Acquisitions in Institutional Shop vs. Private Firm

Title says it all. Given similar comp, location, etc...

Would you take on an Acquisitions Analyst Role at a Top shop (e.g. CBRE Global Investors, Blackstone) Or an Analyst role directly supporting a principal at an investment firm that has a decent portfolio looking to expand? Said principal plans to be a direct mentor and teach you the business from the ground up.

What are some considerations you might have when making this decision?

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Comments (15)

Mar 7, 2019

I'll chime in as I've had some relevant experience in this.

I joined a very small RE investment firm where I am/was (on my notice period) working directly with the MD of the firm (the principal/owner is therefore one step removed from me, but pretty close) with minimal other staff. I was led to believe that I'd be working on new investments, the bonuses are good and there would be limited involvement in administrative work.
Unfortunately every one of those points proved to not be true.
* Small companies generally have less capital to deploy. Therefore your ability to make investments can be rather limited. In my case it was so limited that we made no acquisitions whatsoever during my time at this firm.
* One thing you will almost never escape in a firm as small as you describe is admin work. In bigger firms, this happens all in the background but in a small one be prepared to get your hands dirty in all sorts of less exciting/less glamorous things. Now maybe you really want to learn the business from the ground up, in which case go for it. Think things like chasing lessees for rent, ordering phone lines into your property, putting together monthly compliance reports for lenders, managing supplier payments, coordinating all sorts of technical property related things that someone with a finance background has little knowledge of, procuring insurance. I personally found this stuff quite uninteresting and not really adding to my CV or skills.
* Bonuses/pay may be determined by emotions, and not rationality.

This being said, your experience may differ. And maybe what I describe is what you're after, and it just wasn't the right thing for me.

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Mar 7, 2019

In a similar position as you, and I have a salary renegotiation coming up soon....how are your bonuses structured? As in general bonuses at end of year? For every deal you source? Are you able to put in any equity into deals?

Array

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Mar 7, 2019
futureREmogul:

In a similar position as you, and I have a salary renegotiation coming up soon....how are your bonuses structured? As in general bonuses at end of year? For every deal you source? Are you able to put in any equity into deals?

Bonuses here at the complete discretion of the owners, paid whenever they feel like it (so although it's generally done shortly after the end of the financial year, there's no guarantee it will be then) and in cash. There is no co-invest of equity here, plus as a lowly analyst/associate it's not like I have vast swathes of cash to contribute to anything anyway.
I don't think I'm the best benchmark for this type of stuff however.

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Mar 7, 2019
williamthesnake:

* One thing you will almost never escape in a firm as small as you describe is admin work. In bigger firms, this happens all in the background but in a small one be prepared to get your hands dirty in all sorts of less exciting/less glamorous things. Now maybe you really want to learn the business from the ground up, in which case go for it. Think things like chasing lessees for rent, ordering phone lines into your property, putting together monthly compliance reports for lenders, managing supplier payments, coordinating all sorts of technical property related things that someone with a finance background has little knowledge of, procuring insurance. I personally found this stuff quite uninteresting and not really adding to my CV or skills.
* Bonuses/pay may be determined by emotions, and not rationality.

Out of curiosity, what is your long term goal in the industry? Yeah, getting your hands dirty with that stuff can be tedious, but that is the nuts and bolts of the real estate business. That's where you make your money, not in putting together fancy underwriting models or sleek investment memos. If you have any interest in being a principal yourself, dealing with setting up phone service in your building, or effectively managing collections, is going to be by far the most valuable skill/experience you can learn.

If all you want to do is build models and deal with the sexier side of real estate (putting together the capital stack, etc), then you're going to cap out in terms of how high you can rise in the business really quickly,

Also, I'm curious about the bonus comment. I've heard several other folks make the same statement and it intrigues me. You're a junior person at the firm; what do you suggest a "rational" method of getting a bonus is? You don't bring in new business, presumably. You're not sharing in the risk profile with the partners. If you mean you want to know your bonus is a % of your salary, well... that isn't a bonus anymore. You're just asking to be paid more. It seems to me that a bonus should be based somewhat on emotion. If your manager/principal feels that you've been adding a particularly large amount of value, that gets reflected in your bonus. It's supposed to be an incentive to go above and beyond to prove yourself, not a guaranteed part of your compensation. If you know what you're going to get come bonus season, then the entire purpose of giving it goes out the window - you don't have to exert yourself to earn it.

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Most Helpful
Mar 7, 2019

I just made a very poorly judged jump into a company that was very different to what I was led to believe it would be. I was never really intending to work in real estate in the first place, I wanted to work in finance but focusing on real assets (so all the nitty gritty operational stuff is done by someone else). I'm in the process of making my move back into a more pure finance role at an institutional investor.

Regarding bonuses, no it should not be based on emotion (at least not that much)! If I've put in the effort to help the company succeed then like most people working in finance, I'd like to get a slice of that bonus they keep dangling in front of me. I worked in a company where I was instrumental in executing some big fee earning projects, yet I was left empty handed come bonus season. I.e there was no link between what I was contributing and what the company was giving back to me. This attitude by management/owners completely destroys your will to live as it seems what you do doesn't matter and all they give you are empty promises.

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Mar 7, 2019

I would spend some amount of time, maybe 2-4 years, at an institutional shop but would want to end up long term at a smaller shop. Institutional pedigree and experience matters for your own education and also your "worth" when looking for other opportunities.

Mar 7, 2019

@williamthesnake

You mention it's a very small shop... How small of a shop? How large is their current portfolio and how are they capitalized?

I hear those stories and I'm definitely not interested in spending too much time on admin/ops items. I want to focus on deals! I already have two years of experience so this next move is critical for me to expand that acquisitions experience.

I do have fear of what you mentioned: lack of expansion due to lack of capital. Private firms look for the "perfect" deal whereas the Institutional players have more capital and deploy it more often because they don't need these high teen IRR returns.

For context, long term goal on the real estate side is to build my own personal portfolio and be financially independent.

So private firm = more breadth and detailed knowlege but institutional firm = more focused knowledge and more volume as well as higher pay most likely (e.g. savings to build my own portfolio).

Any other thoughts?

Mar 7, 2019

Just want to say that the specifics of my situation might not necessarily apply to yours.

The firm I work at is a couple hundred million GDV, capital from 3rd party lenders and high net worth investors.
Yes focusing on deals is what I find interesting too, but in a small firm that's rarely the case. The deal flow is smaller and the need to look after admin/ops is greater.

If you want to ultimately build your own personal portfolio, then working at a small firm might suit you as you'll have to know that operational side of things. Whether you'll necessarily make more money at a big institution vs a small one, that I don't know.

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Mar 7, 2019

How do you feel about structure in your life?

At a big shop, you will have a narrower, more well defined set of responsibilities. At a small shop, you will be involved in a wider range of activities with more "fire drills" when something inevitably slips through the cracks.

Your career path at a big firm will be structured. You'll spend a few years at each level of seniority, each with well defined base salary and bonus ranges. At a small shop you'll be negotiating directly with the owners for your compensation and responsibilities. You may end up receiving a huge bonus for finding a deal or a tenant, or you may get zero bonus just because the owners feel like it.

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Mar 7, 2019

@VolatilitySmile

Excellent question!

I love organization and structure. With that being said, I do have the maturity and mental understanding of business processes to understand, create, and implement my own set of responsibilities. I would prefer a "plug and play" environment though.

I worked at a small-ish firm for 2 years and wore a lot of hats. I enjoyed it tremendously and thrive on a lot of responsibility

Next move I'm more focused on reputation or firm and compensation.

I like the idea of having a structured plan for advancement so institutional sounds like a great idea.

I guess for the small shop it really boils down to the personality of the principals huh?

Mar 8, 2019

I think you just answered your own question no? If you are focused on reputation and compensation and your in discussions with the likes of Blackstone / CBREI then what is the issue?

Not to mention the benefits of working at a company with a brand like that. Good luck raising capital coming XYZ bs firm (unless you/principals are super well connected). Big name on resume automatically opens up doors when you want to go solo. Smaller private shops, less so. My opinion changes however if it is an operator. Can get close w some really great equity sources if you're at a small operator that has a good track record and actually does deals.

You can learn the nitty gritty stuff on the fly, however; you can't learn the intricacies of large/complex deals on the fly.

That being said, I work at a smaller (+-100 emp globally), albeit well capitalized firm. The pay isn't as good but I have great autonomy and sourcing responsibilities at what I think is a young age. Hours are 35 - 50 max. I am sharing this because of the stark differences between my exp and @williamthesnake

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Mar 8, 2019

You could work at a large PE shop and make $250-500k and be comfortable at a VPish level.

You could work at a small 5-person development shop at a VPish level and make $100k-$2MM depending on a lot of variables, but you're running more of the nuts and bolts.

Both people in the two examples work very hard. One has more risk/reward and is more dependent on luck and entrepreneurship skills. But even the REPE guy could live a miserable life working 60-80 hours a week in a high ego environment while the small shop guy works 50-60 hours with ownership of his or her own projects that provide much greater upside.

Not everyone can become Johnathan Gray