Contrarian Thesis: Acquisitions is the Least Interesting Job In Real Estate

LReed's picture
Rank: Almost Human | 6,654

Feel like it's worth giving an alternate opinion, just because I see so much of the same notion repeated constantly that acquisitions are the best gig in real estate. What I do right now is 75% acquisitions, but I've worked on a lot of development, AM and portfolio management type work in a past life as a generalist. Here's why I can't wait to get back to the AM/PM side;

Acquisitions is the most repetitive job in RE.

Argus Inputs -> Excel Model -> IC Deck -> Due Diligence -> IC Deck, rinse, repeat. It gets old being the last cohort in the office every night while working through the same templates/checklists every day. My experience in development is that there are so many moving pieces to every deal that you don't get as worn down doing the same thing again and again. On the AM/PM side, the anticipation of working around a variety of cluster-fucks that could be occurring across portfolio assets on any given day also provides a more mixed balance of work. Working across redevelopments, capital projects, leasing, PM work, valuations, dispositions, etc. provided a good amount of variety too.

Sourcing sucks.

Sifting through a heap of deals week and dealing with unrealistic brokers can be a tremendous effort for an actual ~20% hit rate. Technical skills are crucial, but once you've developed them, doing dozens of preliminary underwritings on deals that will never actually get done gets old quick.

Acquisitions is largely a young analyst's game.

Can't see myself getting old in my current role and there are basically only two guys on the deal team over the age of 30. It's the opposite for our Asset/Portfolio Managers. Doesn't bother me as a young gunner, but I don't want to be 40 with kids and have to find a new job as an acquisitions guy while competing with kids that have way more energy and proficiency with the latest technology than me.

Underwriting is the least important aspect of being a successful RE entrepreneur.

Working with a variety of financing structures and knowing how to build a model are definite pluses, but at the end of the day, my landlord isn't 30 years old and living off of his "passive" real estate income because he's a killer at institutional quality underwriting and piecing together IC decks. His real talent is property management. He knows how to renovate and what it costs, knows what to look for in a home/apartment that's going to come with backed-up capital needs, knows his local market and where to find small-cap value-add play, etc.

It's easier to replace your capital slingers/model builders on the front end

It's easier to replace your capital slingers/model builders on the front end than it is to replace your veteran Asset/Portfolio Manager whose intimate and aware of the tenants, capital needs and state of affairs at every property in the portfolio. Again relating back to job security and growing more valuable with tenure, versus less valuable. The AM/PM team ultimately has the last sign-off on the deals we bring before IC because they're the ones that are supposed to be able to gauge assumptions, be experts in their markets and take ownership of an assets performance post-acquisition.

Comments (48)

May 30, 2019

Hot take not seen much on this forum, would love to hear more. Anybody have experience or insight on going AM to development have others found AM careers particularly rewarding financially/career growth/self fulfilment wise in comparison to other paths in RE?

    • 1
May 31, 2019

I feel the absolute opposite of OP. At the analyst level, 75% of my job in AM was emailing 500 properties for their financials every quarter. 5% of my job was doing actual analysis. The remaining 20% was taking every Friday off on my "work from home" days that were absolutely amazing. Going from AM to development increased my work week from 30 hours to 50. My pay went from $69k all in to $82k.

This may surprise some, but after 5-6 years of doing front office stuff I plan to go back to AM to get that standard of living back

    • 1
May 31, 2019

So all your job entailed was sorting financial reports into the appropriate folder on your Dropbox or whatever. You didn't drill down into those numbers to see if you were overpaying for utilities in one place, or that vacancy was a little higher than normal in another property, and investigate?

That isn't asset management. That isn't even an intern-level or work. Asset management involves controlling costs, it involves being a bit of a detective, to sniff out where you are overpaying, to learn about federal/local/state programs that can help defray costs. It means having a grasp of the age of the physical plant of your building, knowing when the effective life or warranty is running out on your roof/boiler/elevator system/etc.

Our asset manager gets worked to the bone. If we're missing our numbers by more than a little, he's the guy who needs to have the answer why at his fingertips. If our I/O is burning off on an acquisition from 20 months ago, he's the guy who's supposed to set off the warning light on that.

If all you are doing is bugging your property managers for reports and filing them away, then I'm sorry to say that you are doing an awful job.

    • 3
Funniest
May 31, 2019

i feel attacked

    • 11
Jun 3, 2019

Yous should! Just kidding, Acq gets enough love on the forums so I didn't feel bad writing this.

May 31, 2019

Hot take! Some truths can't lie.

May 31, 2019

i work in both, and i agree AM is way more interesting. the u/w we do is basically a fabrication of reality. you really need to know what it costs to build/renovate and how to control expenses and just have a feel for the markets.

May 31, 2019

Love the support for AM!

May 31, 2019

I mean... underwriting relies on asset management to provide assumptions, I guess. But at the end of the day the acquisitions side of it is far more exciting than asset management. You're out making deals happen; walking properties, talking to lenders, being proactive instead of reactive. That is exciting.

Obviously development is more challenging and exciting than acquisitions, but I got the impression you were focused more on the dichotomy between asset management and acquisition.

One thing you are 100% right about - underwriting and financial modelling is far and away the least important skill in the real estate industry. You succeed in this business by controlling costs.

    • 2
May 31, 2019

Think a lot of it depends on where you're working. I do concede that the acquisitions I'm doing now are rather repetitive partially because I focus on one very specific asset class whereas my AM experience was for a more diversified operator that worked out more interesting leasing/refinancing/redevelopment deals.

Most Controversial
May 31, 2019

There is an enormous difference between heavy value-add and distressed acquisitions versus core acquisitions. Core acquisitions are incredibly repetitive without much deviation in thought process of creative re-positioning. Most of the value-add occurs through minor achievements in price reduction of both the property acquisition and cost of debt. Significant value-add and distressed projects involve creation of a detailed thesis which is not formulaic involving substantial re-positioning efforts which involve all branches of the company.

I agree completely with your assertion that there are too many finance professionals and not enough skilled asset/property managers. It seems most millenials and Gen Z candidates have heavily targeted acquisitions/finance while the majority of property management and asset management talent is 20+ years older and not being appropriately replaced. For example, in the senior living space there is a huge talent war for talented Executive Directors and Sales Directors who day in and day out control operations. This is also a huge issue in the construction space - Superintendent salaries have skyrocketed due to talent shortage.

    • 11
May 31, 2019

Definitely agree. +1

May 31, 2019
InVinoVeritas:

This is also a huge issue in the construction space - Superintendent salaries have skyrocketed due to talent shortage.

So have referral fees for supers. If anyone knows one who wants a change hmu and we can work out a deal.. haha

"The three most harmful addictions are heroin, carbohydrates, and a monthly salary." - Nassim Taleb

May 31, 2019

Good distinction, +SB.

Jun 3, 2019
InVinoVeritas:

There is an enormous difference between heavy value-add and distressed acquisitions versus core acquisitions. Core acquisitions are incredibly repetitive without much deviation in thought process of creative re-positioning. Most of the value-add occurs through minor achievements in price reduction of both the property acquisition and cost of debt. Significant value-add and distressed projects involve creation of a detailed thesis which is not formulaic involving substantial re-positioning efforts which involve all branches of the company.

I agree completely with your assertion that there are too many finance professionals and not enough skilled asset/property managers. It seems most millenials and Gen Z candidates have heavily targeted acquisitions/finance while the majority of property management and asset management talent is 20+ years older and not being appropriately replaced. For example, in the senior living space there is a huge talent war for talented Executive Directors and Sales Directors who day in and day out control operations. This is also a huge issue in the construction space - Superintendent salaries have skyrocketed due to talent shortage.

I agree, but I still think pay/lifestyle is significantly more attractive at the GP/corporate level than on the ground. Off the top of my head, EDs make ~80k on avg, unless managing massive core+ properties. Supts make good $ and work outside all day (personally, i think that'd be awesome,) but they travel for months/years on end. Neither get promote/ownership in the projects. Overall, though, different strokes for different folks.

    • 2
Jun 3, 2019

Yup, agree but those salaries are growing rapidly due to a shortage of talent. Also, ED salaries are now pushing $100k at large new properties in major markets with full care continuum. It is definitely an overlooked career trajectory.

May 31, 2019

Interesting take. I am a young guy as well that works mostly in AM with a little bit of acquisitions. My hope is to get more exposure to acquisitions so I have a solid understanding of both underwriting a deal and then managing it after. Do you think the hybrid roles will be the trend? Analysts being involved on both AM and acquisitions and as they advance in their career they begin to focus on one aspect with some involvement in the other?

May 31, 2019
  1. All jobs are repetitive, just depends on the time horizon. If you're a developer for 30 yrs it's going to be repetitive. (eg. work w/ architects, go through zoning/rezoning talks, get permits, dig the hole, build back up, lease up, sell, repeat)
  2. You shouldn't have to be doing preliminary underwritings on every deal. Know your market and you should be able to gauge 90% of deals with mental math.
  3. I'd disagree that acquisitions is a young analysts game. I would say that analysts are typically young, but that doesn't mean that they are the primary individuals in acquisitions. An analyst's model is borderline useless without the input of experienced managers verifying assumptions.
  4. Underwriting and being a RE entrepreneur (w/e that is) are totally different. It's like comparing an architect with a construction manager. Underwriting = finance function.
  5. Agreed. I would say that "model builders" are usually folks with 1-3 yrs experience, so it makes sense that they are more dispensable/replaceable. Also, if you are good at what you do, then you are hard to replace. Having tenure/years of experience on the acquisitions side usually translates to relationships and having high-quality information before others.

At the end of the day, acquisitions is more related to the finance side of real estate as opposed to construction or management. I would guess that some folks talk about acquisitions in glowing terms because they think of it like a private equity job or a long-only hedge fund, where they are "pulling the trigger" and deciding whether or not to buy.

    • 4
May 31, 2019

You're on fire this week with good threads!

LReed:

Sourcing sucks.

Sifting through a heap of deals week and dealing with unrealistic brokers can be a tremendous effort for an actual ~20% hit rate.

You should experience sourcing from the broker's side :-) american psycho

    • 4
Most Helpful
May 31, 2019

Interesting perspective, but here's a few comments/a rebuttal, whatever you want to call it:

-Every job is repetitive. Unless you're doing something along the lines of creating new business ventures in entirely different lines of business/sectors from one another (which is obviously much more high stress), this won't really change. If you don't think asset management is repetitive, think you have a rude awakening coming. Development is probably the only thing I can think of in RE that is truly 'unique' from deal to deal/day to day, but even then there's certain categories things fall under (i.e., fundraise>source/acquire>entitle>develop/build>lease>sell>repeat).

-Of course sourcing sucks. All sales sucks. There's a reason you have to be an extremely optimistic person to survive/crush it in any sales role. Sourcing is the same as winning listings in brokerage and the same as fundraising. Other people have something you want, and what you are offering in return is largely a commodity. It's exhausting/challenging/stressful to constantly be bringing in funds/revenues. This is also why it pays more. You have to have something to manage to be an asset manager. This doesn't happen without acquisitions/sourcing.

-RE: the idea that it's easier to replace capital deployment: You also have to have a good acquisitions person, otherwise the firm is going to buy something that's a piece of shit and you won't make any money. $ in RE is made on the buy. A good asset manager can definitely make-or-break the implementation/monetization of the deal, but you have to have a good asset/opportunity for that to be doable. I.e., an asset manager can only 'manage-up' so much. Acquisitions and asset management are supposed to work in tandem regardless. Most asset managers don't know what market rents are in a certain market, though - if they did, why would they need a leasing broker? The ones that are good move up to PM and are definitely on the IC, just like the top guys who perform in acquisitions are. Most people don't have the personality to do both (and it would be too time consuming to do both), which is why both are important.

-Re: acq. being a young person's game and underwriting being least important (they are related): The only thing someone brings to the table as a junior in acquisitions is tech savy and time. You are supposed to be able to model everything so your boss/senior acq. officer doesn't have to spend time doing it. But this is the tip of the iceberg of being a good deal person. You have to have broker relationships, you have to be able to find off-market deals, you have to understand what is and isn't a good buy in a market and know pricing cold, what pitfalls you could run into, who your competition is in the market, how the macro/micro economic dynamics impact the opportunity, HOW you're going to make money on the deal, etc. What you're describing isn't 'being good at property management', it's being a good investor - which is acquisitions. Even good property managers (and some asset managers) only know how much things cost and what rents are, and don't know how that all fits into the bigger picture.

Anyway, you bring up some good points, but think that some of what you're saying is a bit cynical/myopic.

    • 15
    • 1
Jun 1, 2019

Good points, good points. Definitely a grass is greener effect contributing to my perspective.

May 31, 2019

Interesting post with some good points. However claiming that "Underwriting is the least important aspect of being a successful RE entrepreneur" is dead wrong. You make your money on the buy. If you misprice an asset, no amount of management savvy can save you.

    • 4
May 31, 2019

But I'd argue mispricing a buy is more about overpaying because you don't recognize how much work has to go into the property and less about messing up the simple math of rental income divided by purchase price. It's easier to get a good buy if you recognize you're getting a steep discount that exceeds the property's capital needs. It's easy to take a bath if your running yield is great but there are a bunch of below the line capital expenses that just kill your returns. Or maybe even not knowing your market and overestimating demand and where you can price rent. But again, I'd argue the AM guy who works on leasing deals across his market knows more about what he can get rent-wise and what submarkets in the portfolio have historical occupancy problems.

Jun 3, 2019
VolatilitySmile:

Interesting post with some good points. However claiming that "Underwriting is the least important aspect of being a successful RE entrepreneur" is dead wrong. You make your money on the buy. If you misprice an asset, no amount of management savvy can save you.

Yeah but underwriting is easy. Sure, if you assume you're getting 10% rent growth and will sell at a 3 cap, you'll lose your shirt. There aren't many people screwing up like that, though.

What is VERY easy to underestimate is the difficulty of operating a building or set of properties. Underwriting an appropriate budget is basically understanding the asset management and operations side of the business, and that is where most people screw up their underwriting. Being a little too aggressive on your exit cap, or on rent growth - those are mistakes one can make up. I've seen a lot of people trying and break into the RE business and almost to a person, the mistake that sinks folks is thinking that buildings can be operated more cheaply than is reasonable.

Most people realize that rent growth or market conditions are out of their control, so they don't go super crazy. But everyone seems to think that they can keep costs down better than their peers.

    • 1
Jun 4, 2019

I think that people conflate physical underwriting (i.e., plugging stuff into a model/building a model) with conceptual understanding/savvy in a market. So if you define underwriting as just physically knowing HOW to do it, then yeah, super simple - unless you start getting into waterfalls, etc., and even then, if you do it enough times its easy.

But knowing WHY and WHAT, that's the hard part. Why does the building next door deserve a 4.5 cap while the one next door is a 5? What about the building/market/tenant/etc. make it special? Asymmetry of information (mostly gained through cultivated relationships) is how money/'alpha' is made in this business, probably even more so than in any other financial niche. Being good at 'underwriting' to me means having the best information.

Knowing one small piece of information may be the difference between mis-pricing a deal or just missing out on it/losing it to someone else.

    • 5
Jun 4, 2019

AM people provide a lot more value than people think. A great AM guy who can cut annual costs by 100k/year isn't just saving the company 100k, but creating capital appreciation. At a 5% cap rate, that 100k increase in NOI equals $2M in appreciation. That's a tremendous amount of value, and anyone who can provide that much value to a firm is going to be well-paid.

Jun 4, 2019

damn I agree with this hot take 1000%. major value-add acquisitions aside, I think the acquisitions business is a lot like brokerage--a lot of deals have the same 10 steps, and going through the process feels pretty repetitive, with only so many variations where you have to think on the fly to resolve issues associated with those ten steps.

I think the reason I like development the most is that there are an infinite number of combinations for ways things can go wrong, forcing you to adapt on the fly and figure out a solution. It is truly the art of improvisation on the fly personified in a high octane business setting. What could be cooler than that?

    • 2
Jun 6, 2019

Big Facts.

    • 1
Jun 11, 2019

This is really going to depend on the type of shop you do acquisitions for. If you are sourcing for a standard REIT/Core buyer that shit is going to be boring and repetitive. I know people who worked for Gramercy/Link (whatever), nothing they did sounded interesting at all. You can only underwrite single tenant net lease industrial buildings so many times...

On the other hand land acquisitions or value add deals are usually pretty fun.

But at the end of the day a good acquisitions guy is a good relationship guy. No one makes it to a senior acquisitions position by only underwriting OM's, even in the core world. You have to be developing relationships to find those off market deals. That's how you create value, that's how you're hired on to more senior positions when you move. If you're just looking to underwrite in acquisitions you're going to be replaced by someone younger and cheaper. Generally I see the acquisitions people who didn't create their relationship network move to senior AM positions.

EDIT: One last piece of advice (information maybe rather than advice) when you go interviewing for that senior acquisitions position the most important question you will definitely be asked is "We have a fund that has to invest 300 million in equity next year, how will you make that happen?" If your answer sounds like "wait for brokers to send me OM's" you're missing the point of the acquisitions professional.

    • 3
Jun 24, 2019
SHB:

I know people who worked for Gramercy/Link (whatever), nothing they did sounded interesting at all. You can only underwrite single tenant net lease industrial buildings so many times...

Maybe I'm just weird, but complicated acquisition deals fucking suck. I think a lot of people on the outside fail to comprehend just how many deals you have to underwrite to close one. We offer on like 15% of the deals we underwrite, and win only like 20% of those offers. It is super demoralizing to spend three weeks underwriting a complicated deal, invest 40-80 hours into it, only to have it fall apart after some investment sales team drags the sell-side process through 4 best & final rounds to bid it up. I greatly prefer the commoditized industrial deals that I can chase, underwrite in 1 hour, and close in 45 days. It allows me to focus on the deal hunt (which is by far the most interesting/exciting/lucrative part of acquisitions), rather than fucking around for 2 weeks in the weeds.

If you want to work on complicated deals and get really in the weeds then I highly recommend going into development rather than acquisitions. I haven't worked in development, but I imagine it feels a lot less like smashing your head against a brick wall hoping that a gold coin drops out of your ass.

    • 3
Jun 25, 2019

"...smashing your head against a brick wall hoping that a gold coin drops out of your ass."

I know this feeling all too well.

Jun 25, 2019
Trunk Yeti:

If you want to work on complicated deals and get really in the weeds then I highly recommend going into development rather than acquisitions. I haven't worked in development, but I imagine it feels a lot less like smashing your head against a brick wall hoping that a gold coin drops out of your ass.

Development is much more akin to smashing your head against a brick wall hoping that the brick wall does what you pay it to do with a sense of urgency and gets along with all of the other walls.

    • 7
Jun 20, 2019

I think this comparison is a little unfair, mostly because it feels like you're comparing an analyst role in acquisitions to a more senior role in asset management. The repetition, sourcing, and "young mans game" are all analyst level complaints, not an issue for more senior acquisitions roles.

Repetition - As an analyst in AM you typically have just as much repetition as in acquisitions (get out/analyze the monthly financials, quarterly reporting, checking on leasing weekly, budgets, etc.) whereas in acquisitions you're at least looking at a different property as opposed to the same on you've owned for the past 10 years. My experience personally and from seeing my peers who stayed in AM is that they are just as much the number crunchers that are required in acquisition regardless of whether they're working on capital projects, valuations, whatever.

Sourcing - Maybe it's different at other shops (mine does primarily Value-Add and Development), but the analyst has very little to do with sourcing other than "run the numbers on this deal"

Young Analysts Game - You're right that the number crunching is typically done by the young guns, but that's true at every firm and also true in AM, so I'm not sure how this is relevant. A senior acquisitions role will primarily be relationship driven which involves glad handing brokers (I agree that this part is terrible), finding capital partners, structuring deals, etc. which is definitely not a "young analyst's game"

Underwriting is unimportant - I would argue that asset management makes you a better underwriter, and comparing your 30 Y/O land lord to an institutional shop isn't a realistic comparison. underwriting is important because it helps you manage risks, not because it makes you a successful individual RE entrepreneur.

Job Security - this is true, AM definitely has more job security than AM

I'm not saying AM can't be interesting, but I think the value is more in the hands on experience (actually doing things with real estate as opposed to a spreadsheet), not in the points you mention.

    • 1
Jun 21, 2019
Comment