Leaving Investment Sales for Small/New RE fund - sound worth it?

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I have a pretty cushy analyst job on a decent investment sales team, working about 40-50 hours per week with a nice boss and making about $100k a few years into my analyst stint. I do not see myself staying in IS long term since I don't want to be a broker, so I am at the point now where I am networking with clients to try and jump to the principal side.

I always assumed I would transition to a large firm and be an analyst on a large team and start from the bottom, which is totally fine with me as long as the learning experience and compensation are solid. However, I actually have an opportunity to join a new and young firm that just finished raising a pretty small fund (~$300mm). I would be in an aquisitions/asset management role and immediately in a Senior Associate/VP level position on a 4 person investment team (CIO, 2 directors, myself) and get a share of promote and be able to co-invest.

I am very intrigued by this opportunity as its seems like an exciting way to jump start my career but also pretty risky since its the first fund they've raised and the AUM isn't that high. The people seem nice and I'm sure we would all get along well working together. Any advice? Sounds like a good move or should I stick with more established "brand name" firms while gaining experience? Anything I should make sure I find out from them before accepting an offer?

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Comments (41)

Nov 12, 2018

Similar discussions live on this forum somewhere, but can't stress the importance of the team's exp enough. If the team is smart and top notch then the opp becomes that much more intriguing. It's also worth considering where we are in the cycle... A closed end fund with a non-flexible structure could end up being a burden. Investigate the details of the funds structure and the partners' track records.

On the surface it sounds like a good opportunity though

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Nov 20, 2018

Echoing the cycle and flexibility sentiment. Are they focused on one asset class? Are they seeking distressed/opportunistic deals or stabilized properties? Is someone mandating what they can and can't do?

Nov 12, 2018

Also important to fully research the strategy, 300m if the target lot size is small is very different from a main metro office value add fund at 300m.

Nov 12, 2018

Yeah that is important. 300M can be a lot or a not enough depending on what kind of JV structures they plan on filling their portfolio with.

Nov 12, 2018

The deal size will probably be about $50mm and will be spread around nationally, so the fund should be pretty diverse.

It's hard to know what the teams track record is but I'll try to find out. Its a very young group, mostly early/mid 30s MBA grads with ~10 years experience.

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Nov 12, 2018

In all seriousness you will get a chance to be involved in almost every or every aspect of at least a handful of deals that actually close over the next 2 to 5 years. I think you mentioned some kind of carry (ie free/risk free equity) as well. The worst that happens is you get great experience, probably very decent pay, good relationships outside the fund from working on deals and networking, and then no job if the fund blows up (at which point you'll still be employable). Best case you get all that but keep your job and get great pay with the carry and maybe a promotion with more carry. Obviously other stuff to think about like the points others made above but I think it's probably not a bad deal from a risk reward perspective.

Nov 13, 2018

Yes, if the fund is somewhat sophisticated. You are going to learn very valuable things. And maintain good relationship with the brokerage firm. So if it doesn't work out, you can take what you know from the buy side back to investment sales. It's very critical to know how the other side thinks regardless if you're a buyer (GP, LP) or seller.

Nov 13, 2018

Thanks all for the advice so far, very helpful.

Would your perspective change if it was actually a smaller fund, like $50-100mm? I may have been wrong on size. They told me the fund would purchase about $1B of assets which made me assume it was $300mm assuming 70% LTV, but if they are taking like a ~20% GP position in each deal then then fund might actually only be like $50-100mm.

Most Helpful
Nov 13, 2018

I wouldn't be afraid to ask them for intimate details about the firm. Not inappropriate to ask about fund size, who the LPs are, fund structure & terms (as someone mentioned above), founders track record etc. Not saying you need to share all or any of that with us, but they should understand that it's a little different that getting an offer from Starwood where all of that goes without asking. You're going to want to make sure that your investment philosophy lines up with theirs and that you believe in their thesis. You are taking a risk too, and your comp, reputation, career prospects, are going to be linked with theirs so you will want to know what you are getting in to. If you don't know the founders well, talk to other brokers in your network to get their take - if they are trying to do deals in your region or asset class, people should know them.

Generally, it's not easy to raise a first time fund, so unless half of the equity is committed by a family office that shares the principal's last name, the fact that they have raised 8-9 figures of discretionary capital is a good sign. Could be a great opportunity to get depth and breadth of experience that you wouldn't be able to in a silo at a big fund. As far as "point in the cycle," I'd caution against waiting for the right moment to make a move from a macro perspective As long as they are prudent with risk and you believe in the thesis the rest is just guess work. (Would brokerage be a much better place in a downturn?)

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Nov 13, 2018

Sorry for double post - but your last comment just made me think of something else regarding doing your DD. If they are making GP investments, understand what this is going to entail. Are you partnering with an operator as a co-GP? Or are you going to be executing the deals you invest in. This could have a big impact on the type of work that you are going to be doing at the firm so you should understand this.

Nov 13, 2018
bolo up:

Sorry for double post - but your last comment just made me think of something else regarding doing your DD. If they are making GP investments, understand what this is going to entail. Are you partnering with an operator as a co-GP? Or are you going to be executing the deals you invest in. This could have a big impact on the type of work that you are going to be doing at the firm so you should understand this.

Thanks for the input, really appreciate it.

Can you elaborate more on what you mean?

To clarify, they are the sole GP and will act as operator, they have in house construction/accounting/leasing/etc that will manage the assets. I believe that in each deal they will put up like 20% of the equity from the fund and have some pre-established LP relationships for the rest.

Nov 13, 2018

Just that your work on the GP side is going to be a lot deeper (especially from an asset management perspective, which you said this role will include). That could mean that you are meeting with brokers & tenants to lease-up your projects or architects, contractors, etc to design and build it. Not that you wouldn't be involved in leasing or redevelopment from the LP side, but your level of involvement would be a step back.

From the acquisitions side - deal structure is going to be important. As an LP you are going to have a bucket of money (or a few buckets at a big shop) that has specific risk, return and timing requirements and you are going to look for deals that fit those requirements. As a GP you might look at a variety of deals and you will need to understand your various LPs programs so you can structure the deals to fit with one or more of them. Partnership is going to be a little more nuanced, but essentially, you will have to sell them on the deal, rather than having a GP selling you on the deal.

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Nov 14, 2018

Nice, thanks. You the man.

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Nov 14, 2018

It sounds like a great opportunity where you will have plenty of deal exposure.

As mentioned previously, the partner's experience is extremely important as you will be learning directly from them.

You should definitely go for it!

Nov 16, 2018

The advice here has been great. Thanks so much everybody. Just wanted to give this a little bump in case anybody has anything else to add.

Nov 20, 2018

Sounds like a great opportunity! As long as the guys you are working with come from large institutional shops and have execution experience, you should be fine. If you respect the directors and you trust their ability, definitely an opportunity worth jumping on. You are coming on at the senior associate or VP level, you get carry and you can grow with the fund.... those are all great qualities. Good luck with the decision... you can always get back into brokerage later on if you want. Remember that acquisitions is also a sales job. You are building relationships with brokers and developers to learn about potential opportunities.

Make sure they have raised the capitol than BS you that they are in the process. You don't want to get to the firm to find out they have only raised a small portion of the funds, don't have the tools in place to help you analyze deals (and you are the one creating stuff), or you are working with incompetent people who are "bros'.... be strategic! Small shops can be great or a nightmare.

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Nov 20, 2018

Great username.

Tim & Eric Awesome Show, Great Job!

Nov 30, 2018
Edifice:

Great username.

Tim & Eric Awesome Show, Great Job!

Thanks! I work in RE and love T&E so it felt right.

Nov 29, 2018

update:

So i received more detail on the company structure. They have been around for 10+ years buying one off deals using the founders friends&family money (about $1b of total assets). The plan going forward is to try and add a fund model in addition to continuing to purchase/manage buildings from the founders F&F pool of capital. Unfortunately the initial fundraise has not actually finished yet, it is just now getting started, and the target is more in the $50mm range, but they seem pretty confident they will get it and the founder will use his own $$ to contribute too if necessary. This fund will hopefully purchase another $500mm-$1bn of assets over the next few years. They have some established LP relationships but not with big household names like BX/Carlyle.

Obviously this is not as ideal as i initially thought, but keep in mind they run very lean, so even tho the fund raise and AUM is pretty small there are not a lot of mouths to feed and the AM fees from the current portfolio will keep the lights on even if the fund isn't a huge success. The people seem great, so assuming the compensation package is decent it still sounds like at the very least its a good way to get some experience on the principal side, and could potentially be a great place to stay for the long haul. This role will technically be focused on AM + some acquisitions but will probably end up wearing a lot of different hats, and the investment mandate covers everything from core to ground up development since the F&F capital can do anything.

Any follow up suggestions would be appreciated!

@bolo up @yoruba123 @ThatGuyBalls @Red banana Wagon @REIT_Mafia @Sham Wow @REPE_Guy123 @yungman91

Nov 29, 2018

Take it unless there is another opportunity. Plus once you're in the acquisitions circle, you will get hit up for jobs in the future instead of searching for jobs.

Nov 30, 2018

Agreed. Take a risk. Live a little. Could end up being the best decision of your life and if not, you're young enough to bounce back.

My personal opinion of someone coming from a background described above would be higher than that of an IS guy, Both backgrounds are respectable and valuable, but I respect those who take calculated risk a bit more than those following the straight and narrow.

Put differently, don't be a pussy and take a leap into the unknown....

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Dec 3, 2018

Thanks for this motivation

Nov 30, 2018

If you dont have kids to feed or a wife to please, you can take the risk. Your young right now where you can take these types of risks.

Dec 1, 2018

300M can be a lot or a not enough depending on what kind of JV structures they plan on filling their portfolio with.

Dec 1, 2018

its $50mm not 300, and the JV structure will be able to purchase $500mm+ (10+ deals since they target mid market stuff)

Dec 3, 2018

300m if the target lot size is small is very different from a main metro office value add fund at 300m.

Dec 5, 2018

50M is about 150 to 200M unless these guys are leveraging like hell. I would expect them to be able to raise more than 50M if they currently manage over 1B AUM. the math isn't making much sense. end of the day it comes down to trust and ability to execute. i will ping you off line to chat in more detail about my take. if possible, ask these guys about procedures they have for asset management, acquisitions, etc and make sure it's real. nothing worse than you having to create everything from scratch because you have a few used car sales men who don't know real estate except for focus on shiny objects without understanding the drivers that would get them fucked in a recession. will ping you offline to discuss in more detail.

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Dec 5, 2018

I get the feeling it could be manage 1bn of assets as GP instead of true AUM. Take a 20% stake of that, 200m raised on a deal per deal basis now looking for a 50m fund - makes sense to me.

In any case, 50mil equity isn't a huge cheque. Comes down to belief and trust in the senior partners if you think they can raise and execute the first fund I'd take the bet on them being able to come back and raise 150-200 million next time.

Dec 5, 2018

Yes, $50mm fund as GP so they would be eventually managing $500mm-1bn, sorry for not clarifying.

Sounds like the plan is to use the $50mm fund to get their feet wet and ideally start prepping to raise a larger fund as they finish investing the first one.

Dec 12, 2018

What if the new job is a pay cut, at least initially? If I'm making like $100k now and the new job only pays like $85k, still a good move? what if the new job is also a further commute and I have to use transit instead of just walking? How do you deal with weighing all the pros and cons of leaving a comfortable job for something exciting but risky and with a pay cut?

Dec 12, 2018

I was in a very similar position to you last year. I had worked at a boutique RE firm with a very successful IS group - my all-in comp for 2017 was $170k. I got along with everyone I worked with, liked the firm's culture, but the growth opportunity wasn't there outside of being a broker.

I received an offer to join a REPE group at the associate level working on the debt side. Base was higher, but the all-in target was about 15% lower than what I was making. I thought a lot about whether I should stay with something I know and like, or take the risk with something new, and decided that taking the risk was a no-brainer.

Worst case was that the new opportunity wouldn't be what I thought at all, I wouldn't like the new environment, etc., but at the end of the day if I could make it a year through that I would have significantly improved my resume compared to staying in brokerage and could lateral out.

I've been here almost a year, and while it hasn't greatly exceeded my expectations, I'm glad to have made the switch. My all-in comp for next year will meet or exceed what I made in brokerage, and with a much higher base salary in case shit hits the fan in the markets. I've learned a lot of concepts and been deeper into the underwriting than I'd ever get in brokerage. My advice would be to take the jump.

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Dec 13, 2018

I echo that. Think in the long term. Does that money matter in the short term? At the end of the day, knowledge and network trumps all imo.

Dec 14, 2018

.

Dec 17, 2018

300M can be a lot or a not enough depending on what kind of JV structures they plan on filling their portfolio with.

Dec 17, 2018
Propertyzar:

300M can be a lot or a not enough depending on what kind of JV structures they plan on filling their portfolio with.

@AndyLouis looks like @Propertyzar is a bot

Dec 18, 2018

At least do your homework before calling out the mods. He just accidentally posted similar comments twice

Fuckin my way thru nyc one chick at a time

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Dec 18, 2018
EliteStudent11:

At least do your homework before calling out the mods. He just accidentally posted similar comments twice

No he's obviously a bot

Jan 2, 2019

I took the offer (and didn't have to take a pay cut). I am still a bit nervous about the change but excited for the new adventure ahead. Thank you all for the advice and happy new year!

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Jan 3, 2019
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Jan 3, 2019