, but very different life experiences (and potentially payouts...). 

- The risk/return profile (and scale tbh) of a given equity fund/strategy or development that one works on/for will set a lot of the boundaries of pay potential... so the frame of "who makes more... acq or dev" is not really solvable in my opinion. Clearly many high six figure and seven figure earners in both.....

So what matters..... (I.e... what should drive one towards one career or the other...)

Personally... I like its the like of the "business" itself... like do you want to build/develop cities and assets, and like all the urban placemaking, etc. that comes with development. Or do you like the hard-core investment/finance side of the investment mngt business. (note, the acq vs. other stuff is then another question I guess). To me, these two "buyside" RE businesses have a lot of overlap, but the day to day work/life of most in those businesses are really quite different. Figuring out where you want to fit and what you will enjoy/excel at is far more important that pay or even "risk profile" IMHO. 

  • Developer in RE - Comm
Jun 30, 2022 - 5:29pm

Great post, and very relevant to my current situation. I have worked in development for 5+ years - currently working for a large developer and am very happy in my role. I just received a job offer for an acquisitions focused role for a small multifamily value-add company (~1,200 units and I would be the only employee other than the principals). The pay is better and there is huge upside potential if the company does well. I am also very excited about the entrepreneurial nature of the small firm and to focus on growing the company. That said, it is difficult for me to give up everything I like about development (entitlements/political aspect, managing a team of consultants, ground up construction, etc.)

My ultimate goal is to be entrepreneurial at a small company or start my own company. I need to decide if I want to stick with development at the large shop and continue improving my development skills, or take the job offer, become an acquisitions guy and go all in on this small company. Leaning towards the latter.

Jun 30, 2022 - 11:06pm
Trunk Yeti, what's your opinion? Comment below:

I've done industrial acquisitions at an institutional scale, and am currently doing industrial development at an institutional scale.  Been responsible for sourcing, underwriting, due diligence, etc in over 20 markets across the US.  
 

They both share a lot of similarities when it comes to finding deals.  IMO it is easier to find development deals as most land owners are sellers at the right price and land hasn't been consolidated among the institutional investor community in the same way that buildings have been.  Development is definitely more of a pain in the ass but I like it more cause it is significantly more challenging and rewarding than acquisitions.  Acquisitions gets boring as it is literally the same thing over and over and over.  Feel free to ask me anything else.

Jun 30, 2022 - 11:31pm
Yourmomhello, what's your opinion? Comment below:

How easy is it to go from acquisitions -> development vs development -> acquisitions. I'm very on the fence about deciding on the two and my rationale atm is learn the acquisitions skill set in 2 years or so then jump to development to learn the entrepreneurial skillset. Also if acquisitions allows me to do smaller deals, I want to learn the process and apply it as early as possible.

Any thoughts?

Jul 1, 2022 - 1:49am
Trunk Yeti, what's your opinion? Comment below:
Yourmomhello

How easy is it to go from acquisitions -> development vs development -> acquisitions. I'm very on the fence about deciding on the two and my rationale atm is learn the acquisitions skill set in 2 years or so then jump to development to learn the entrepreneurial skillset. Also if acquisitions allows me to do smaller deals, I want to learn the process and apply it as early as possible.

Any thoughts?

I'm my experience it was pretty fuckin difficult to move between the two.  There just aren't a lot of development jobs out there and you have to risk taking a step backwards.  If you're going to swap between the two I'd go acquisitions -> development.  Going the other way there are more jobs available but the skill set isn't as applicable.

Most Helpful
Jul 1, 2022 - 1:19am
pudding, what's your opinion? Comment below:

I've thought about this a lot. redever breaks it down really well that acquisitions is a function within the business of real estate while development is the business of real estate. So here's my perspective having done institutional acquisitions and lending as well as now doing development. 
 

Acquisitions is a really good job. You'll learn a ton and see lots of deal flow. However - what will you miss - it's hard to identify the bumps on the road the deal may experience if you've never actually brought a deal to fruition and sale. One of the things I always felt missing in acquisitions is understanding the little risks that come up along the way, but delay you and can add issues and losses. Because you don't deal with operations in a auditions, you miss these nuances. 
 

Development - you can see all the nuances as you fight the clock to get the asset built. You're going to learn project management skills, deal with budgets, leasing, operations, partners, lenders, the government. Not only will you see the bumps, you'll experience them and smooth them out to derisk the project. You may not look at 100 deals per year anymore (acquisitions) but you'll be in the weeds in one (or a few). I believe (and I received this advice from a developer and why I went into development), that development will actually teach you the business and give you a better entrepreneurial skill set to do your own thing. This is because development is problem solving and management. Once you've underwritten deals for 1-2 years, you have enough experience to figure out what levers to pull to determine if a deal has potential. It's not rocket science (neither is development). But development will teach you management and problem solving which are key skills to running your own firm. I believe that you can take a development skill set and either become a developer, or become an "acquisitions GP shop" (LP if you can raise the capital). The reason I believe development allows you to do both (acquisitions and development) is because you are learning the business of real estate. Seeing the risks. Operating. De risking. Dealing with the BS. Problem solving. Managing. And moving a project forward. 

  • VP in PE - Other
Aug 29, 2022 - 3:08pm

On a tangent, what were your steps / timeframe going from acquisitions to lending to development? I'm trying to get a feel for how late I can leave it to try transition back to development. Feels pretty risky to make the move within the next 1-2 years given the economic situation, longer than that though I'm concerned I'd be too senior in some eyes to be an attractive candidate. Was in development prior to acquisitions. 

Aug 29, 2022 - 3:14pm
pudding, what's your opinion? Comment below:

There really were no steps. I got super lucky and the job popped up via my network when I was in the market. Adding on to that - the developer I work for tends to prefer finance people who understand how to model and they will mold their junior and mid level people into developers and understanding construction aspects (learning it on the fly). I don't think there are any "steps". You just need to find a developer that values your skill set. Some want people who have only been developers, some want construction people, some don't care, some want finance people. Sorry this is so vague, there just isn't any method to the madness. 

  • Analyst 1 in RE - Comm
Aug 23, 2022 - 10:57pm

As some people have said, I would say both areas can be in the same company. Especially at smaller companies I know the head of acquisitions (who we would send deals to) was overall a Principal/Partner that worked his way up and looked at deals/handling retail leasing/and on the development side working on deals. That's really how I've seen it at many firms, even the head of acquisitions may be that in title but they're involved in some of the other major aspects of the deal. Now this may be because a lot of the firms are smaller and wear different hats but I've rarely seen someone just focus on acquisitions unless they're maybe an analyst but that is still a title and they may help with asset management, etc as well.

I didn't think there were defined career paths for acquisitions or development so correct me if I am wrong. I saw it as there are those departments at an owner/developer and may be separate departments but are all working for a developer or an acquisitions department at a LifeCo, REPE, etc that is more an LP on deals.

Aug 24, 2022 - 12:03pm
CRESF, what's your opinion? Comment below:

I'm going to address this as whether you want to go off on your in development vs. acquisitions. As others have said, it really comes down to your personality and what kind of pace you want to work at. Acquisitions is on all the time, always looking for transactions. The fees are much smaller ($100K on a $10M acquisition), so volume becomes the name of the game. You'll need far less capital to get rolling vs. development and in theory you could have your first deal closed in your first 90 days in business. Development on the other hand is slower paced, more of a grind. You'll need to work a deal at least 12 months but more likely 18-24 months before any fees start to come in the door. Need to have more capital saved and you'll have to find a balance sheet (either building your own or bringing someone in tow that has one). But the fees on a $10M development could be $500K. 

In development, you might only need to do a deal every 4-5 years to make a very comfortable living, and I know a number of people who are a lone wolf developer. Your time is mostly spent working the deals in your pipeline and so you're not always "on". You can do that in acquisitions too, but the volume aspect of that side of the business at some point necessitates more of a team. Development is also really hard and, as you noted (which I love), it's a craft that takes a long time to really learn. I have met hundreds of developers and I don't know a single one that hung their own shingle before they were 30 unless their family was in the business or had a lot of money. There is much more of a moat around development. When things get frothy there are new acquisition-focused firms being started every day - less so for development. It's also much easier to fall into the "doing a deal because I need to do a deal" trap in acquisitions, again because of the reliance on volume. 

Both have their pluses and their minuses, like everything in life. Personally, I like development more but I'm lucky that my role allows me to do a little bit of both. 

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Aug 25, 2022 - 7:08pm
pudding, what's your opinion? Comment below:

I agree with everything you said except that it's easier to fall into the trap of doing a deal for fees in acquisitions. I would argue it's just as easy in acquisitions as in development. Developers also need to feed their staff and keep the lights on. If you do one or two developments at a time, you still need many in the pipeline for one to work out and feed your staff when the current projects end. Due to having less volume, I would actually argue the developer is more likely to do a deal for fees than the acquisitions only shop as they have more options on deals. 

Aug 30, 2022 - 10:22am
Ozymandia, what's your opinion? Comment below:

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