AMA: Commercial Real Estate

Ryan-W1's picture
Rank: Baboon | 117

I've done a few informational interviews in the past with recent college grads and friends of friends that want to know the commercial real estate world so hopefully I'll be able to answer anything that comes up.

My background:

I'll keep my background brief. Economics major with a decent GPA while playing collegiate rugby. I, like many others, graduated into the bottom of a down cycle but I've been doubling my comp with every jump.

3 years at a regional boutique real estate investment and private equity shop as an analyst. This firm is backed by a wealthy family office so I saw a ton of deals including operating businesses, value-add investments, opportunity funds, international marinas, huge master planned communities, commercial development and venture capital.

2 years at a multi-national land investment group that used securitized offerings. I oversaw multiple regions, backwater farm land, home builder communities, and industrial land development.

3 years currently at a national commercial developer and investment firm that focuses on office and healthcare opportunities. I have a few roles here but focus on acquisitions, capital markets, investment structuring, and project management.

Ask me anything

I'm happy to answer pretty much anything. Give my take on the market cycle, compensation, why deals die, creative wins, how to get into real estate, what and who are time wasters, CRE Tech from a user perspective, or anything else that sounds interesting for the community.

Comments (27)

May 14, 2018

What made you choose real estate? Did you stumble across your first job out of college or did you actively seek it out?

May 14, 2018

Real estate was in the back of my mind throughout college due to working on some historic renovation work with my father and a family friend CPA that owns a small portfolio of commercial offices and multifamily. After graduating I literally applied to the full spectrum of jobs that I had connections for - San Francisco Hedge funds, Agricultural Economist, and Financial Analyst for a video game development company, to name just a few. I knew I wanted to work within the financial industry but fell into the real estate world due to a nuance on my resume. I had operated a retail christmas tree lot in college for family and one of the principals also had a background in commercial agriculture.
It's funny how a small detail can set you apart. Fit has been a huge benefit for me throughout my career.

    • 2
May 14, 2018

How did you make the jump from land investment company to a developer?

May 14, 2018

It was through my network. I was in a position within a workout team to help return investment and bring a glimpse of reality to what the prior group purchased with 3-5 year hold expectations. The assets were closer to 15+ year holds. My team was great and the people that I worked with were awesome but the company was not interested in hearing what we were saying. I put out the feelers that I was looking to move to an active developer and made the transition. Within 12 months the company I left did a huge reorganization.

    • 1
May 14, 2018

Hate to be the shitty guy that goes straight to comp, but obviously compensation is highly variable within the real estate field so I'm wondering what the trajectory of your earnings looked like throughout your career. Could you speak to what the compensation curve looked like for you as you got promoted and/or joined a new firm?

    • 1
    • 2
Learn More

Side-by-side comparison of top modeling training courses + exclusive discount through WSO here.

May 14, 2018

No problem, I've had a fairly linear curve starting out around 40 and roughly doubling it each move. Comp is all over the place in RE as you've said but I'd say in general you'll cap out in the 200s if you run the office and receive equity comp from each project. Everyone wants the equity but for most it's a pipedream unless you're at the top which takes forever to get to. I'll end up making more from side deals where it's my own money at risk.

    • 1
May 14, 2018

Working for different firms you've probably seen wildly different metrics used for go/no-go decisions on deals. Which ones do you think were the most useful? Were you ever in a position to encourage the firm to go for a deal that wasn't something that they would typically look at, based on the way they usually ran their numbers?

May 14, 2018

Go/No go is funny because it's all a gut feeling based on a good story for the primary decision makers. I've primarily used an IRR based hurdle for deal feasibility. IRR unfortunately means jack until you have a story that backs it up. How quick you'll lease the building up to stabilization, how fast you'll sell out of finished lots to home builders and for what price, are we in the part of a cycle where they'll buy platted lots instead of finished lots, how much cap ex did you have in the deal to support those massive rent bumps, etc.

I think the metric that makes the most sense and is most useful is IRR but the story of the deal with realistic underwriting makes it much easier to move the needle towards Go.

    • 1
May 19, 2018

Getting to go/no-go is a process that begins with establishing some clarity around where we want to go, how, and when we want to get there. What needs are we trying to solve for in a portfolio? What parameters are we bound by in our agreements with our sources of capital?

I have a hard time pointing to "best," without asking "best for whom?" If we're hunting stabilized low-yield cash flow with a long hold time, the answer will look different than if we're hunting for big pops in equity in 12 months.

Determining what a firm will look at and how they run their numbers is often a function of who they are serving. The best opportunistic deal could be completely off-limits to an organization beholden to pensioners that demand stabilized low yield cash flow.

Numbers don't tell the whole story. Good operators can turn bad deals into good ones. Bad operators can turn good deals into bad ones. No metric makes sense if the people flying the plane can't land it.

Market conditions influence the go/no-go criteria as well. A no-go in February might become a go in April when an announcement is made that General Motors is moving a plant into the area.

Go/no-go criteria are best agreed upon well before the hunting and analysis begin.

As a bonus for those interested in making more money and improving opportunities over time: it's not a bad idea to cultivate relationships with people who serve other types of clients. What may not work for the clients you serve might net a little extra income or goodwill through referral to someone that serves that type of client. Handing off a good fit show's you're aware of the bigger picture and may even return deal flow or job offers to you when your new friends decide to return the favor.

    • 3
Learn More

Side-by-side comparison of top modeling training courses + exclusive discount through WSO here.

May 14, 2018

Thanks for doing this. I got 2 questions:

1: As someone with experience in private accounting and healthcare lending (around 3 years post UG), what are some ways to transition into CRE, particularly acquisitions?

2: In terms of CRE tech, do you see firms starting to use GIS, or is that still mostly in the domain of planners/gov/research?

May 14, 2018
  1. I'd say the best way to transition is to get involved with an industry organization like ULI or NAIOP to hear about the jobs that no one is listing; be skilled enough to prove your chops around a financial model so people can trust you to run the numbers, then just start telling everyone what you are looking for specifically. "I'm looking to be at a REIT/Developer/Investment group/etc. do you need an analyst/another analyst if you're expanding the team."
  2. I have only seen GIS used for a glorified google maps that had asset level data overlayed on it called Land Master. I think it's still or will always be a government tool and less private sector because it's just not really needed. I'd guess the retail guys and corporate services use it more with site selection and employment metrics for placement. I think once AI is incorporated with GIS we'll see some better tools come out because right now it feels like just a bunch of interesting but challenging to use data.
    • 2
May 15, 2018

Question here from someone looking to break into CRE from consulting,

If my efforts to land a role at a CRE firm as an experienced hire fall flat, would grad school be a viable option to help me execute the career switch (MBA, MSF, etc.)? Or would I be better served by continuing my current route of networking and applying instead?

Thanks!

May 14, 2018

You say fall flat, but what timeline are you giving yourself? I'd say a masters in real estate is helpful if you want to transition because you get into the circles and start to know the players. If you continue to network you'll just continue to be more and more experienced without the track record in RE.
What type of consulting though? I know a few firms that do both consulting and RE so you could even try to join a group like that and transition internally. Point B would be one example of such a firm.

    • 1
May 15, 2018

Would you mind if I DM'ed you?

May 15, 2018

Thanks for doing this. Couple questions:

With your current knowledge would you feel comfortable doing a development on your own?

Have you done any deals on your own?

May 14, 2018

With my current knowledge i'd be comfortable doing a development but I'd lean heavily on my mentors and peers when the inevitable challenge is presented. There is so many moving parts with development deals.

I've done value-add investment deals on my own because i'm comfortable with the numbers, understand the market, and know how to be an asset and project manager. When it's your own cash, every detail matters.

    • 1
May 15, 2018

Nice.

Would you mind speaking about your value add deal?
Also if you were to do a development would you stick to your area of expertise (office, healthcare) or would you do a different asset class such as multi-family?

May 15, 2018

What's the difference between what an appraiser does, and the valuation work you do? Are they the same? Why would you hire an appraiser when you could do it yourself?

May 14, 2018

Appraisers are mostly just for the bank to sign off on a 3rd party value that corresponds to the value you've come up with. When we look at deals, I'm going to come up with a price that I want to pay based on a ton of current and future assumptions and that is my "value" that I'm placing on the asset. Appraisers look at past and current data to use either cost, income, or comps to come up with a value. A bank will generally require a 3rd party appraiser so it's just another cost you need to add to your closing costs.

    • 2
May 15, 2018

I always wondered what firms like CBRE do? Where do they fit in the whole real estate execution process?

May 14, 2018

CBRE is a brokerage firm primarily and also have RE services such a project management, property management, brokerage, capital markets, corporate services, and I'm probably missing some. We use CB for their leasing and sales brokers and that's where I create relationships so they bring tenants to our buildings and deals to us.

    • 1
May 21, 2018
Comment
Array
May 14, 2018