There is almost a guarantee you'll get this question if you are interviewing for a job on the principal side coming from Investment Sales / Debt Brokerage / Lending, and I feel that this question is harder to answer if you're not already in acquisitions. IE in lending we're focused on credit metrics / operator track record / financial wherewithal of borrower / Historical Financial Statements / demographics of MSA and sub-market. While some of those areas overlap with PE, we don't take as deep of a dive into comparable properties and our projections are less forward looking than a buy-side real estate company (when lending on stabilized properties).
So my question is if anyone has a go-to format for answering this question? Would be especially helpful if you had a way of doing so from the perspective of a lender / broker
Here is how I've been thinking of breaking it down:
Background
-Transaction type (refinance, acquisition, construction take-out, credit facility)
-Borrower history
-Property overview
-Overview of City
Financial and Demographic Metrics
-LTV/DSCR/NOI/Cap Rate / Expense Ratio etc.
- Median House Value / Median Income / Population Growth / Supply & Demand of Property Type
- Compare the above metrics to Comparable properties
Strengths and Weaknesses of Property
-Highlight weaknesses and why your team was okay with them
-Strengths are self explanatory
Outcome of Transaction
I feel like I'd just be throwing out information at an interviewer if I were to say these things. Is there a more fluid way to break down a deal? Should I talk more about my responsibilities even if they're largely the same on each deal? Appreciate any help on this
One thing I'd caution you on is with respect to the strengths. In a lot of cases, they are not self explanatory. They may appear to be so to you, but definitely take the time to flush this out. This is an important thing that a lot of principal groups will want to make sure you understand - 'why do you believe in this deal?'. Especially with respect to investors, in a lot of cases you are going to be educating and re-educating them on a certain market, location, product type, attribute, etc. Other than that I think this is pretty solid. If someone asks you this question they are basically just trying to get a gauge for your work process and what your general experience has been on the transactions you've completed. Ideally you would also bring up a deal that wasn't 'clean' from start to finish and what you and the team had to do to execute and go the extra mile to close.
Thanks for the response. I meant strengths are self explanatory as in I’m not going to type out several examples of strengths for my outline. I’d obviously speak to them in an interview.
You brought up another issue I have though. On my resume, I list a $230mm property I worked on because it shows my team does institutional deals. But it wasn’t necessarily too difficult outside of legal issues we encountered, because the financials and market were so favorable. However, everyone asks about it cause it’s listed on my resume. I guess I should remove it and put average deal size instead? That way I’ll have a choice in which deal I talk about
Got it, that makes sense.
For the $230 M deal, I don't think it's necessarily bad to leave it on there, but you could put a smaller deal on as well. That way it's clear that you've seen all different sized transactions and it gives you a relatively easy and more difficult one to talk about. Anyone worth their salt is going to know that usually the larger $ size and higher profile transactions have less hair on them because they typically have been passed back and forth between institutional entities. The smaller deals usually have more stuff that can go wrong because of both the ownership profile and the fact that a lot of stuff flies under the radar just due to the lower $. i.e., stuff like environmental, seismic, etc. is a lot more likely to go unnoticed for a period of time on a $25 M deal than a $230 M deal.
Well, don't get me wrong - from a 'prestige' perspective the higher $ volume is always better, but I'm of the opinion that you earn your stripes and become more seasoned/a better investor from doing the smaller to MM 'tweener' deals just because you see more stuff and get a bit more experience from the 'wtf can happen?' perspective.
The compensation is obviously way different as well. If you're competing at that $100M+ level from an acquisition perspective, 9 times out of 10 you're going to be somewhere like a REIT or a large advisor where the thing you care about the most is the cash flow and not necessarily the exit/IRR, so you might bid up the asset and win it because you care about placing the capital and the acquisition % fee more than worrying about hitting a certain return threshold when a fund matures (in the case of a REPE). That's why there are only very select REPE firms that you see bidding consistently on deals of that magnitude - unless they also have some separate account/fee clients that they manage separately outside of their fund series that would be more of the core profile.
EDIT: this is obviously not taking into account a developer's perspective which would not necessarily be the same.
Other people have given very good advice here, so no need for me to re-hash that, but the trick to this part is to tell it like a story. You have all of the key points organized in a list, which is fine for a post on this site, but you definitely don't want to present it as reading through a list.
Think about the structure of a basic story. You set the stage, get into the plot, get confronted with adversity, overcome it, and succeed. This structure can apply from anything to novels to a story you tell your coworkers Monday morning about your buddies getting wasted at the strip club, but it's what makes stories interesting to listen to.
Similarly, when you present your deal, your presentation style matters. Set the stage with your "background info," talk about why your team got into or liked it, talk about struggles you were confronted with, talk about how you overcame that adversity, and then talk about the result. Intermingled in that you drop the various metrics as details, just like you would say what you were drinking or what the stripper looked like in order to add color to the story. Be animated with your story and really tell it like you were telling a story at Thanksgiving dinner or before the Monday morning meeting.
This fits well with what MonkeyWrench was saying too about the smaller deals with more "hair" on them, because what a $230 M deal is impressive, that smaller deal that gave you a lot of problems, but also a lot of opportunities to overcome those problems, can make a much better story and also be a prime vehicle for you to show you are capable of overcoming adversity.
The details and return metrics matter, and the purpose of the question is to definitely gauge whether or not you know what you're talking about, but you also need to remember that during an interview you are being judged holistically as well. Are you someone who they want to spend 8-12 hours a day with? Are you someone they can trust to have small talk to clients? Do you, when they think back on the interview, "feel" right. Some of this sounds like bullshit but it definitely is not.
Literally all of the ownership side of real estate is coming up with conservative, but idealized, underwriting, and then consistently being slapped in the face with issues, problems, overruns, etc. and having to fix or manage it. It's true in acquisitions. It's true in Asset Management. It's true in development. Problem solving is the #1 most important skill, so you want to get your ability to problem solve across in your interview.
You'll be best served if you enter the interview prepared to be asked "why" or "how" after you answer a question related to a transaction on your resume. The types of questions you are asked will depend on the types of transactions on your resume. I would expect everything from your contribution to the initial pitch to how you modeled the transaction (be prepared to remember every minute detail) to any difficulties you ran into during diligence to just about everything regarding the client's products, services, and/or IP.
EDIT: You really should look into the WSO Mentors Program, but if you post a sample transaction that you worked on (obviously mask names for your anonymity), I would be happy to give you some sample questions that I would give you if I were still in IB.