I've had a couple of people PM me about what I do in REIT acquisitions and what the deal process looks like. I figured I'd post this for people's future reference. I work at a fairly large REIT (>$10billion AUM) so this process may be different for smaller shops. We also exclusively focus on CRE:
This is how the process usually works (very simplified):
1) A Managing Director receives an OM from a broker. The MD will usually do the first glance through the OM and will make a judgement call whether to do a further analysis or not. Almost 95% of the time they will know by looking at the OM for 10min and talking with the broker whether the deal is viable or not. Assuming the deal is viable then...
2) MD gives me the OM, the lease (which is usually included with the OM), and the broker's Argus model. It is then up to me to comb through the OM, lease, and any other documents provided. I'll spend an 30-60min going through these materials. With the items I learned from the OM/lease, I'll update the broker's Argus model. The broker's Argus is always much rosier than it should be. As I'm updating the Argus, I'll talk to our debt guy to get a quote on debt and then input the debt assumptions into Argus. Also during this time, I'll reach out to the broker if I have any questions about their assumptions or to learn more about the real estate or market.
3) After updating the Argus, I'll dump the cash flow into our firm's cash flow model. From here I'll figure out the, cap rate, accretion/dilution, etc. I'll also run some sensitivity analyses.
4) Next I'll research the top tenants to figure out their businesses and read through their financials (assuming they are a public company).
5) With a thorough knowledge of the real estate, lease, model, tenants, and market, I'll then go back to the MD and present my findings. I will make a recommendation whether or not I think we should proceed. The MD will usually either kill the deal or say we should proceed. At most places, only 1 out of 5 (or more) deals goes to the next step. If it does, the MD may have me tighten up the model, change assumptions, etc.
6) MD submits a Letter of Intent (LOI) to the broker. Usually there are two rounds of bidding: the initial call for offers and the best and final. With all the offers in hand, the seller will select 2-3 to the best and final (these are not always the highest bidder).
7) Once you've made it to this point, the MD will have a good idea of what is our max bid and what bid would get us the deal. Brokers will be pretty honest with you if you have a good relationship with them. After you up your bid, you submit the best and final offer. Assuming you win, the not as exciting part starts....
8) Most deals have a 30-45 day due diligence window and a 10 day closing window. During those 30 days you will be getting the purchase and sale agreement (PSA) figured out, appraisals sent off, property condition reports (if not done during the bidding), zoning, etc. etc. Every firm will have their list of items. At larger firms a special due diligence team will handle this and the acquisitions people will be on the sideline for support. At smaller shops, this will be entirely up to you and your deal team.
During stages 1-7, you will have investment committee meetings/presentations and endless conversations with your deal team, broker, lawyer, etc. Your job is to crunch the numbers and understand the details of the deal so the MD can make a more informed decision. Usually I'll be working on 3+ deals at a time and each deal will be at a different stage.
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