How smart is real estate?

Hey guys,

What do you think about the type of people that work in real estate? That might be a little broad so specifically I'm interested in hearing about REPE, but would love to gain insight into all aspects. So while the work might require the same amount of heavy modeling, it seems a lot more straight forward than traditional PE. I have some experience in RE (which I enjoyed btw) so I'm not cluelessly asking. I just want to do a little bit more research to be comfortable about doing it long-term. Again, would love to hear what you all think.

Thanks.

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Comments (20)

Aug 12, 2015 - 8:26pm

The type of people that work in real estate. Hm, well from my experience they breathe oxygen and wear clothes. Outside of that I think it varies.

You may want to rephrase because I'm leaning with Dick Whitman here. There are people that do very well in real estate that can't do a sensitivity analysis in excel, while there are also quants who very rarely see a physical asset and spend their entire time modeling. Several levels in between.

If you are looking for specific anecdotal examples, I work with several CFAs and MBAs at a REPE / Investment Manager. Smart people that are very social, it would actually be odd if someone didn't drink.

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Aug 13, 2015 - 9:33am

In my opinion, the biggest hustlers around are those that are in real estate. The top real estate people I know that are crazy wealthy have probably never evened opened excel. I know a bunch of local developers who pretty much just use their instinct when building. They hustle to build contacts, whether its in the city planning commission or working with banks, it is all about hitting the pavement. So are real estate guys smart? It depends. Are they hard workers? Yes, because many of them are self-made millionaires/billionaires.

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Aug 13, 2015 - 5:10pm

I think its like any industry, you have incredibly smart individuals and you have idiots who fell into it.

Although one thing my old boss used to say was "SHB, its real estate, not rocket science" and to me he was one of the smartest people I know!

Look I think once you get into an industry and figure it out, everything looks much simpler (ie dumber) than those on the outside. Goes for all areas of finance.

Aug 13, 2015 - 10:12pm

Sorry for the shitty post, I probably left this a bit unclear.

Dick Whitman I don't care how I would be perceived. And if I thought I was really smart and that it was a dumb industry, I would see it as an even better opportunity to pursue. However, still definitely not trying to say it is dumb. Pardon my ignorance. I'm new to this and I'm more concerned about career fulfillment and not getting bored with the work.

I absolutely respect anyone that can build themselves billions. It's a different type of smart than maybe a PHD quant.

For example, I would say the high-frequency world has a lot of smart money chasing the same thing. It is very data-driven and quantitative. So it is very difficult to do well.

I get the feeling with real estate that it is difficult to find opportunities to make money, but more so because of how much money is chasing the real estate asset class. So say for an investment manager or REIT, how complicated does the investment process get? Maybe this isn't the best example, but buying an office building seems like it would be a simpler process especially because it is typically a less risky venture.

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Aug 14, 2015 - 9:04am
Bubbles and Booms:

Sorry for the shitty post, I probably left this a bit unclear.

@Dick Whitman I don't care how I would be perceived. And if I thought I was really smart and that it was a dumb industry, I would see it as an even better opportunity to pursue. However, still definitely not trying to say it is dumb. Pardon my ignorance. I'm new to this and I'm more concerned about career fulfillment and not getting bored with the work.

I absolutely respect anyone that can build themselves billions. It's a different type of smart than maybe a PHD quant.

For example, I would say the high-frequency world has a lot of smart money chasing the same thing. It is very data-driven and quantitative. So it is very difficult to do well.

I get the feeling with real estate that it is difficult to find opportunities to make money, but more so because of how much money is chasing the real estate asset class. So say for an investment manager or REIT, how complicated does the investment process get? Maybe this isn't the best example, but buying an office building seems like it would be a simpler process especially because it is typically a less risky venture.

I think the issue with your questions is that there is no real answer. There are some many careers paths and different types of people in CRE that it is impossible to give you a uniform answer. The reality is that you could be the greatest quantitative mind this world as seen and fail miserably in real estate. There is some much to know/learn that you could be in real estate your entire life and think you know everything there is to know and want to redevelop an asset and realize you don't know dick about construction or what the local governments regulations are.

Would you consider investment banking or the tech industry "smart"? I have met unbelievably intelligent people in both as well as barley functioning idiots...

Ultimately do what you are interested in and the rest will fall into place..

Aug 16, 2015 - 11:10pm
Bubbles and Booms:

Sorry for the shitty post, I probably left this a bit unclear.

@Dick Whitman I don't care how I would be perceived. And if I thought I was really smart and that it was a dumb industry, I would see it as an even better opportunity to pursue. However, still definitely not trying to say it is dumb. Pardon my ignorance. I'm new to this and I'm more concerned about career fulfillment and not getting bored with the work.

b I absolutely respect anyone that can build themselves billions. It's a different type of smart than maybe a PHD quant. [/B]/p>

For example, I would say the high-frequency world has a lot of smart money chasing the same thing. It is very data-driven and quantitative. So it is very difficult to do well.

I get the feeling with real estate that it is difficult to find opportunities to make money, but more so because of how much money is chasing the real estate asset class. So say for an investment manager or REIT, how complicated does the investment process get? Maybe this isn't the best example, but buying an office building seems like it would be a simpler process especially because it is typically a less risky venture.

I strongly disagree with this - at least in the sense that accumulation of wealth and high intelligence aren't mutually exclusive. If you don't think people like Sam Zell, Larry Page, Elon Musk, Warren Buffett etc. have street smarts AND book smarts, you're sorely mistaken. In fact, most "self made" billionaires / ultra rich moguls are probably much smarter than you're average quant. How condescending of you to even infer that they're lacking in that department - they're smart enough to realize that all of the theoretical b.s. taught in most quant PhD programs is a monumental waste of time and energy and were astute enough to, instead, utilize their time accumulating the pragmatic knowledge that would actually materialize into tangible value.

Aug 16, 2015 - 6:14pm

I understand why you made this post. Yes, there are a lot of people in Real Estate who lack the scientific expertise and pure intellectualism that you will find in other sectors, such as fixed income portfolio management/trading or a long/short equity hedge fund. There's a lot of people who have nothing to offer but qualitative knowledge.

Now, I think the debate really is whether that qualitative knowledge is truly valuable or whether a smarter, more analytical individual can make a better investment decision. While my personal opinion is on the side of the latter, given compensation + demographics of the industry, most people do value that qualitative knowledge.

Aug 17, 2015 - 7:05am

most people I know that worked for large funds active in real estate (e.g. Blackstone) are pretty smart and have no issues in modelling or understanding corporates, financials or any other more traditional M&A work etc.

That said real estate investing is def easier from a technical point of view then corporate.

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Aug 17, 2015 - 10:32am

Take it from me, you have to be fucking smart to make a killing in real estate. It's more about being able to analyze the market and future projections of the market and the outlying externalities. Real estate is going to only get more and more complicated in the future as governments being to force asset owners to realize and cost externalities. With that being said, just about anyone who isn't an idiot can make money in real estate. The difference is you are talking about people who investing in highly leveraged and tranched deals. This type of investing relies heavily on projection modeling.

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Aug 17, 2015 - 12:43pm

Having worked at bulge bracket IBD, big private equity and a very small private equityish real estate office, I can attest that all things being equal, real estate is typically more straightforward from a financial analysis/modeling perspective. But, I would argue you also have far fewer levers you can ultimately pull to make a deal work and, depending on what type of investing you're doing, the ability to navigate very complicated legal, political, and community issues can often be the difference between a successful deal and a bust. Big REPEs may not be dealing with all of this directly, but good investors understand will deeply understand all of the factors at play.

Long way of saying, there's lots of kinds of "smart." Yes, real estate tends to be less quantitatively intensive (though there's still plenty of analysis you can do), but the best investors I've seen have a broad set of skills beyond the numbers.

Better question than which one attracts "smarter" people is do you like working with operating companies or does real estate fascinate you. Both are legitimate career choices but it's a very different sort of investing.

And yes, real estate does attract a very wide variety of characters given it's relatively low barrier to entry and attractive cash flow and high leverage characteristics. These are the people who think they're geniuses in a rising market and go bust as soon as things turn.

Aug 17, 2015 - 1:52pm
LANative8:

Having worked at bulge bracket IBD, big private equity and a very small private equityish real estate office, I can attest that all things being equal, real estate is typically more straightforward from a financial analysis/modeling perspective. But, I would argue you also have far fewer levers you can ultimately pull to make a deal work and, depending on what type of investing you're doing, the ability to navigate very complicated legal, political, and community issues can often be the difference between a successful deal and a bust. Big REPEs may not be dealing with all of this directly, but good investors understand will deeply understand all of the factors at play.

Long way of saying, there's lots of kinds of "smart." Yes, real estate tends to be less quantitatively intensive (though there's still plenty of analysis you can do), but the best investors I've seen have a broad set of skills beyond the numbers.

Better question than which one attracts "smarter" people is do you like working with operating companies or does real estate fascinate you. Both are legitimate career choices but it's a very different sort of investing.

And yes, real estate does attract a very wide variety of characters given it's relatively low barrier to entry and attractive cash flow and high leverage characteristics. These are the people who think they're geniuses in a rising market and go bust as soon as things turn.

I am a real estate guy so I am obviously biased however I assume when you are speaking to CRE low barriers to entry you are looking at the industry as a whole inclusive property management, small leasing shops ect. If that assumption is correct I definitely agree. If you are comparing corporate PE to REPE...it is my opinion that the barriers to entry are very similar with corporate PE getting a slight edge.

Aug 17, 2015 - 1:55pm

Yes 100%. I think part of the reason people assume RE is easier or not as complicated is because they see a large number of people who wouldn't be able to do corporate PE able to buy commercial assets in a relatively unsophisticated way.

Agree on the fact the corporate PE and REPE have similar barriers at the institutional level.

Aug 17, 2015 - 11:51pm

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