To Those Who's Had A Successful Career In CRE, What Advice Do You Have For Younger Generations?
I figured it would be helpful to ask these questions as well apart from the general advices for younger people:
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How did you invest your money? Did you put a decent amount of your capital in public equities or just majorly real estate? If real estate, was is co-investments or did you do your own deals? If you did your own deals, how big were the deal sizes and what asset class were they in? Did you invest in REITs or crowdfunding platform and how have your experience been so far with your investments?
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If you could go back and start over with your career what would you have done differently this time?
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What advice would you give someone who wants to start their own shop vs someone who's dead set on climbing the ladder?
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When first starting out, if one's objective is to invest as much as possible into real estate, would it make sense to take a job that's outside of the RE space but pays more so that you have more to invest? How likely is it that someone outside of RE let's say maybe in IB/PE can do their own 20 units and under multifamily deals? Is it more beneficial to start in RE if your end goal is to own commercial real estate or would it not matter if you're not planning to do large commercial deals?
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What makes you still stick to RE after all this time? What do you love most about it? What keeps you from being bored?
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What shops would you recommend for the best training at earlier levels so that one can start doing their own deals maybe 10 years into their career?
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What is one common trait that you see in all successful RE people and what's the one trait you have that you think helped you tremendously along the way?
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What are the mistakes that you made along the way that's deal-related? What are the mistakes you'd recommend young people to avoid in their careers?
I know it's a bit long but I think this can really benefit people. Thank you in advance!
Yo thanks for the ping. I feel like I'm still a bit young to answer this, but I suppose mid 30's is older than most here so I'll go ahead.
1. My money first went to paying off student loans and credit cards from grad school. I probably put 90% of every sale check or bonus toward getting rid of that. After that, it then went to paying for a wedding. Pro tip - get married at like 28. Any younger and you're probably making a dumb decision, but any older and you and your partner start having expensive tastes. I also max out my 401(k) and throw money at Vanguard every month without thinking about it. Beyond that, I invest in my own deals and invest in a fund here locally that invests in real estate outside of my sector. That pretty much does it. I'm not at the point yet where I have millions to my name, and if I get to that point, I'm sure a lot of that will go toward my own deals at that time.
2. If I could go back, I wouldn't change anything so to say, but I would have started researching the various roles earlier so I could get to where I ultimately did faster. I was a broker for a bit, a weird asset manager/property manager for a bit, in rehab work for a bit, a GC for a summer, and then spent two years at grad school before finally getting into development, where I have remained. I draw on those experiences regularly, but none of them were in any way essential to getting to development. I'm "behind" some people my age simply because they have 5 more years of deal work than I do. It's not a big deal or anything, but having that certainty earlier during one of the best real estate markets of all time would certainly have increased my net worth.
3. You have to both know who you are and understand that who you are changes over time. People change their perspectives on life, their political believes, their religious beliefs, who their friends are, who they love, etc. throughout their life so you need to stay open to that possibility of change but also self aware enough to know who you are. Not everyone is meant to be an entrepreneur. Not everyone is meant to climb the corporate ladder. There is nothing wrong with either of those realities and real estate blends the two in a ton of ways on top of that, so it's also not a black or white decision. A corporate ladder climber in real estate still has to be self motivated, is often paid on performance, needs to secure new sites and new funding, etc. I would never say a MD at Hines who controls his or her fate and is compensated accordingly isn't "entrepreneurial" just because they traded some upside for a brand name, same with a big swinging dick broker at CBRE. There are shades of grey everywhere and the key is to find the shade you are most comfortable with. Be honest with who you are, what your strengths are, and don't try to fake it. Lying to yourself is about as dumb as it gets.
4. 99.9999% of the time, no. If you're a pro athlete making a few million a year, or maybe a tech bro pulling in $350k at 23 or something, then sure, maybe secure the bag first, but if you're making $150k in IB vs. $85k in real estate and want to be in real estate, the difference in entry level comp will not make up for the experience gained in-industry.
5. Specific to development, but I love that it is a creative pursuit with flexible hours and ultimately comes down to leading a team and personnel management, which I think I am good at. I guarantee other people are better at mental math, or faster at modeling something in excel, but when it comes to getting a self-important architect, a good ole boy GC, an artsy interior designer, a boring banker, a bubbly property manager, and an idealistic city manager, all with different goals and drivers and motivations, to all work together and push toward the same vision, I'd put myself up against anyone. (For what it's worth, the related adjective for developers is "egotistical") Boredom can't exist when your entire job is problem solving too. Things will always go wrong - how you respond to them defines the success of the project.
6. Doing deals for someone else and networking. Outside of your first or maybe your second job, your experience and your network is your resume. No one cares what grades you got in college.
7. Man, development is too interdisciplinary to pick just one. The ability to solve problems effectively and efficiently is absolutely essential. If something absurd goes wrong in your life, are you the type of person who immediately gets focused and finds solutions or do you melt into a puddle? In development, something absurd goes wrong at least once a week and you better be able to rationally think of solutions that fit the budget and don't degrade the product in a timely manner. Communication and soft skills are absolutely essential. See my answer to question 5 - as the developer you are the quarterback calling the plays, the conductor leading the orchestra, or whatever other metaphor you want. You aren't the best at playing the trumpet or catching the pass, but you better damn well know the notes that the overall song needs and/or trust that the wide receiver is going to haul in the pass you toss up. A sense of urgency and ownership are essential as well. You need to go into every situation with the mentality that if you don't drive it to conclusion, no one else will.
8. My only real advice is don't expect to never make mistakes and don't make the same mistake twice. I didn't pay property taxes on one deal because they erroneously weren't sent to me and I, not being a homeowner nor having any experience with property taxes, never thought that they were due at a different time from income taxes. That was a fun one to clean up. I worked under a guy who I realized was a complete dipshit in a few months and after a couple of major errors on his part, told the owner of the company that he was messing up X, Y, and Z. Turns out the owner and this guy were literal best friends. That was also fun. If you make a mistake, fix it and move on. Don't dwell on dumb shit that doesn't matter.
I'll take a crack that this (ahem) long list of questions (jk, they are all good ones)....
1. Mostly traditional ETFs/mutual funds (almost exclusively now). Did have some rental properties (SFHs), sold them off years ago. My current strategy is to maximize liquidity (both cash and equities) for safety and optionality. Since my income is derived from real estate industry, I purposely want to limit my exposure in my investment portfolio (did reallocate to some REIT ETFs at 'rona low points, felt too compelled not to). Will say more on my investment and risk philosophy in question 4.
2. Not sure, the 'path' I traveled seems so 'lucky' when viewed retrospectively I'm not sure I'd know where to go back and intervene to make anything better. I have some "what ifs" like, what if I went to a more "target" type school vs. a flagship style mega state school. This would have required more debt (well infinitely more since I had zero due to scholarships) but maybe would have had an "institutional" job right out.... either way... can't really replay it, ask me again in like 10 or 20 years, still too soon for me to judge.
3. I actually don't think my advice would change that much.... do what you are mega best at doing, and if that thing aligns with high market demand and profit potential, you will probably end up pretty highly paid as a result. Whether at "one's own shop" or for some large institution, those differences seem smaller to me the longer I've been in this business. I would say this.... if you are "starting out" (i.e. new to CRE from UG or whatever), being "deadset" on either path (entrepreneurial or corporate) is probably not a good idea. I think letting opportunities develop and come to you is far better/tactical way to do it. The best/successful people who went "entrepreneurial" (I'm gauging on money made for come clarity) did so based on very opportunistic moves, not just "I want to be on my own" vibes. And not to spoil any dreams.... they more or less founded firms with strong capital backing and more or less created "jobs with ownership". So, path really wasn't so different but potential and realized returns (and risk) much more. BUT, until you have strong skills, ideas, and capabilities.... worrying about this is pointless (but its good to dream, especially if motivational). Gotta learn it first, before you will get a big payoff on anything!
4. So, in the "Real Estate Investment Management Industry" (for this purpose, consider that inclusive of all buyside activities with equity, debt, and development), there are "managers" and "investors". Being a manager is a business (and one in which one can have a career). Investing in/with one is an allocation decision. Don't confuse these two points, they are separate. As stated in question 1, I chose to work in the "management" space (at a large int'l developer) and invest outside real estate (beyond some REIT ETFs and my personal residence) at this time. IF I decide to "invest" and go "entrepreneurial" it will be in a Manager type business (i.e equity fund advisor, development co, etc.... i.e. a platform), thus until and IF I see such an opportune moment, I want max liquidity. This liquidity (cash and equities) is both a safety factor from layoff (not an trivial risk at any firm in this space) and an effective store of "dry powder" as we say in the business. 20 unit and under type deals would be horrible investments from this perspective, as they are very illiquid on a relative business and their value/performance is probably going to be fairly correlated with my current industry health (i.e. lose job and value/ability to sell investments at same time). Worse, CRE assets have limited upside with big cash downsides (i.e. like a pandemic causes the government to place an eviction moratorium for over a year on all rental housing). Large institutional investors (what we call the LPs in the business) have the type of needs for which CRE investments are perfect, thus making a business of being the "Manager" is a pretty good one, and it scales. So, once one actually understands the mechanics and profitability of the "Manager" space, those small deals will look very unattractive tbh. WHEN I am rich enough to want/need the return profile offered by CRE investments, I'll invest either directly or via managers I know (prob taking co-GP positions), but that is not where I am today. I.e when I am as old and rich as those who invest like LPs, I'll invest like LPs.... but I am on the Manager track, and that is the strategy I'm following.
5. Good question... I think my first exposure to anything like real estate was playing Sim City when I was in elementary school (I'm old enough to admit this was the legit original, later got Sim City 2000, vastly better). I like buildings, architecture, cities, and money/finance... real estate development is the best mashup of that I can think of. Been times I almost veered to more "pure finance" world, but found it really boring as I would start the interview process. I've been 100% committed for about 14 years now. So with closing in on 20 yrs experience.... doing something else would be silly as I would not deliver anywhere near the value and thus be able to make the same money. I like it, generally always have, and boring has never been a way to describe it ones personally.
6. Really, the best job is the one you get offered. I'd guess if you really want the ability to do deals, then a transactional role is probably somewhat better (marginally). So brokerage (IS/DE in particular), I-banking, acquisitions (equity), and originations (debt) would probably be "tops". Paradoxically, it's easier (much) to do "own" deals in the "mom and pop" space and somewhat in "middle market" (or sub-institutional as I sometimes call it) than in big "institutional" world... so a "lesser" (by WSO standards LOL) type firm may actually set you up wayyy better than "big names" in terms of doing own deals. That said, jobs in asset management, leasing (brokerage), and appraisal all teach valuable skills in real estate, so really so long as its "legit" exposure, you are probably good to go.
7. Hmm.... being really good with people, solid leadership skills, communications/sales ability, being able/willing to challenge conventional wisdom and thus difficult circumstances. Those are all strong traits (none of them are shocking of course). I think my communication/presentation skills have made the most difference relative to others with similar technical backgrounds as me, that has let me personally "stand out". Worth noting... your excel or powerpoint skills (critical at analyst/associate stage) will be pretty worthless very fast, yet it's kinda like an entry ticket. Will note, many of the top super senior people I've worked with (including legit founder/CEO types) can and do make financial models from scratch and do so to model out business plans and deals, this is a financial industry, and you almost come to find yourself "thinking" in excel, that never changes (at least not for me).
8. I honestly can't think of a "deal-related" mistake that is even meaningful or worthwhile to tell, but I can assure you, I've made them! You will make mistakes... correct them and/or apologize and move on, it's human, don't worry. As to mistakes young people make.... I'll drop one but frame more as advice....
- final point in the spirit of this post....
- Don't be afraid to follow niches, develop 'specialties', or otherwise follow career paths that are deemed "non-standard" (least from a WSO pov LOL). The "mistake" I see people make is going all-in on a path like "acquisitions at mega fund" or "REIB desk at BB" or "analyst for Eastdil" and seeing anything less as a failure of sorts. I went the "research/strategy" route after leaving the D/E placement route out of school (directly due to the 08-GFC), this "niche" or "non-standard" path has led me pretty well and I can legit say I've made progress ahead of my "age" (not the best metric tbh, but one nonetheless). I've seen friends use appraisal to greatly accelerate their "buyside" careers. I've got many friends doing great in "niche" asset classes like student housing, senior housing, self-storage, etc. and are probably ahead of their age/cohort peers doing "traditional" asset classes. Same can be said for many people I know who started, stayed, or even moved to "secondary" cites vs. those who fought ahead in big markets like NYC/LA/SF/etc. So follow your own path, evaluate opportunities as they fit YOU, and don't worry about "prestige" (this ain't finance/IB....).
- extra final point on "mistakes", but I am only so-so sure on this one, and frankly can't tell if it is a mistake or not for an individual... that is.... leaving a firm for a "lateral" especially in first three years of career (like direct from UG), these moves often result in "resets" to the career and thus push back time to promotion. The better alternative is leaving for a promotion/upgrade. That said, for some, sometime the "lateral" is a good move, but for others its a long-term loser. Sadly, hard to know, but I think jumping too soon (especially if just chasing prestige and a few extra $$), is sub-optimal for many, but optimal for some/some of the time. So take that final throw away point for what it's worth!
So, first.... gotta acknowledge/ask... you are investing money in "degenerate levered ones"? WTF are those? I assume you mean some for of levered ETFs and maybe I'm just not familiar with the term (i.e. like inverse leveraged ETFs? Like go up when market does down?). Anyway....
Not a tax accountant or even close to pretending to be one... so take this as very very prelim and maybe personal to me...... to your questions..
- Unless you can qualify for "real estate professional" status from the IRS (which is nearly impossible if you have a W2 job most of the time), all passive losses are suspended once your AGI crosses $150k (and I think that is $150k married or single). So those depreciation advantages are gone, beyond wiping income of the asset and other passive assets until you sell the property. This is big part of why I sold my last rental, had a large accumulated suspended loss, and wanted to claim it. Unless you are like a "full time investor", hard to see much tax advantage, if you mix with w2 income, becomes really difficult (unless you make like under $100k where the phase-out begins I think).
- Doing a GP/syndicated deal vs. ETFs... sure, I mean could be a good idea. Depends on overall portfolio, liquidity, etc. When I refer to building liquid assets to act as "dry powder", that could be a use if so inclined (not a personal interest for me, but people can/do make money from such activities).
- If using all "own" capital, than you are not "leveraging" your skills or services as "Manager"... nothing wrong with this (clearly simpler/easier, and far less headaches as having "investors" on a 20 unit deal seems like a nightmare IMHO). My preference would be to have little to no money in the deal and earn the fee/promotes as Manager. I kinda like the whole "heads I win, tails you lose" payoff diagram. Side note.... that is generally the format of employment arrangements in the US, actually a golden form of leverage. Clearly, you don't get much beyond salary and basic bonus at junior levels, but once you get senior enough to merit Long-Term Incentive Compensation (LTIP, i.e. promotes, carries, stock grants/options, deferred cash incentives, etc.) it can change quite substantially. Doing 10 or 20 unit deals takes time, has risks, etc.... so it's really a matter of where does one get the best "bang for the buck" per se (IMHO.... for some, maxing out by "climbing the ladder" in the high-end of CRE world, is going to be better than doing 10/20 unit deals.. but for others... the small deals is the way to go... it's very personal tbh).
- Can people outside of CRE do small, or even large deals? Of course! Whole lots of brokerages, prop. mngt firms, and other service providers exist to service the "mom and pop" (aka HNWI) market, aka "private client" (that is what CBRE calls it I think as an example). Lots of doctors, small biz. owners, corp. executives, etc. own commercial real estate directly and/or via partnerships. There is also the whole entrepreneurial world of real estate that does deals as "side hustles" (think of the Bigger Pockets type world). So, no one does not need to work in CRE to invest or participate, this is fairly common.
I guess the overall point I'd make, given your questions and follow-up...... See the difference between "investing" in real estate vs. "managing investments in real estate", the latter is a business (and thus a career for those who work in it). There are many "professions" in the buyside and sellside of this industry..... and working in it does not require investing in it nor vice versa. TBH, the profile of the people that invest in large CRE funds (like some Ultra HNWIs do), will be vastly different than those who run/manage those RE funds. Just like how you can be a doctor who specializes in cancer, without ever actually having had cancer..... So, as for you.... I'd recommend keeping the career and investing plans/thoughts separate. if they both land on CRE, that's fine... but they really don't need to be linked.
How did you invest your money? My only regret is not investing more sooner. I invested in equities early on (18) and then sold a lot of them when I was in a financial pinch (21). Don’t do it. I don’t care how painful it gets, don’t touch the money. It’s hard to invest in real estate when you’re starting out because it’s capital intensive, but these days there are crowdfunding sources where you can invest with $5k-$10k which I would do looking back. After a few years as an analyst/associate, I had saved enough bonuses to start contributing to the deals my firm was doing. So it went like this: (1) Equities since the age of 18 and (2) real estate investments as an LP in other sponsor’s deals. All multifamily - ground up and existing value-add. I also now buy REITs of all kinds - Mortgage, Housing, NNN REITS. It’s hard to shy away from those dividends!
If you could go back and start over with your career what would you have done differently this time? This is always a tough question because our paths and journeys are unique and in retrospect are exactly what we needed to end up where we are. For those that are less spiritual, I can answer this from the perspective of “Knowing what you now know, what is the best way to ensure success.” In my opinion, I would have done exactly what I did which was network like a mad man - I was on phone calls and coffee chats 2-3x/week with industry participants (lenders, brokers, owners, analysts, associates, vendors, capital providers, etc.) The sooner you can figure out which aspect of CRE you enjoy most, the easier it will be. I would also intern (even if unpaid) at a company that was larger from the get-go. I went a more private, smaller company router versus institutional route and I think the institutional experience would have/could have been valuable in some ways. In summary, network like crazy and intern at an institutional type shop. I might even pursue those rotational internship programs so you can touch different facets - acquisitions, asset management, operations, corporate, etc. And then you can really see what tickles your fancy.
What advice would you give someone who wants to start their own shop vs someone who's dead set on climbing the ladder? Do whatever makes you happy. At the end of the day, no one but you has to live with your decisions. To the first group of folks, I would encourage them to get as much deal experience as possible and network with Capital providers over a period of time. It’s hard to start a new co. Without a track record so having deals to show success in and knowing where to find money are the key components. For the second group of folks, I would encourage you to work your tail off, always go above and beyond, triple-check your work, and when you’re done with Projects 1-3 go ask your manager for the next projects, and the next projects, and the next projects. A mentor once told me - your job is to make your boss’s life easier and take all of the work off their plate. This was a guy who was high up at one of the agency lenders. High, high up. So basically absorb all the work your boss would typically do and you will eventually absorb the role too ;).
When first starting out, if one's objective is to invest as much as possible into real estate, would it make sense to take a job that's outside of the RE space but pays more so that you have more to invest? How likely is it that someone outside of RE let's say maybe in IB/PE can do their own 20 units and under multifamily deals? Is it more beneficial to start in RE if your end goal is to own commercial real estate or would it not matter if you're not planning to do large commercial deals? This depends on how you see yourself investing in real estate. If you can have a low ego and are willing to learn things on your own and spend extra time on investing, then take a job where you get the most income. Capital is crucial to buying real estate so you need lots of cash and good credit. This will help you buy real estate at a level that may take longer as a RE professional. The flip side is by working in RE, you can basically get paid to learn what you know you want to do and you have front line access to deals. You learn the ins/outs/secrets/strategies and will make investing much easier. Harder, though, to get to 20 units when starting as an analyst making $100k or less. If you’re in IB/PE you can certainly do your own deals, but do you have the time? Most of the folks I know in IB/PE end up investing passively as LPs with sponsors of investments. If you’re planning to do larger deals, then working in RE makes sense but may take longer. If you can find a high paying job and keep costs low, then you can save more cash quicker and start buying faster but you now have to basically have a second job.
What makes you still stick to RE after all this time? What do you love most about it? What keeps you from being bored? I love meeting new people, learning new markets, completing research, and honestly just negotiating and doing deals. I’m a deal junkie and I learn something new on each deal. I love the feeling of getting a new deal under contract and I love the feeling of selling a deal for 2-3x for our investors. The money is also excellent LOL…
What shops would you recommend for the best training at earlier levels so that one can start doing their own deals maybe 10 years into their career? I would actually recommend reputable mid-market shops or a private shop to start doing deals sooner. Institutional groups obviously have amazing training and experience but you typically see people stick around longer because they are siloed and need to spend several years in each part of the ladder to truly understand the business. If you’re at a smaller shop, you can wear all the same hats as the principals from day one and learn everything a lot faster. I would work at a shop that does lots of JV deals so you can meet the JV investors and learn what they look for in deals. I would focus on working on the acquisitions side or the capital markets side (debt/equity) - control money or deals and you can learn how to get them done faster. I also don’t think it will take 10 years. Maybe 3-5 if you work your tail off…7-10 if you go with the flow and take it slower.
What is one common trait that you see in all successful RE people and what's the one trait you have that you think helped you tremendously along the way? They are hungry and looking to get deals done. If you’re not motivated by the hunt, to track down deals and negotiate them, and get them closed up, then it’s not for you. It’s rare that people who have a 9-5 mentality succeed in real estate. You must be willing to make the calls, analyze the deals, travel, get creative, and do what it takes to win deals and your can only do that with persistence, hard work, and grit. The best traits are extroversion, communication, and follow-up. That’s how you get things done in real estate - communication is critical in any business but even more so in RE.
What are the mistakes that you made along the way that's deal-related? What are the mistakes you'd recommend young people to avoid in their careers? Deal-related: getting too into a deal and not realizing that as DD progressed it wouldn’t be a home run anymore, and buying it anyway. As Steven Schwartzman says in his book - W/E it Takes - deals tend to take on a life of their own. It’s important that you don’t let that happen and that you always have dozens of deals in the pipeline so you can walk away from average deals. Average deals may not lose money but they still cause headaches. So basically remain objective, don’t massage the numbers, and stick to your guns. Mistakes young people make - jumping ship from good companies for a $10k-$20k raise. In the grand scheme of things, that money, post-tax, is nearly nothing. Work to learn, not to earn and eventually the hard work will pay off one way or another.
I know it's a bit long but I think this can really benefit people. Thank you in advance! I rambled but hope I helped.
On the younger side (like the rest of this forum), with only about a decade of experience. My net worth will be about $4.5M by the end of this year based on carried interest in deals, though, coming from a negative NW at the beginning of my career and no family connections.
At a high level, my advice on your questions would be:
- If you're getting into real estate just for the money, you probably have better options. I love deal making and development, so I don't have another option that I'd enjoy as much. Just got lucky in life that this is what is exciting to me.
- Three keys to success are a) betting on yourself, b) taking any bet where the risk/reward ratio is disproportionately favorable and the downside won't end you, and c) work hard at it and be patient. I bet on myself early on by spending a lot of time and money on education (CCIM, master's in real estate, miscellaneous courses and studying). Then I bet on myself by taking on real estate consulting projects while I was working a FT job (that could've gone sideways and got me fired). Leveraged those consulting projects into carried interest in deals and quit my job to bet on myself working FT on those projects. If it all goes sideways tomorrow I still have a great resume and could go get a great job in real estate. Patience is key, too. My net worth about three years ago was under $100k, but I laid the groundwork for hockey stick growth.
- Being actively involved in real estate is never going to be boring. Being on the service side (debt/equity brokerage, investment sales, etc) can be boring, but it's the price of admission and the people involved are typically still pretty interesting.
I'll respond to just one of these for now.
8. Network like crazy and learn to hunt with a big rifle. In this context I am talking about deals. Learn how to source career making projects and know who needs them. This skill alone will accelerate your career and net worth faster than anything else. I am working on a deal right now that has the potential to net me more than 5M with zero capital risk on my part. I know a deal when I see one, I know people, and most importantly I know what those people need. I hunt career game with a big rifle.
There is something flawed with signing a personal guaranty on a loan, on a seemingly long term investment, with people you barely really know.
This happens all the time in commercial real estate.
I’ve been lucky to have refi’d out my guaranty and limited exposure - a booming market helped that. But my advice to you is unless you have control of business decision making, you want to think very hard about signing on loans that 10 years from now you are still on the hook for (joint and several) with people who can become adverse to your interests.
This is one of the pitfalls of real estate investing as a GP. The long term nature, patience, resilience needed. The illiquidity (meaning you are trapped). The large amounts of money needed, leading to unequal economic circumstances. And how people change (or show their true colors) within that timeframe. This might not seem important heading into the venture.