Does Product Type Matter?

Hey everyone,

I was curious to hear some opinions in regards to working with specific RE product types. Would it be bad to work for a firm that specializes in only one product type? If so, could you please go into detail which product types are the worst/best, and is it somewhat exaggerated/overrated?

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Comments (6)

Jul 2, 2012 - 9:59am

Hard to call any property type good or bad, or any risk/return strategy best or worst.

Office and retail are often considered more complex in terms of underwriting (given long-term leases, capital intensity, etc.). Multifamily and industrial are generally considered much simpler. Hotels have unique characteristics and bridge a void between real estate and an operating business. Generally-speaking, at a junior level I would prefer to be in a role where I get to work on multiple property types and would rather specialize in a region than specialize in a product. If I had to choose, I like hotels and office buildings best, but this is largely a matter of taste.

In terms of risk/return strategies, opportunistic funds are "sexier." Core in my mind is pretty boring (buy for yield). Value-add and Opportunistic funds engage in more challenging situations and projects (distressed debt, capital-starved projects, renovations/rehabs, some new construction, etc.).

Jul 2, 2012 - 4:09pm

From a career point of view, it helps to have exposure to a broad range of asset types and geographic areas so you're not too pigeon holed and know how to model/analyse different types. Each asset class & geography is cyclical, so it helps to be able to navigate this and not have all your eggs in one basket.

In my opinion Office, Hotels and Malls are the sexiest (technical term) asset classes. They're the biggest in terms of size of individual deals and can get complex in terms of what you can do to the physical asset and how they are financed.

Hotels in particular can be an ego trip if you're investing in the luxury end of the market and you start working with "hotelier" type people. Definitely the most overrated/exaggerated asset class because of this. While there are elements of it being an operating business, hotel rooms in major cities are like a commodity to be honest (in my opinion). There are some interesting ways to make money if you look beyond the ego aspects though, e.g. instead of running loss making restaurants, rent out the space to proper restauranteurs (with an appropriate brand). Suddenly a $150k p.a. loss is a $250k p.a. profit and your hotel is worth several million more... all you had to do was sign a lease and swallow your ego.

In terms of operators I think hotel asset managers seem to stick to hotels a lot (or mixed use), whereas you have office asset managers that also do retail (in major cities). As an investor / financier, I think its important to retain flexibility, but wouldn't turn down a great role with a top REIT, fund or operator just because it was hotel specific or office focused.

Jul 2, 2012 - 4:47pm

Just to clarify, this is not my answer. I just recalled I asked a very similar question in an earlier thread. This is user "requestions" answer.

"I think it depends. If you are talking about analyst opportunities then probably not. That being said, residential, hotel and multi-family are all pretty unique so there is probably a point that you will become pigeon holed. Retail/office are usually more complicated from a structuring stand point and modeling stand point so they are probably the better sectors to specialize in early on (especially for the ARGUS background which is critical). I specialized in one sector at the BB and another at the opportunity fund. It was pretty seamless. I think the same logic carries for the risk profile of the fund... early on it probably doesn't matter but once you are a senior associate/vp these will become more of a factor. I don't think either are a deal breaker but its important to remember that as you get older you will be compared to people with various backgrounds so if you're interviewing a VP with an office background at an opportunity fund versus a multi-family guy from a core fund each will have an edge on the other depending on the opportunity they are interviewing for. I think the ideal play that would position you best for any opportunity is an opportunistic strategy focusing on office properties in a major metro area. That is entirely an opinion though."

GBS
Jul 5, 2012 - 9:46am
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