Difference between BB RE Asset Management vs REPE

Ok so I have been reading through tons of threads and I am still lost on this single point: What distinguishes Real Estate Asset Management at a BB from REPE at a BB/PE firm?

I understand that MSRE and GS REPIA/Whitehall are considered REPE. However MSRE is part of Morgan Stanley IBD and REPIA is part of GS Merchant Banking.

What about JPM? Their Real Estate is clearly under Asset Management. How is this different from REPE?

In other words, what constitutes the line between RE being another investment vehicle for the asset management arm VS a private equity investment within the same BB firm?

Thanks for any input

 

All of the above is REPE, in my opinion. A fund is a fund, whether you are doing LBOs of real estate companies or working in portfolio management of the various assets. but within the spectrum of real estate fund managers, would I rather be on the deal team at an opportunistic fund like Colony than an asset manager at a core fund managed by JPM? Definitely, and so would most people here.

Curious to hear others' feedback, though. I don't think you should get caught up in whether it's under AM or REPIA or IBD: look at the investment style and the position description.

 
Best Response

The key differences between Real Estate Private Equity and and Real Estate Investment Management are:

- Strategy & Return targets:

REPE (sometimes called opportunity funds) is usually associated with higher return & absolute return strategies like opportunity funds and distressed investing for control of RE assets and sometime property development. You will find that the funds raised target returns from the high teens to 20%+ and the funds generally pursue controlling investments in assets, portfolios or in some cases RE companies. They tend to use a lot of leverage in a similar fashion to LBOs to generate returns. Some invest in assets that have a lot of vacancy or require significant repositioning / refurbishment. You will find some REPE teams also run an RE mezzanine or Special Situations fund in addition to their main fund.

REIM is usually associated with relative return strategies with lower absolute targets. i.e. the fund aims to beat a real estate index of similar assets. You will usually see the words Core, Core plus or value add associated with the strategies that these funds perform. They'll usually not employ more than 60% leverage in their investments and generally look for low vacancy assets and/or assets that do not require a lot of physical work.

- Structure & Fees:

REPE funds generally follow a 2 & 20 fee model similar to corporate PE; i.e. 2% p.a. management fee on funds invested/raised and a 20% share of profits after achieving a hurdle rate. Sometimes you will see funds charge 1.5 & 20 instead and the hurdle rates range from 8 - 10% before the GP/Sponsor shares in the profits.

REIM fees tend to be lower due to the strategies that they pursue. Some funds & separate accounts won't have much of a performance fee or no performance fee at all with just a management fee. Sometimes institutions will outsource their asset management for their portfolio to one of these firms either in a separate account arrangement or just hiring them as a manager.

Other clarifying points:

  • REPE is a form of investment management (in the same way that corporate private equity or Hedge Funds are forms of investment management). To differentiate REPE from other RE investing you have to look at the strategies employed, return targets and the compensation structure.

  • In terms of GS/REPIA/Whitehall and MSREF you will find that the GS/REPIA folks manage several funds including Whitehall which is Goldman's REPE fund. They also run a mezzanine fund and do one off deals for large clients/co-investors. Morgan Stanley sometimes staffs its junior guys on both investing deals (where they are investing the MSREF funds which are opportunity funds) as well as advisory deals (others can clarify if this has changed).

  • I'm not sure how JP Morgan is set up in terms of real estate. It seems that they have other RE strategies (public markets, separate accounts, etc...) lumped into their RE group. I've seen them do several core and core+ type deals targeting high single digit IRRs with low leverage. I don't know if they have raised a dedicated opportunity fund.

  • You can see the lines more clearly when you compare non-investment banking firms. For example contrast REPE investing at Blackstone, Carlyle, Beacon Capital, AREA, Westbrook or Colony Capital with RE investment management at LaSalle investment management, CBRE investors or similar types of firms. They are different types of investing even though its in the same sector... MSREF & Whitehall definitely fall within REPE and a lot of their Alumni are in the pure play REPE firms as well as other RE companies.

  • Others: Unlike corporate PE you have other types of firms that are active in the area as investors in private RE assets including REITs, private real estate companies like Tishman, Hines and Related (some who run their own funds), as well as other types of investors. It is all real estate investment, but some could be categorised as REPE investing, e.g. Related runs a opportunity fund to do distressed re investments/development.

  • History / Background: Some REPE type of investing can be traced back to the RE syndication groups so it has a lot of similarities with merchant banking and is housed in that area of investment banks (similar to normal PE). In fact, the guys that set up Blackstone's REPE group were ex-JMB realty guys, not to mention Starwood capital's founder. http://en.wikipedia.org/wiki/JMB_Realty JMB Realty doesn't exist any more due to the crash in the 80s/90s.

I agree with prospie in that you should look at the position description and investment style to figure out how to classify a role/team as opposed to what part of the website/corporate structure it is the team is housed.

 

Years late to the conversation but would training at a RE investment management firm (Lasalle, CBRE GI, etc) be transferable to pure play REPE firms like the ones you mentioned?

Do analysts often lateral over or are they pigeon-holed in REIM/core-Investment shops?

 

No idea how I found this haha, but yes. You certainly can lateral to a pure REPE firm after a couple years at LaSalle or Global Investors. You will be competing against REIB analysts, d/e analysts, and the like, however.

Pigeon-holing most definitely does not occur at the analyst level, so you are good on all fronts there. Maybe when you are 5-7 years into your career AND only focusing on one product.

 

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