Becoming a Principal

futureREmogul's picture
Rank: Gorilla | 560

For many of us who are still younger on this page, it is an intended goal to become a principal. As I think it would be very helpful, for those who are principals (on the younger side):

  • How did you get to where you are now?
  • What route did you take career-wise?
  • What obstacles did you overcome?
  • What advice would you give?

Thank you in advance!

Comments (35)

Jan 31, 2019

Are you talking about a principal of a school?

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    • 13
Jan 31, 2019
Sunshine Funshine:

Are you talking about a principal of a school?

boo

    • 2
Jan 31, 2019

I'm digging the new avatar

Jan 31, 2019

holy shit you're farther gone than I thought

Feb 1, 2019

Jesus Christ that's Jason Bourne

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Funniest
Jan 31, 2019
  1. Come from a wealthy, well connected family.
  2. Be an analyst/associate in a small, brand new group that turns into a large, successful group.
    • 15
Jan 31, 2019

Find a not particularly competitive niche, find a well respected and (or at least well connected) larger developer/lender/broker/fund/etc to work for, hustle and network your ass off, and then try and break out on your own. Preferably with the support/blessing of your former employer.

I know of a couple folks who got to the point where the value they were providing for the firm was becoming a burden (in terms of the compensation they were demanding), so the principals basically backed that person to do their own thing with startup dollars and I think he's doing well. And instead of covering huge overhead in terms of salary/bonus, now the former boss has a meaningful part of the company which is worth more than the value they would have provided as an employee.

Also know someone who joined a not-particularly-great shop and turned around his corner of it, and went out on his own off the strength of that network - all his counterparts knew he was driving the increased profitability of that business so when he left, the smart folks he knew basically took their business and dollars with him instead of leaving them at the old firm.

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Most Helpful
Jan 31, 2019

By "principal." I'm assuming you mean equity participant with some management-level responsibilities. I don't own an operating company, but have a significant equity piece on all deals at one.

Took 7 years total. Office broker (2.5 years)-->developer--(4.5 years). Leveraged office broker experience to work for an office developer, and started getting reps on some high-profile/complex ground-up deals. Was always focused on getting exposure to deals in new asset classes and markets to grow experience in different markets/product types. Primary obstacles: getting out of brokerage and onto principal side; moving geographic markets.

Some advice:
1. Be patient, but aggressive. You aren't going to be an MD in two years, but always look for ways to take on new responsibilities. Being pro-active in this way is appreciated and will get noticed.
2. Learn to manage other people's expectations. IMO rising up the ranks is more a function of your interpersonal skills and ability to navigate office political climates than how well you can run a model. Under promise and over deliver on deadlines. Try to spend time with your bosses outside the office to foster personal relationships. You will learn what makes specific people tick and how to modify your behavior to please them.
3. Know what you are good at and focus on developing it. Particularly in development, it's impossible to be good at everything. I personally am not a very strong modeler--I understand how various inputs/assumptions drive cash flows, but if you ask me to go toe to toe with an i-banking associate I will get smoked. I would rather spend time learning about intricate components of zoning/entitlements and construction because I think they are more niche skills that boost my value exponentially more than if I were a great modeler.
4. Try to stay uncomfortable. If you are coasting or feel like you are on cruise control you need to change something. Start by challenging yourself to learn things outside of work (real estate podcasts, reading about deals, self-teaching modeling) and push for more responsibilities. If you are presented an opportunity that puts you over your skis and you have no idea how you will do it, take it! Say yes and just figure it out--don't overthink it.
5. Take the risk and trust your gut. I took a 60% pay cut to leave brokerage, and left a great shop to move geographic markets because I felt it was right for me. At least 20+ people told me I was a dumbass and advised against it.
6. Maybe most importantly, it's a mistake to focus on $$$ early in your career. I would take the development analyst gig paying $80K to work on 5 active deals every day over $120K at a shop that has one deal and are looking for more. You are not going to get rich on salary comp long-term...position yourself to learn now so can be strong enough to demand carry at a younger age. You'll find once you are making about $90K+ the incremental raises don't really affect your lifestyle unless you are dating an instagram thot that needs fancy dinners 2x/week. Check your ego and try to stop comparing yourself to others and how much they are making/what their title is.

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Jan 31, 2019

I needed to read this. Thank you sir. Awesome insight.

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Jan 31, 2019

+1 Rosay

Quick follow up question. When you moved from brokerage to development did the development shop take you on as an analyst or an associate?

Jan 31, 2019

I was an analyst

Jan 31, 2019

Really appreciate this post, especially this part:

Ricky Rosay:

4. Try to stay uncomfortable. If you are coasting or feel like you are on cruise control you need to change something. Start by challenging yourself to learn things outside of work (real estate podcasts, reading about deals, self-teaching modeling) and push for more responsibilities. If you are presented an opportunity that puts you over your skis and you have no idea how you will do it, take it! Say yes and just figure it out--don't overthink it.

This is my goal for the year. SB+1

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Jan 31, 2019

Word. I have felt uncomfortable my entire career to some extent. Fake it till you make it!!!

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Feb 5, 2019

Yeah I couldn't have said this any better.

Jan 31, 2019

i want to tattoo this post onto my chest

Feb 1, 2019

excellent post

Jan 31, 2019

Ask that kid from World Class Capital. Isn't he like 30 or something?

Feb 1, 2019

he's also the subject of an active SEC fraud investigation, so

    • 5
Feb 1, 2019

Not surprised. It seemed like every other job posting was coming from his firm. His turnover is worse than Trump's cabinet.

Feb 1, 2019

Ya I wouldn't go near that place if i were you. Founder reminds me of Billy McFarland

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Feb 1, 2019

Ha. The SEC probably smelled the same thing everyone did after reading those articles boasting about him.

Kind of doubt he is guilty of anything, I mean if I was him and doing sketchy things I would've avoided all the press and stuff that hes been getting.

Feb 8, 2019

Is there anything online or the SEC site about it? Trying to look up info but couldn't find anything about an investigation. Pretty curious.

Feb 5, 2019

I'd like to pose a separate question -

For those of you who made the jump, how did you feed yourself and keep the lights on until the fees/cash flow started rolling in? Did you have a part of the business that was more service focused, such as property management or brokerage, that brought in cash flow until you could start rolling deals? How did you find the LP capital and how difficult was it?

Simple math makes it seem like it would be painful to make the leap and try to survive your first year on deals alone. Lets assume this example isn't a development, and is instead a stabilized acquisition.

$10,000,000 deal size
7% cap rate

$7,500,000 Loan
75% LTV
5.00% interest rate
10 Year Term / 30 Year Amort
Payment = $483,139 per Year

$700,000 NOI
- $483,139 Debt Service
= $216,861 BTCF

For simplicity, lets assume a pari passu split of 95% LP / 5% GP.

That means as a GP, you'd only be getting $10,843/Year from the cash flow. Lets slap on a 1% asset management/acquisition fee, and that brings it to $110,843 per year with a one time payment of $100,000. That has to feed your family, run your business, and provide more equity to continue to do deals. I guess that considering you'd only have $125,000 invested in equity you're doing pretty damn good, but it seems like the first year would be painful, especially before you have a deal of scale closed.

Anyone who has experienced this how'd it work out? What advice would you give to somebody looking to make the jump? How'd the conversation with your wife/husband about quitting your cushy job to drop $250,000 on your own deals work out?

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Feb 5, 2019

100% you need a spouse to support you during the early stages of your biz.

Feb 5, 2019

I'd love to hear from people too, but everyone that I know who started doing their own deals either:

  • Developed larger deals on a fee basis for tolerant lenders/equity until they made enough money that they could do deals "for real"
  • Were rich to begin with, so they could take down much larger first time projects than $10MM
  • Did their $5MM-$10MM size deals on the side and waited until their cash flow got to the point where it became their full time job
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Feb 8, 2019

My issue regarding the smaller deals ($1-10M) ... who is putting up the balance sheet/net worth & liquidity requirements for the non-recourse guaranty? LP equity in the smaller deals is generally friends & family, not institutions who are more versed and willing to take on that risk. That is the biggest problem I've encountered...finding a person willing to take on both equity and guaranty risk ... to be on the hook if you (the sponsor) go bad-boy and trip the guaranty.

Feb 6, 2019

1) You source a killer ground up deal through your network and your development skills, being sure to get the land under control.

2) Then you put together an awesome package and shop it to larger dev shops that have the equity and balance sheet to JV with you.

At this point if you are competing with your employer you need to quit, obviously. Assuming your deal is so great it will sell itself (after all, we've all see the insane capital chasing good deals lately), negotiation with target JV developers until payment should be about 8 weeks, during which time you live off credit cards or your spouse.

3) You JV with the bigger shop for a piece of the deal on both the front end and backend, making sure your new dev company will be credited as co-deal sponsor.

Rinse. Repeat. Once you have your first deal under your belt under your own dev company, similar JV arrangements should be easy enough.

Sounds insanely risky and maybe stupid, but high risk, high reward.

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Feb 9, 2019
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Feb 10, 2019