Allure of REPE/REIT Acquisitions

vintagegmt's picture
Rank: Orangutan | 252

I had an interesting conversation with a recruiter a few weeks ago about how many new college grads / those in their 20s in RE industry are "acquisitions or go home" in their career search. He felt this thought process is naive because he sees many successful principals that have both Asset Management & Acquisitions experience and it truly makes for a better investor (i.e. can underwrite to realistic levels because you have been apart of CapEx projects, TIs, or whatever it may be). For example, at Hines analysts have a hand in both acquisitions and asset management (please correct me if I am wrong).

Now, agree with it or not, I wanted to get a conversation going on how popular acquisitions is and how there is a stigma around asset management in real estate.

Comments (12)

Mar 12, 2019

I mean there is good and bad to both experiences, but the money in our business is on the transactions side of things. It's about being able to create new business for yourself and your firm via relationships (both w/ capital partners and other market participants) and acquiring a property at the right price. There are not assets to manage without 1a) capital and 1b) actionable deals. Many senior folks I know believe most of the value in a deal is created on the buy and the sell. Now you need good asset managers and property management folks to accomplish those goals.

The experience asset management gives you is super valuable and may make you a better investor over time, but the quickest way into the batter's box as an investor is being on the transactions side of the house. There is a reason why there is a compensation difference between the two business lines.

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Mar 12, 2019

For stabilized deals, asset managers play a lot less of an important role. Figuratively, its pretty easily to sail a boat when it is sunny, 75 degrees, and the water is calm. For value-add or opportunistic deals they are incredibly important.

In general, the stakes are a lot higher in acquisitions. If we buy a 3M square foot deal, and I missed $0.50/SF of CapEx on my underwriting because I didn't ask a third-party the right question, then I just likely ruined the deal no matter how good of a job the asset manager does.

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Mar 12, 2019

I agree with you in general. You still have to have the opportunity to buy the deal (getting the shot to say "yes, I'll buy that deal at X price" is pretty underrated) and to buy it right. Not disparaging asset management at all as I agree that not having good ones makes it harder to be successful, but rather I'm trying to articulate some of the perceptional differences between AM and acquisitions.

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Mar 13, 2019

Nobody is discounting the value of the experience you can gain on the asset management side, but the path to becoming a principal in the first place is much easier through the transactions side, seeing as that's what principals do. They source and direct transactions.

Most people at development shops (like Hines) or smaller PE shops do wear both hats, it's really only the big funds or super institutional places like REITs where roles are very siloed. And as someone who wears both hats... the work in acquisitions/development is MUCH more interesting than the asset management stuff. It's like a completely different business.

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Mar 13, 2019

I am at a small developer, I do acquisitions/development underwriting, asset management (comparing OPEX/property efficiency, changing website vendors, reporting to lenders, LP's), and more recently fixing accounting integration issues with a third party property manager. It is not glamorous, and the acquisitions/development work is the most fun, but I would say I am better prepared to start my own development firm with an understanding of all 3 (if you dont want to start your own thing some day, working your way up in acquisitions/development makes the most sense in my mind). As long as you have a hand in acquisitions/development, that is good, because that is the real value creation/creative aspect (You can argue, but the bottom line is, in general, it is a true statement)

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Mar 13, 2019

It's not hard to understand.

Less interesting work.
Less pay.
Less control over your pay.
Less prestige.

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Mar 13, 2019

Because all undergrads on this website want to do is crank financial models and act like a character from Billions, which is fine - that's certainly what I wanted to do and did do out of undergrad. But anyways, I think when you're young Acquisitions is a better experience but it's also very much a young man's game. You can get old, fat and happy as an Asset Manager at a shop and have great career security at a stage in your life where you don't really want to be the guy pounding pavement and underwriting every OM that comes through the office. It's just not a very exciting job when you're young, it's more about having an omnipresent awareness of all your properties/tenants and paying attention to the minute details of property management. No one wants to be the guy babysitting buildings while their fellow Analysts get all the transaction feathers in their cap. Once you get enough feathers in your proverbial cap that it's out of your system, AM/PM is just a bit of a more pleasant path ime.

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Most Helpful
Mar 14, 2019

I'd say 15 years ago (Pre-WSO; the Age of TheVault) there was a lot less banter of who's better. The acquisitions analysts stayed in the office late, working on the IC memo due 9am the next day. Never ever looked at my AM colleagues as below me. I just thought I had to work harder due to the time sensitivities. You really have to be a grinder. An athlete.

Post-WSO I can see the prestige train that comes with group think.

I really think that high octane goal you seek really comes down to your work ethic, personality (you can be a listener or beta yet aggressive), and your ability to piece together your observations into something valuable. I think in real estate, having passion is very important. You need a mindset to underwrite a new deal cold; just like you need a different mindset to execute tasks (ie Development minutiae).

Early in your career, if you can hone your vision and see something through and be able to communicate it orally, written and in a spreadsheet; that's great experience. Asset management or Acquisitions, whatever, you're in the game.

I think this Acquisitions or go home mentality is shortsighted for those just starting out. A real estate career is really a long term apprenticeship.

Good topic as I think entry level AM gets an unfair rap on WSO. You should really be honing the skills I mentioned above. AM you should create your deal / project sheet. It's very important that you do.

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Mar 14, 2019

The allure comes from the idea of leveraging the experience/network to use other people's money to make your first millions. Find an LP JV partner then farm out all GP contributions to family/friends/HNW. That said, I think development is more challenging, you learn more about the entire property life-cycle from all sides, and good developers are in high demand/low supply.

I think the ability to create something from nothing through development is much more difficult than trying to squeeze 100 to 150bps of stabilized yield out of an acquisition.

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Mar 12, 2019

It would be hard for anyone to disagree with that - a single large development is significantly more difficult and time consuming than a single acquisitions. A development can easily take 3-5 years from conception to delivery, whereas I can finish a deal in 45 days.

With that said, I'd argue that aggregating a portfolio of assets into a fund, with the ultimate goal being a portfolio sale, is comparable in scale to a large development and significantly more difficult/time consuming due to the amount of work required on the management/back-end and the market knowledge required. You have to raise hundreds of millions of dollars and structure the fund (which is a fairly difficult and expensive task in itself), master markets and develop relationships throughout practically the entire country, source and underwrite thousands of deals, complete hundreds of transactions, deal with the asset management/property management/accounting of hundreds of properties at the property and fund level, and ultimately find a buyer willing to pay a premium for a >$billion portfolio.

Mar 14, 2019
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