Pick One: Capital Partner vs. Operating/Development Partner

Recently in another thread I posed a few questions regarding which of these entities you'd like to work for. I figured I'd start it's own thread to get some answers because this could be a good thread to help guide people in the right direction.

By Capital Partner I mean investor/REIT/REPE/pension advisor usually comprising 80-95% of the equity (varies)

By Operating/Development Partner, I mean firms like developers local to specific markets, and companies like Hines, JBG, Tishman, Related, etc. who all usually bring in a bigger investor.

A few differences I have noticed:

Capital Partners - More of an investment management role. more finance/modeling intensive than anything else. You can get really involved in the real estate end but typically you aren't the managing partner. So you might approve major leases, capital projects, budgets and the like but you aren't really running the show. You also do 100% equity deals and hire external property management, but you are still not part of the real day to day development/operating decisions. It seems like they pay higher salary + bonus on the lower level, but are more structured as you climb the ranks.

Operating/Development Partner - More of a real estate role. In a development setting, you are the quarterback. You source the deal, arrange financing (including finding the equity partner and sourcing debt with the equity partner), find the architects, GC, get the permitting, marketing, pre-lease/lease the building and generally "develop" the entire project from inception to completion. This is more about the bricks & mortars and less about spreadsheets (however that is a part of it as well). For comp, seems like these shops tend to be pretty lean and don't pay too well at the bottom. However, at some of the higher ranks it seems like you might get a better payoff at the end due to the promote structure of the deal. I would assume that if your company rakes in more on your deal, you would get a larger commensurate bonus. and it is also more likely to have personal equity in the deal at the senior management levels and therefore you stand to make a lot more if it is successful (and vice versa).

Feel free to add/edit any of these job functions an answer any of the following questions:

1. Which type of firm would you prefer to work?
2. Is it likely to switch between the two different fields? There is tons of overlap and many relationships between the two so it seems natural. However...
3. Which direction is a switcher most likely to go? Is it easier to start out one way or the other?

Thanks guys, look forward to your insights.

Comments (16)

Oct 25, 2013 - 6:34pm

Not in the industry (trying to break in...), but the development side seems really interesting IF it's at a good shop. A few people have told me that an analyst gig at a mom & pop development shop is probably one of the best all-around RE learning experiences, but the pay is almost always awful at the junior level. Seems hit or miss too, depending on the firm.

I interviewed with a regional office at one of Tishman/Hines/Related and was impressed by the people I met. The team was lean, autonomous, and the impression I got was that they were killing it from the promoted interest. I imagine that's probably the best entry-level development experience you could hope for - big brand, institutional backing, very hands-on but still get to do a lot of modeling and financial analysis. God, wish I got that job haha

Oct 25, 2013 - 2:01pm

Am in an acquisitions / asset management role at a local development shop - would agree with the guy above - our shop falls in the "mom and pop" category and I can tell you I have learned more about the actual real estate business in the past two years than I ever could have by going to work for a more institutional capital partner.

If CRE is your long term goal I would recommend starting out with a development shop. Your first year all you want to do is absorb as much information as possible, and working for a smaller developer allows you to gain access to all different aspects of the industry - you will be doing a broad spectrum of work from underwriting cash flows to capital structures, developing relationships with the local brokers, learning how to interact with your leasing agents and property managers, all while getting exposure to what goes in to a deal from the institutional side as you will JV with them on your deals.

You don't want to be stuck in a box, doing the same analysis every day and hoping to get bumped to the next level of the corporate latter. Not in real estate, anyway. The more you know about how to run and operate a building the better off you will be. Which is why transitioning to the institutional capital is much smoother if you are coming from a development shop. You will have a full skill set that a lot of guys in those larger capital partner firms do not have.

Oct 25, 2013 - 9:03pm

You make a great case for starting out in development. I'm gonna play devil's advocate for a minute though.

Getting a job and succeeding at a developer seems to be predicated on building great relationships and of course having the right drive/mentality. Getting an entry level job at a lot of the big capital partners is usually a similar process to many other front office finance roles: target school, strong gpa, and networking/internships.

This makes me think that starting out at a capital partner affords you the opportunity to progress in that role (where it seems like you get a higher and more stable salary, especially in the beginning) and also gives you better visibility to a broader array of development shops from the JVs you do with them. Whereas starting at a developer might give you some more obstacles when trying to transfer to an investor. Especially if you haven't developed a strong financial/modeling acumen (however there are obviously caveats to that, like working at a major developer like I mentioned in the OP). An added bonus is that they have built relationships at their investor company and know how they think. And it seems like investors would like to invest with a company who has a former one of their kind on the team.

Plus, capital partners usually invest over an array of geographical areas. While you won't get as in depth, you will be able to experience more asset types and markets and eventually maybe choose one to focus on in a development capacity.

Oct 27, 2013 - 9:07pm

Optimally, you would want to gain property level experience working for an operating partner, before you make the step to working for a capital partner. It pays off to understand CRE through property level management before you try to understand the bigger picture.

Oct 28, 2013 - 3:26pm

Im on the sell and agree with Neal. IMO it would be easier for someone who worked at Colony/Starwood/Carlyle/etc to move to a developer than vise versa (just my opinion from what I have seen, but it definitely goes both ways). And plus a reduction in hours seems more likely than an increase (ex: if moving from a developer to REPE)

Nov 22, 2013 - 11:37am

I used to work for one of the developers you mentioned (not for that long though) and now I work for a major capital provider... The developer side IS indeed very interesting, but the pay is painfully low versus the other side at junior levels.. it's a huge amount of difference (more than double if you're talking about say Carlyle/Blackstone REPE vs. Related/Tishman development).You're right though, once you get high up you can get very rich via carry etc. at the developers. Another thing is you inarguably know a huge amount after working at a developer for a long period of time, of even just say 5-7 years... I personally know that when I start my own fund one day, I"m going to hire maybe one other senior finance/investments guy like myself, and the rest of the senior staff will be development background... they have a lot of critical expertise. In the end only one (or a small group) makes the decision on investments, but you need a lot of people managing execution risks and assessing them for you so you can make the risk/return judgement call. Another thing I'll tell you, if you're working at a lesser known fund (or even a major fund in some instances), developers will be more willing to partner with you on deals if you have solid development guys on staff and understand the processes. They don't want to have someone asking stupid questions at board meetings and not knowing what's going on. If your team can really add value to their development process, that's special/rare and they'll be keen to partner.

(keep in mind, my experience is largely in an Asia context when it's mostly developments you're investing in)

Nov 29, 2013 - 10:35am

I think it's interesting to observe that most of the folks here seem to be advocating their own career path, and I'm no different, as I am at a private equity fund on the capital side and would recommend this path. I agree with all the benefits of working at an operator that folks have mentioned above. However, KMZZ is 100% right that it is easier to move from a respected fund manager to a local operator than the other way around. I receive many resumes and inquiries from analysts/associates at operator-type firms, and I just don't see us hiring from that background, whereas I know I could get a job with a number of operating partners.

I think one's goal as a junior person in the first 3-5 years of a career in real estate investing should be to (1) refine a strong technical skillset, (2) maximize breadth and evaluate as many different investment opportunities as possible, and (3) establish pedigree. This is exactly what you do as an analyst/associate at a large fund. Later in your career, you can (and probably should) trade breadth for specificity, build market knowledge around technical skills, and leverage national pedigree to access more unique local opportunities.

Nov 30, 2013 - 9:03pm

I have to agree with RE-IB-NY. If you are early in your career you probably want to be on the capital side because a) it pays better b) the experience is more analytic c) you learn what the capital side wants to see from it's operators. Eventually, if you want to make real money you have to be on the operator side. They don't report to BS investment committees and take most of the upside with usually not much downside risk.

One caveat is that it can be hard to eventually make that jump to operator. Usually it involves a lot of financial risk, a general salary cut, but the end game (ownership & promotes) can be a beautiful thing.

Feb 10, 2014 - 1:54pm

1. capital
2. yes
3. Easier move from LP to GP

I've seen both sides. I grew up working for my dad who is a "boutique" developer ($15-50mm deals) and I work in a hybrid role at a larger firm 1) Allocating capital to JV's and playing more of LP/finance role 2) Manage ground up developments in-house from land acquisition to certificate of occupancy

I think the major take a ways are:

1) Compensation varies dramatically-The majority of medium/smaller funds will pay significantly more than your average mom/pop shop, but its closer to par when you put them up against the name brand developers. Mega-funds tend to pay way more than smaller funds and development shops

2) Knowledge Gained

Capital deployment (LP) requires you to look at significantly more deals. Being able to model complex deal structures, work across property types, and performing market research in different geographic is vital. Speed is the name of the game b/c everyone and their mom "has the best deal." You spend a lot of time on calls with guys who are proposing deals and your job is to tear apart their assumptions (rental rates, hard costs, soft costs, absorption periods, returns, etc…).

In-house development (GP) you will learn much more about the actual development process ranging from the initial underwriting, lots of market research, entitlements, zoning, researching incentives (TIFFS's, abatements, tax credits, are huge), architecture & design, construction management is huge, and negotiating/problem solving all day every day.

3) Relationships- At a fund you build relationships with other capital providers and developers. At a development firm you build relationships with GC's, architects, engineers, and other brick and mortar professionals. I've noticed developers spend a large deal of energy trying to attain capital, so if you work at a fund build relationships with your banks/other equity players

4) Short Term Exit Options - Assuming you studied finance, have legit modeling skills, are smart, and are a bull shitter– you should be able to move back and forth freely (1-4 yrs). Once you get past the associate level things change dramatically. If you make VP at a fund and decide you want to be a developer, good luck, you probably don't know shit about architecture, construction, or managing dozens of idiots on a daily basis. If you become a development manager and decide you want to work at a capital partner, you could probably move to a medium sized fund if they invest in developments but you will be in the office much more and work longer hours.

5) Long Term Goals- In development you obviously hope to develop your own deals with an equity stake and get a strong back end promote. In REPE you ride the relatively safe corporate latter up and hope to collect big bonuses, or eventually start your own fund.

  • 1
Feb 10, 2014 - 1:14pm

Great thread, especially for people unfamiliar with GP / LP deal structure. There are +'s and -'s to each, ultimately you want to do what's best for your long term goal in real estate. I did 2 years at a fund shop that did not (traditionally) JV with other firms. I am now at a boutique developer / operator and everything stated above is accurate. One thing to note, not all pay on the GP side for analysts / associates is "low". On a per hour / work life balance basis, pay is arguably better.

Feb 12, 2014 - 11:40pm

I work for one of the big developers (Related/Tishman/Hines) on the REIT side.

Here's the path that I see people take in my office.

Of all the analysts and associates, 75% will stay put, 5% will move to the development side of the business and/or capital markets, the remainding 20% that have ibanking background will move to a biggest investment fund (some real estate relalted and some not real estate releated).

Feb 21, 2021 - 3:23pm

Worked on the GP/Operating Partner side before and now with a Institutional Capital Partner.

Love the latter and enjoy the work more probably because I enjoy the finance side of things more so than the granular level nitty gritty stuff (capex, ops, etc.). That being said, I think it is best to start with a GP first.

Feb 21, 2021 - 4:18pm


What aspects of the GP side do you think are more beneficial than the lp side/ how hard was the transition to lp side after being on gp side?

On the GP side, you are running the show on everything and presenting your Partners different projects, scenarios (recaps, refis, etc.). Even though I am on the LP side now, we are still very much engaged in all processes.

The transition isn't as complicated as people make it here. If you are at a reputable shop on either side it will not be difficult but it depends entirely on the LP. If they are a more "relaxed" LP and look at things more macro level and higher level finance then it could be more difficult as those roles could be targeted by your IB, Capital Markets type guys.

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