Deal Size Matter in Real Estate?
Is deal size crucial in terms of experience quality in underwriting properties? I am assuming it is much more preferable looking at larger, sexier properties rather than class B - C properties in tertiary markets, but does it make a huge difference in terms of future opportunities in underwriting positions? If so, could someone explain why there may be a difference? More complex lease structures? Thanks in advance.
Does Deal Size Matter in Real Estate? (Originally Posted: 07/07/2014)
Does deal size matter in terms of gaining valuable underwriting experience? I would assume that underwriting sexier institutional, class A properties would be much more valuable than class B-C properties in tertiary markets, but does it make a huge impact on your exit opportunities if you are dealing with the latter? If it does, how so, and to what extent? I believe other than maybe more complex lease structures, but is there anything else I am missing?
In my experience. 5 to 50 million isn't all that different except for the size of my check
You want to be a member of the institutional players club, not the club that receives their capital from a few family members, neighbors, and best friend.
I actually find that the smaller deals are the harder deals to underwrite (lack of good comparable information, poorer sponsors, etc.) and are much more likely to cause financial loss. I would just tweek your resume for the type of position you are applying for. If applying for a multifamily capital group then emphasize your multifamily work; if applying for a Class A developer then emphasize your larger, sexier deals.
I've done my fair share of underwriting of RE assets and my 2 cents would be that deal size does not matter in this case. My experience has been with properties ranging from $5 million to over $1 billion in a multitude of varieties in terms of number of leases/tenants, lease structures (NNN, Gross, Full service, etc.) and markets. There is a whole number of combinations of complexities at any given price. I wouldn't discount a "cheaper" property and call it less complex than a more expensive one. The differences in price would primarily be location and quality of the asset. It may sound sexier to work on a $1 billion deal b/c it likely gets a lot of attention, but doesn't make it any more difficult.
I think "difficulty" is a subjective term. For example, if you're buying a fully-marketed property from a pension fund where the broker is providing detailed, categorized information in an online war room (e.g. lease abstracts, roof warranties, 10-year capex history) you really just go down your due diligence checklist. You have more boxes to check in this "institutional players club", but for the most part the Seller already did them and is just relaying the info. Not really that difficult, but yes it's a skill set other institutional buyers will look for in acquisitions.
Buying smaller properties from private owners is a whole other story. We're 25 days into DD with a private owner who did little maintenance on historic buildings for the last 10 years, with little documentation on what he did do. It's been a pain in the ass going through handwritten notes and then finding out you need $5MM for the elevators/roofs/HVAC. I would argue doing this regularly would make one "more valuable" primarily because you're not running on autopilot (or at least this is how I would spin it during an interview).
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