LMM and MM in Real Estate

Got an offer today for an internship in NYC (felt really good because it's my birthday as well haha) at a MM investment sales firm, really good place from what I gathered. And Unlike some I actually find this area fun, plus it's where I got an offer. But do understand that working for an institutional shop has its benefits. My questions here are, what do you guys think of this part of real estate? I can see myself working in this area in the future but would like to hear pros/cons.

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Comments (6)

Apr 3, 2021 - 9:22am

Honestly, real estate is real estate is real estate. I've worked the middle market and worked the institutional market. The MM is generally perceived as riskier due to the players not all being professional investors. Therefore you may see UHNW doctors, for instance, buy property and go belly up. So you'll have the ability to make a killing turning it around. It's a good area to play. Many deals in the MM also happen faster and are more likely for a broker to take a deal to their 5 best buyers and say you have 24 hours to tell me if you want this. Whereas, in the institutional market, deals are pretty much always fully marketed. 
I found that the quality of service provider was lower in the middle market (appraisers, property manager, broker) and that many brokers didn't have great intel. Unfortunately, as the fees can be less, it reflects in the output from the providers. I always thought there was an opportunity for someone to take an institutional mindset to brokerage in this space. Instead of putting together a 5 page flyer, put together a full OM and actually have financials and rents rolls etc. all the docs someone will want to evaluate a deal. I found many in the MM just didn't have good information from their sellers. Part of this may be because the sellers were not as sophisticated and didn't have good record keeping. 
Although fees in the MM are smaller, this is where most transactions take place. So the volume is significantly higher. So the opportunity to make more in fees exists in some way - it's just a matter of capturing this which is extremely difficult. It's why a firm like Marcus and Millichap can make so much money. People hate on the firm, but they've done an amazing job in the MM and private capital space. This is where the most transactions occur. 

Apr 3, 2021 - 10:47am

This particular firm doesn't seem to take that low quality approach though, they do take a more institutional approach compared to some of the firms in the space. Really good training programs, and selective about who they hire, also lots of room to grow with the firm which is a big plus. And aren't fees higher in the MM at least the percentage amount, or are you taking about the actual dollar amount? 

Apr 3, 2021 - 11:07am

That's awesome to hear. I am talking actual dollar amount. A $100 MM deal will probably sell with a .50% fee which is $500,000. A $10 MM deal may have a 2% fee which is $200,000. So the institutional team can do 1 deal to make more money while the middle market team would need to do 2.5 deals to make the same money. I don't know if 2% is an accurate fee, but it illustrates the point. Of course, volume is significantly higher in the middle market space, so while the institutional team may do 10 deals in one year, the middle market team could do 20. However, this is highly variable - the institutional team could do 20 as well - it just depends on the market and team. There are just more transactions in the middle market space, so more ability to win more business. 

Doing the math on the above, with the fees I referenced, the institutional team arguable did half the work and generated $5MM in fees while the middle market team did $4MM. Both fantastic amounts and not many teams can do this much in fees. This is just for illustrative purposes. Now, if you look at the teams which are "machines" in the middle market like New York Multifamily. I don't know what they actually do in a year, but if the numbers on their website are real in regards to volume, I imagine they are absolutely raking it in and make much much much more than the run of the mill institutional team. 

Can any middle market brokers comment on fees for selling assets from $10MM-30MM?

Most Helpful
Apr 3, 2021 - 6:32pm


 And Unlike some I actually find this area fun, plus it's where I got an offer. 

Congrats on the offer!! WSO world is very fixated on the "institutional" world (with too much hero worship of firms like BX/SW....). Based on the quote above, I'm not sure what else to say other than take the internship and have fun. 

Despite what others may say.... you can still apply and have a reasonable shot (all else equal) at institutional gigs. In fact, internships like this help and def enhance the resume. So, have fun and then hunt for any/all jobs you want later on! 

To your question.... (I've been in both worlds, started in what could be called MM, now very much institutional at large scale developer)

The easiest way I'd surmise the difference is essentially "big business/corporate" vs "small business/entrepreneurials". More "colorful" people in MM, and you chase A LOT of deals that will totally blow up or the clients will turn out to be fakes. If you can sustain all that, and be part of the "bullshit" you can make major bucks. A lot more fail-outs and flame-outs.... and this is true of the brokers and the clients! Just the nature of the world.

The institutional world, is well... more stable/linear. Your earnings, the deals, the world in general, will just flow with less variance. You might work 80+ hrs, but you will always work 80+ hrs, if you at that shop. You have to manage a "corporate" career, deal with HR policies, and otherwise fight up to not just be a number. By contrast, MM will let you get direct shot at being a "player", and you can even live the life of a player early on (the actual earnings however... they may lag a bit lol). 

My personal belief is some people will do better in MM than institutional, and others the reverse. This is personal (and can change with time/age/growth), and figuring this out is part of the fun. IMHO, a lot of people on WSO and in UG in general, are fixated on "big name" firms but really have no great understanding why. No biggie if you explore the world (like you are!!), but could be really dumb if you foreclose other opportunities at risk of "pigeonholing". So, until you really see both sides, hard to judge to be honest.  

Apr 3, 2021 - 6:53pm

Thanks for the reply. I definitely do want to see both sides. But like I said, I just think the "culture" of the MM world is fun and this firm, in particular, seems like an awesome place to be, not a revolving door like some other firms. The earning potential early on is also something that draws me to it, if I'm being totally honest. Going to take the internship and it's good to hear that you can make the move to a larger, more institutional firm later on that was something I was a bit concerned about tbh.

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