Is PERE (Opportunistic) a good place to go?

teacubet's picture
Rank: Monkey | 42

I'm thinking of moving into PERE -in area of opportunistic / value add investing .. but I'm not too sure what's the industry outlook for this area in the near future.. I have PE expereince but in a different sector.. Can someone share their thoughts and opinion on these:
1. the industry outlook (geographic - US/ Asia) and if it is viable to hop into this industry?
2. I've no relevant RE experience, hence the best way to get started is to network/cold call and email?

Any comments will be appreciated.. Thanks

Region: 
All Asia Pacific

Comments (16)

Oct 27, 2010

I think it's a good place to be for a number of reasons, though I know that the u.s. Market is on ice right now. I work in pe re in Asia (highly opportunistic) and I find the work, hours, pay and general lifestyle to be very rewarding. Two things though, 1. Its not an easy thing to break into if you're not from REIBD or a very good developer like a tishman or Hines and 2. If you spend time in pe re it means you're likely to be stuck in RE, so be sure you like it. Theres a lot of options in re though - re ib, development, pe, mezzo/debt funds, hotel companies and other operators with re arms, etc.

Generally the pace can be a little slower than typical pe, and the hours are definitely less. The pay is similar though, and I like investing in physical assets that I can actually see and easily conceptualize. I like having a track record that reads in millions of square feet...I also enjoy working closely with partner developers on stuff like architectural design, site master planning, etc... It makes me feel like I'm something other than just a numbers guy, though clearly mostly what I do is financial analysis and modeling

Oct 27, 2010
International Pymp:

I think it's a good place to be for a number of reasons, though I know that the u.s. Market is on ice right now. I work in pe re in Asia (highly opportunistic) and I find the work, hours, pay and general lifestyle to be very rewarding. Two things though, 1. Its not an easy thing to break into if you're not from REIBD or a very good developer like a tishman or Hines and 2. If you spend time in pe re it means you're likely to be stuck in RE, so be sure you like it. Theres a lot of options in re though - re ib, development, pe, mezzo/debt funds, hotel companies and other operators with re arms, etc.

Generally the pace can be a little slower than typical pe, and the hours are definitely less. The pay is similar though, and I like investing in physical assets that I can actually see and easily conceptualize. I like having a track record that reads in millions of square feet...I also enjoy working closely with partner developers on stuff like architectural design, site master planning, etc... It makes me feel like I'm something other than just a numbers guy, though clearly mostly what I do is financial analysis and modeling

Thanks, and the job sounds interesting. I've interest in RE that's why I'm thinking of moving into this area. Im especially interested in mezzo/debt financing but I think that's highly quantative? can you elaboate more on the development aspect as well? Dropped you a PM too.. thanks

Oct 27, 2010

I actually don't know that much about mezzo investment funds and whatnot. We make some preferred equity investments that share a lot of the characteristics of a mezzo investment, but generally speaking we stick to equity. Also, it's almost impossible (without hard to collateralize off-shore deal structures) to make debt investments in Chinese real estate as a foreign firm. Chinese banks have a government sponsored monopoly on the area, or have until recently (I think there's something like a private REIT type structure now which allows for partial foreign ownership by a qualified investor... but it's not at all main stream - the vast majority of debt comes from local banks).

mezzo / debt strategies funds are definitley cool though... many of them buy distressed debt and work closely on restructuring and stuff, which I'm sure is very difficult, technical and cool. Blackstone has a group that does that and mezz for sure.

Oct 27, 2010

To answer your questions:

  1. Industry outlook varies greatly depending on geographic region (LA metro vs DC metro) and product type (industrial vs retail); but US outlook (revenue generation through new leases and sales EVERYWHERE) generally sucks. I can't really speak on Asian mkts but my opinion is that Asia may be in a small property bubble of it own.

Not sure what you mean by 'viable to hop into'.

  1. It will be a problem that you don't have any direct RE experience, and your PE experience will only help for a financial analyst type role. But FA jobs are so rare nowadays and there are plenty of experienced professionals on the sideline.

To give you an idea how bad it is: I routinely compete with MBA's for jobs, even though I don't have an MBA and I usually have less experience. The reason is that employers see me as 'cheap labor' vs 'expensive MBA labor'.

I strongly suggest that you don't try to transition into RE. If I were you I would stick to vanilla PE. PE is more lucrative than REPE and far more interesting in my opinion.

On mez finance: Going forward, you will see far less complex debt structures. Mez debt and junior/hi-risk real estate finance was hot-shit, not so much anymore. I suggest you don't even waste your time looking into that.

On new development in the US: New development will be DEAD for at least the next 5 yrs in the US. Too much vacant space already in the mkt.

man made the money, money never made the man

Oct 27, 2010

Generally agree with mr1234 and his pessimistic view on RE in the US. In opportunistic real estate investing, the market will be particularly difficult. To your question on mezz funds, as leverage has come down a ton in general and cap structures are back to basics, mezz will have less and less of a place in RE (at least in the near-to-medium term).

With that said, if you really enjoy real estate (and don't mind spending your career in it), and think you have a decent shot at the very top REPE shops (blackstone, westbrook, colony etc.) then it's worth a shot. I say the top REPE shops not necessarily because they will perform well anytime soon, but they have enough of a track record that they will still be able to raise at least another fund and will also give you the most flexibility in moving downstream in RE or breaking back out to another industry

Oct 27, 2010

International Pymp, mr1234, fk
thanks for the replies. I'm considering this as I like RE. However it will be another story altogether if the industry outlook is bleak.
Re the US PERE, do you guys know where can I read up on the industry trend and happenings online? I'm not currently subscribing to any news. I thought there may be some opportunity in distress/debt RE in US though..
I like distress investing and hope to go into more client/relationship maangement area instead of just crunching some numbers and looking at excel template. Any advise for me? I'm in Asia currently.

Oct 28, 2010

CommercialRealestatedirect.com

CMAlert.com

Distressed debt is definitely the storyline of CRE for the next several years. Development outlook is bleak. However, cap rates have started to stabilize and there has been a significant increase in CMBS issuance in 2010. PERE is definitely a great career path. The problem is that the opportunities just might be a few years away.

Oct 28, 2010
EKatzin:

there has been a significant increase in CMBS issuance in 2010.

Really? According to CM Alert, there was $23.6B global CMBS in 2009YTD, and only $10.9B global CMBS in 2010YTD. And that's in contrast to $200-300B Total MBS in 2007. I would say that structured finance is an endangered species. Not to mention the fact that MBS investors are going bat-shit crazy over the foreclosure bullshit thats going on. MBS will look even less attractive to investors.

Those are good resources, though.

man made the money, money never made the man

Nov 2, 2010
mr1234:
EKatzin:

there has been a significant increase in CMBS issuance in 2010.

Really? According to CM Alert, there was $23.6B global CMBS in 2009YTD, and only $10.9B global CMBS in 2010YTD. And that's in contrast to $200-300B Total MBS in 2007. I would say that structured finance is an endangered species. Not to mention the fact that MBS investors are going bat-shit crazy over the foreclosure bullshit thats going on. MBS will look even less attractive to investors.

Those are good resources, though.

I agree that SF is a dying industry. I work on the trustee side of MBS/ABS/CDO deals and am currently looking to make a career change. I don't really have any applicable skills besides financial modeling. The job search is not going so well...

Oct 28, 2010

Key word "Global"

According to CM Alert, there were $0.6B US CMBS in 2009YTD, and $6.5B US CMBS in 2010 through October. $6B increase YTD is pretty significant.

Oct 28, 2010

US vs Global. I see.

That's a big increase but its still a pittance compared to what it was in 07. Can you make the conclusion that CMBS will likely increase with the same significance into the future? I don't think so, I don't see why it would.

Do you disagree? If so, why?

man made the money, money never made the man

Oct 28, 2010

Ekatzin, thanks for sharing the sites; those were helpful :)

$6B increase is a lot esp if you translate that to the % for YoY increase. Perhaps the number will still continue to increase but we'll never see the high of 2007 again. at least not for the next couple of years. How about the property trend going forward? Will we be looking at more opportunistic vs core investing and in which property sector (commerical, aparmtnets, hotels etc)?
Anyone can share their insight?

Anyway it'll be sad if those structured finance guys become endangered.. that's where the excitement is.

Oct 29, 2010

Just to reiterate, $6B in total US CMBS issuances is a pittance once you divide that among all the CMBS underwriters. That number is pathetic; it doesn't demonstrate that CMBS demand is healthy, it actually indicates that demand is almost non-existent.

Structured finance is not where the excitement is. It's where the stupidity was.

Just trying to be realistic.

The only positive lease trends going forward in the short-term for US mkts is multi-fam (especially if GSE financing continues the way it has...but I think circumstances may change). Pretty much everything else is still fundamentally fucked (from a positive lease trend perspective). I could get into LONG discussion about trends, but I wont.

man made the money, money never made the man

Oct 30, 2010

Yep, GSE and FHA multifamily are strong, and FHA multifamily is INSANE. Talked to an FHA guy at Grandbridge last week--he thinks 2011 will be insane for FHA and then drop off some in 2012 but still stay relatively strong. He believes CMBS is starting to slowly come back to life and thinks by 2012 CMBS will start competing again in at least the multifamily world.

Just his thoughts.

Nov 1, 2010

I am jealous of you apartment guys. You have all the opportunities right now.

man made the money, money never made the man

Nov 1, 2010
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