Development vs. REPE

I want to turn to this forum for some clarity. ** Thank you in advice for any advice! **

First a little background on myself… I am a junior at a non-target studying finance and accounting. I have developed an interest in RE Finance and have hit the networking trail hard. I have secured an internship in PM this summer with a fairly active development firm in the Southeast. (roughly 3B in outstanding projects).
I am planning to use this summer to get as much experience as possible, while working towards lining something up full-time.

I am interested in development, but have started to consider REPE as an alternative option. It seems a little faster paced and I want to be able to use the skills I've learned in school right out of the gate. Is there an advantage to either one? I obviously don't have in depth experience in either but I am hoping to get some feedback to help me decide where to focus my efforts.

Ignoring culture/fit… In general, what position is more coveted among RE professionals? What position will provide the best transferable skill set? Are there any distinct benefits to either?

Also... which is more FUN? I want to hear the opinions of others who do this day in and out

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Comments (33)

Apr 11, 2017 - 2:51pm

Totally depends on the type of person you are. If you like the finance aspect rather than the design aspect of real estate I would recommend REPE over development.

I am in the REPE world and when I look tour deals with developers their thought process is way more detailed on the design / architecture than mine. To be honest I could care less what color the building or carpets are as long as it performs as expected, is on budget and on schedule, and we sell it at or above our underwriting. The reason why REPE promote developers is for their market expertise and the less hands on REPE firms are the happier they are because it means the project is going as planned. Furthermore, at some of the national development shops they have guys who focus strictly on the capital markets aspect and let their local development guys focus more on the development / design aspect.

I do see the value though in the development / operator role if you plan on doing deals on your own as you will get great experience A to Z on running your own deals whereas typically in REPE you are managing the process and basically getting updates on progress through reports or a biweekly call.

The questions you asked are all about who you are as a person because both roles are very different in the day to day. So it is more on you to figure out what you'll enjoy more.

Jan 19, 2018 - 10:36am

No, the reasons that developers earn a promote is to offer incentive to make sure they bust their ass on the project. Its not the king offering peasants extra bread crumbs as a sign of sympathy. Its also part of the reward for taking on the risk of the construction loan guarantee. Developers actually make more money than the "REPE" players on a return basis due to this promote structure.

Also there is plenty of finance work in development as well. They still do their own UW and waterfalls. The only difference is that one group's role is to provide majority equity, the other is to provide the boots on the ground and management.

BTW OP, development can still be considered PE which is just an asset class (public equity, private equity, private debt, public debt), not necessarily a business. Unless it is a large national public builder, its private equity.

I am assuming you will be doing Multi-family development? Development is fun you will like it.

Jan 26, 2018 - 9:45am

Piggybacking off what @@RealDonaldTrump" said but adding my two cents, there's plenty of finance on the development side of the business

There are pure REPE firms, pure development firms, and then firms that blend both. I work for a large firm that started as a REPE fund with a development arm - meaning they would sometimes invest in other local developers' projects and build their own.

Once they grew to a certain point, they split the roles in the company to an Investments team (where I sit) and a Development team. Investments is a pure PE role, you are responsible for determining the land value in acquisitions, as well as being the go-to for financial modeling in terms of explaining on how every dollar flows in and out of the project. The Development team is a more hands on role, where you act more of a project manager - interacting with all parties involved in building a project, everything from legal to design, consider it the "when" and "what" of the process - whereas Investments is the "why" and "how"

Hope that shed some light

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Apr 11, 2017 - 4:03pm

I think which is more fun is subjective obviously. Personally, for me Development seems more fun.

The cool thing about Development is that there really is no specific track to getting in. Guys come from all different backgrounds which is pretty cool in my opinion. REPE seems much more straightforward and more finance heavy.. (go to target, do REIB or brokerage then go into acquisitions/AM). Good thing about REPE though is you can always just transition to Development and be more on the finance side of things.

Controversial
Apr 11, 2017 - 7:39pm

I'll start off by saying that if you're looking for fast-paced, you're looking at the wrong industry. Deals take forever to close, and even much longer to put together. If I had to pick one I would say development is faster paced because you're working with so many more parties and often going down several paths simultaneously, but you'll likely be working on fewer deals at any given time.

As a guy with a finance background, you'll be working in a pretty similar role at the entry level regardless of what role you're at. And honestly, I wouldn't worry too much about going one way or the other. Focus on finding a company with strong deal flow, where you'll be close to decision makers and learning a lot. It's not like you'll be locked into one path forever. You'll get great at modeling either way as an analyst.

In the larger scope of things, at a developer you'll be more in the driver's seat, whereas at a PE shop you'll be more macro-focused. If you think you'd like to be involved in acquiring a site, doing a market study, taking it through a rezoning (lots of political nuance here), going out and pitching a deal to larger capital partners, and managing architects/engineers/contractors/etc, development would be a better fit. If you'd rather be creating investment vehicles (i.e. developing investment theorems and fundraising), acquiring existing buildings or searching for developer partners and deploying capital, monitoring fund performance and preparing quarterly reviews etc, PE is a better fit.

You'll get paid more in PE but you'll work far fewer hours in development. You'll spend spend more time sitting in front of a spreadsheet or going through some boring document in PE, but you'll also have deals in more geographic regions and will travel more. You'll be more on the sidelines of a deal in PE but in development you'll be somewhat at the mercy of your capital partners. PE will be more pedigree focused whereas development will be more entrepreneurial and about accumulated knowledge. PE will likely be better for MBA programs but it'll be much easier to break off and be your own boss in development. If you're asking which one is more fun, IMO development blows PE out of the water because you're doing so many different things every day.

These are all complete generalizations, and there is actually a lot more overlap than it sounds.

Jan 17, 2018 - 9:52pm

Not the one that threw MS at you but I disagree about the hours. In REPE, generally the volatility from week to week is much less from my observations. You may need to put in an extra couple of hours on a given day if there's a ton of deals coming to market or if there's a live deal going on, or if you've been traveling, but I think it's more or less pretty straight-lined month over month. With development, you could be literally all over the place. A few friends in dev out in my markets have put in as little as 20 hours in the office in any given week, and as many as 70-80. At my firm, I would say it doesn't go below 35 for an insanely slow week and it doesn't go above 45-50 in the most stressful cases Obviously depends on the firm, point in the cycle, etc but I'd be willing to wager that this dynamic is relatively the same throughout the country.

Additionally, with respect to the pay, over your career in PE I think you can expect a more straight lined, steady stream of cash flow (unless a fund liquidates and you're a 'key guy' or something similar occurs), whereas in development you may not have as steady stream of cash flow coming in, but when one of your projects sells you can hit major pay-irt.

"Who am I? I'm the guy that does his job. You must be the other guy."
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Jan 17, 2018 - 10:01pm

Deleted, double.

"Who am I? I'm the guy that does his job. You must be the other guy."
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Jan 17, 2018 - 10:04pm
cre_questions:

I'll start off by saying that if you're looking for fast-paced, you're looking at the wrong industry. Deals take forever to close, and even much longer to put together. If I had to pick one I would say development is faster paced because you're working with so many more parties and often going down several paths simultaneously, but you'll likely be working on fewer deals at any given time.

As a guy with a finance background, you'll be working in a pretty similar role at the entry level regardless of what role you're at. And honestly, I wouldn't worry too much about going one way or the other. Focus on finding a company with strong deal flow, where you'll be close to decision makers and learning a lot. It's not like you'll be locked into one path forever. You'll get great at modeling either way as an analyst.

In the larger scope of things, at a developer you'll be more in the driver's seat, whereas at a PE shop you'll be more macro-focused. If you think you'd like to be involved in acquiring a site, doing a market study, taking it through a rezoning (lots of political nuance here), going out and pitching a deal to larger capital partners, and managing architects/engineers/contractors/etc, development would be a better fit. If you'd rather be creating investment vehicles (i.e. developing investment theorems and fundraising), acquiring existing buildings or searching for developer partners and deploying capital, monitoring fund performance and preparing quarterly reviews etc, PE is a better fit.

You'll get paid more in PE but you'll work far fewer hours in development. You'll spend spend more time sitting in front of a spreadsheet or going through some boring document in PE, but you'll also have deals in more geographic regions and will travel more. You'll be more on the sidelines of a deal in PE but in development you'll be somewhat at the mercy of your capital partners. PE will be more pedigree focused whereas development will be more entrepreneurial and about accumulated knowledge. PE will likely be better for MBA programs but it'll be much easier to break off and be your own boss in development. If you're asking which one is more fun, IMO development blows PE out of the water because you're doing so many different things every day.

These are all complete generalizations, and there is actually a lot more overlap than it sounds.

Hit's you with monkey shit on my 4 different accounts to plant the seeds of doubt in everyone's mind

Jan 17, 2018 - 10:06pm

You are a sad individual.

"Who am I? I'm the guy that does his job. You must be the other guy."
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Aug 20, 2018 - 8:23pm

I think this is one of the best answers to this debate that i've seen yet on the internet and I've read a considerable amount on the subject. I currently work as an analyst in development for a smaller residential homebuilder (˜700 units currently under contract/construction) and I can confirm everything about what it's like to be a developer. I don't work bad hours, I spend a lot of time managing architects/engineers/consultants, and deal flow is SLOW (1-2 every 2 weeks if we're lucky). I think @cre_questions answer is perfectly unbiased and I think to say one path is better or worse really depends on the fit of the person.

I wanted to get into REPE or REIT work after school but the developer role kind of just fell in my lap so I went with it, knowing it would get me great experience down the road. It's a small-mid sized company (70-90 employees) that develops large communities of single family, townhouses, condos, and apartment complexes...depending on what works best on each site. Our competitors are all the big homebuilders such as K Hov, Toll Bros, Pulte, etc and we do the exact same thing as them, only not on a national scale. I'm on the land acquisitions/development team and so I look at deals ranging from ˜70 units-400+. There's only 3 people on our team and I'm by far the youngest so I'm VERY close to decisions and cover a wide range of tasks...every day is definitely different.

I have a degree in finance and so I was frustrated at first (it's since went away) w/ lack of modeling and technical work. I've found in development that when underwriting a deal and deciding if it will work or not, you spend more time trying to quantify assumptions like political climate, time to get approvals, comps/market study, etc than you do playing around in a model. There's A LOT of money to be made if a deal goes well and this depends mostly on these conditions being favorable, not so much the debt rates & capital structure....and also if a project works then really what's the difference between a 40% or 50% return (irr), You spend less time worrying about what your waterfall will spit out and more time on "can we get an approval within 6 months" or "will this market really support a $750k townhouse and what'll our absorption be at that price point".

I love my job and am learning A TON (!!!) but my complaints are exactly what @cre_questions pointed out...less $$, less prestige, etc. There's even a competitive part of me that feels bad about working easy hours. It's hard to see your friends working in fancy CBD office towers making more money than you...even if the logical side of you knows your experience in this space will likely be more valuable down the road. This was my first job out of school and so I can't speak to other roles in the RE space but hopefully this paints a good picture of this debate from the POV of a young developer.

Best Response
Jan 20, 2018 - 12:19pm

Seems like a lot of folks think starting off in development is better. I have a different opinion. I like to start higher up in the capital totem pole (the LP side), take the 30,000 foot view of investing before getting tangled in the weeds and herding cats on projects that take years to go full development cycle. The knowledge of capital markets and valuations becomes very helpful throughout your career. It all depends on the person though, but since we are on Wall Street Oasis and OP is finance/accounting major (vs Urban Planning Oasis), I think getting a REPE/REIB analyst role and training early would be more beneficial to him/her over the long run. I mentioned this before: deal flow, product type diversity, and geographic diversity; all very good things to hone early.

The second thing is you should want to work in the top group and function of your company (pay, prestige, exposure, exit options). So if it's being a monkey at a top REPE, getting your MBA and then becoming a development associate, that's a good track. Now, being an underwriting Monkey for the development team is excellent experience too because you talk and learn from all the departments (acquisitions, entitlements, financing, Construction, ops, exit). That's a great first step to jumping into the Rabbit Hole of development (so much to learn).

I think getting in on the post MBA associate role for development is an increasingly common occurrence and matches experience and maturity.

That said, we are splitting hairs because there are great reasons to work in either/or right after undergrad. I just prefer higher level generalist view gaining experience as an investor (which is very key to development) and deal structuring with JV partners, co-investment, land seller earnouts, and internal waterfall (and Promote!) calculations. You get more mentoring and polish for that stuff at a REPE. Also I like the faster pace of REPE generally speaking, and then go to a fast growing dev shop.

There are some personality differences and ADD (attention span) comes into play as you view acq vs dev in the greater context of your career. Also to note, at a REPE, you get to play King (you are the capital). That can be fun if your dev partner is on top of things (not fun if developer is crazy). So you learn about developer personalities, growth and stability characteristics at a REPE (just thought of that). Both tracks are good.

Have compassion as well as ambition and you’ll go far in life
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Jan 20, 2018 - 3:05pm

Good answer. I think the pace is incredibly important, if not most important, for one to consider. Development is slow, and takes time. With that said, we get into the weeds thinking about every component of the deal (we have to to de-risk projects). When I interned at an institutional LP, we really just ran the sponsor model through our model, turned down some of the more aggressive assumptions, and then did some high level analysis on the submarket and sponsor. As painful as some parts of development may be (i.e. the politics), it is very rewarding to work on projects from vision to reality, and change a place for the better (not all groups see it this way but we do).

I would respectfully disagree with the comment about getting more polish for structuring at a REPE vs. sponsor-level investment/development firm. I am constantly running various waterfall splits through our models and they range in complexity from 1) we are 5% and raise 95% with either a IRR or EM driven structure, to 2) seller contributes land as equity, may or may not invest cash up to a certain share of deal equity, we are co-GP with another group but we bring the LP equity and they want 90% of total deal equity, and there are 2-3 different waterfall structures within the deal. Perhaps some groups are not as cerebral in their process (i.e. merchant build groups who build identical product everywhere with same structure and more than likely same LP via sidecar/club deal).

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Jan 20, 2018 - 10:23pm
cpgame:

Good answer. I think the pace is incredibly important, if not most important, for one to consider. Development is slow, and takes time. With that said, we get into the weeds thinking about every component of the deal (we have to to de-risk projects). When I interned at an institutional LP, we really just ran the sponsor model through our model, turned down some of the more aggressive assumptions, and then did some high level analysis on the submarket and sponsor. As painful as some parts of development may be (i.e. the politics), it is very rewarding to work on projects from vision to reality, and change a place for the better (not all groups see it this way but we do).

I would respectfully disagree with the comment about getting more polish for structuring at a REPE vs. sponsor-level investment/development firm. I am constantly running various waterfall splits through our models and they range in complexity from 1) we are 5% and raise 95% with either a IRR or EM driven structure, to 2) seller contributes land as equity, may or may not invest cash up to a certain share of deal equity, we are co-GP with another group but we bring the LP equity and they want 90% of total deal equity, and there are 2-3 different waterfall structures within the deal. Perhaps some groups are not as cerebral in their process (i.e. merchant build groups who build identical product everywhere with same structure and more than likely same LP via sidecar/club deal).

Thanks for pointing out and you are right.
I take my answer back and say there can be more polish for underwriting in development too. Just depends on sophistication of the group. I do think having a high level perspective ("what are we playing for") is invaluable.

Have compassion as well as ambition and you’ll go far in life
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Jan 26, 2018 - 1:46pm
Mark Queban:

I want to turn to this forum for some clarity. ** Thank you in advice for any advice! **

First a little background on myself… I am a junior at a non-target studying finance and accounting. I have developed an interest in RE Finance and have hit the networking trail hard. I have secured an internship in PM this summer with a fairly active development firm in the Southeast. (roughly 3B in outstanding projects).
I am planning to use this summer to get as much experience as possible, while working towards lining something up full-time.

That's a great start

Mark Queban:
I am interested in development, but have started to consider REPE as an alternative option. It seems a little faster paced and I want to be able to use the skills I've learned in school right out of the gate. Is there an advantage to either one? I obviously don't have in depth experience in either but I am hoping to get some feedback to help me decide where to focus my efforts.

Idk how you define faster pace - I would tend to say development can be faster pace with all of the fires you're putting out on a regular basis. Both are nuts around closings.

Mark Queban:
Ignoring culture/fit… In general, what position is more coveted among RE professionals? What position will provide the best transferable skill set? Are there any distinct benefits to either?

The good news for you is neither. No one really respects someone who built something ground up more than someone who bought a portfolio of assets or vice versa. They're both at the top of the food chain.

Mark Queban:
Also... which is more FUN? I want to hear the opinions of others who do this day in and out

Definitely development. Do you want to be slaving over a model while sneezing into your pocket protector or do you want to be the fucking man with strippers licking construction dirt off your $2,000 loafers? ;)

Commercial Real Estate Developer

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Jan 26, 2018 - 2:49pm

I guess it's appropriate to circle back on this since the thread has reemerged... I have actually managed to graduate and have just finished up my first month as an analyst at a value add REPE shop.

I can now confidently confirm that REPE is the MOST PRESTIGIOUS, HIGHEST PAYING, FUN, INTELLECTUALLY STIMULATING route to go. Hope this clears up any confusion!

Jan 26, 2018 - 3:01pm
Mark Queban:
I can now confidently confirm that REPE is the MOST PRESTIGIOUS, HIGHEST PAYING, FUN, INTELLECTUALLY STIMULATING route to go. Hope this clears up any confusion!

Yeah yeah, just be sure to clean out your shirt pocket

Commercial Real Estate Developer

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Aug 22, 2018 - 6:35pm

Thanks for bringing this thread back to my attention. Super humbling to realize that no matter how much progress humanity makes, there's always that one type of person that brings you back to reality.

Really appreciate the fact that you took time out of your day to share your thoughts, buddy.

Jan 27, 2018 - 8:59am

I'm curious, how flexible is development with moving around/relocating to a different part of the country? For instance, if I started off in a development shop in the Northeast and then decided I hated cold winters and moved to LA, would my career take a big hit?

This was one of the things that turned me off of brokerage. If I did a couple years and started building my business and then decided I wanted to move, my career would be severely impacted because I'd essentially be starting over again (have to learn all the ins and outs of an entirely new market and build a new client base).

At the moment, I have no idea where I'd like to eventually settle down,and I really value the flexibility that I have in REPE asset management where I only really need an internet connection and a phone and I could work from just about anywhere in the country.

Jan 29, 2018 - 5:31pm

I think it depends on what type of development firm you walk for. I have a good friend who does a very niche development and travels all over the world. But I have heard others who say development is a very segmented market. I have no personal experience though, so take my input at face value.

“The three most harmful addictions are heroin, carbohydrates, and a monthly salary.” - Nassim Taleb
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Aug 21, 2018 - 3:41pm

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