Q&A: Commercial Real Estate

I've done a few informational interviews in the past with recent college grads and friends of friends that want to know the commercial real estate world so hopefully I'll be able to answer anything that comes up.

My background:

I'll keep my background brief. Economics major with a decent GPA while playing collegiate rugby. I, like many others, graduated into the bottom of a down cycle but I've been doubling my comp with every jump. 3 years at a regional boutique real estate investment and private equity shop as an analyst. This firm is backed by a wealthy family office so I saw a ton of deals including operating businesses, value-add investments, opportunity funds, international marinas, huge master planned communities, commercial development and venture capital. 2 years at a multi-national land investment group that used securitized offerings. I oversaw multiple regions, backwater farm land, home builder communities, and industrial land development. 3 years currently at a national commercial developer and investment firm that focuses on office and healthcare opportunities. I have a few roles here but focus on acquisitions, capital markets, investment structuring, and project management.

Ask me anything

I'm happy to answer pretty much anything. Give my take on the market cycle, compensation, why deals die, creative wins, how to get into real estate, what and who are time wasters, CRE Tech from a user perspective, or anything else that sounds interesting for the community.

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Comments (25)

May 14, 2018 - 6:55pm

Real estate was in the back of my mind throughout college due to working on some historic renovation work with my father and a family friend CPA that owns a small portfolio of commercial offices and multifamily. After graduating I literally applied to the full spectrum of jobs that I had connections for - San Francisco Hedge funds, Agricultural Economist, and Financial Analyst for a video game development company, to name just a few. I knew I wanted to work within the financial industry but fell into the real estate world due to a nuance on my resume. I had operated a retail christmas tree lot in college for family and one of the principals also had a background in commercial agriculture.
It's funny how a small detail can set you apart. Fit has been a huge benefit for me throughout my career.

May 14, 2018 - 7:34pm

It was through my network. I was in a position within a workout team to help return investment and bring a glimpse of reality to what the prior group purchased with 3-5 year hold expectations. The assets were closer to 15+ year holds. My team was great and the people that I worked with were awesome but the company was not interested in hearing what we were saying. I put out the feelers that I was looking to move to an active developer and made the transition. Within 12 months the company I left did a huge reorganization.

May 14, 2018 - 9:51pm

Working for different firms you've probably seen wildly different metrics used for go/no-go decisions on deals. Which ones do you think were the most useful? Were you ever in a position to encourage the firm to go for a deal that wasn't something that they would typically look at, based on the way they usually ran their numbers?

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May 15, 2018 - 11:48am

Go/No go is funny because it's all a gut feeling based on a good story for the primary decision makers. I've primarily used an IRR based hurdle for deal feasibility. IRR unfortunately means jack until you have a story that backs it up. How quick you'll lease the building up to stabilization, how fast you'll sell out of finished lots to home builders and for what price, are we in the part of a cycle where they'll buy platted lots instead of finished lots, how much cap ex did you have in the deal to support those massive rent bumps, etc.

I think the metric that makes the most sense and is most useful is IRR but the story of the deal with realistic underwriting makes it much easier to move the needle towards Go.

May 19, 2018 - 11:29am

Getting to go/no-go is a process that begins with establishing some clarity around where we want to go, how, and when we want to get there. What needs are we trying to solve for in a portfolio? What parameters are we bound by in our agreements with our sources of capital?

I have a hard time pointing to "best," without asking "best for whom?" If we're hunting stabilized low-yield cash flow with a long hold time, the answer will look different than if we're hunting for big pops in equity in 12 months.

Determining what a firm will look at and how they run their numbers is often a function of who they are serving. The best opportunistic deal could be completely off-limits to an organization beholden to pensioners that demand stabilized low yield cash flow.

Numbers don't tell the whole story. Good operators can turn bad deals into good ones. Bad operators can turn good deals into bad ones. No metric makes sense if the people flying the plane can't land it.

Market conditions influence the go/no-go criteria as well. A no-go in February might become a go in April when an announcement is made that General Motors is moving a plant into the area.

Go/no-go criteria are best agreed upon well before the hunting and analysis begin.

As a bonus for those interested in making more money and improving opportunities over time: it's not a bad idea to cultivate relationships with people who serve other types of clients. What may not work for the clients you serve might net a little extra income or goodwill through referral to someone that serves that type of client. Handing off a good fit show's you're aware of the bigger picture and may even return deal flow or job offers to you when your new friends decide to return the favor.

May 14, 2018 - 11:04pm

Thanks for doing this. I got 2 questions:

1: As someone with experience in private accounting and healthcare lending (around 3 years post UG), what are some ways to transition into CRE, particularly acquisitions?

2: In terms of CRE tech, do you see firms starting to use GIS, or is that still mostly in the domain of planners/gov/research?

Quant (ˈkwänt) n: An expert, someone who knows more and more about less and less until they know everything about nothing.

May 15, 2018 - 11:59am
  1. I'd say the best way to transition is to get involved with an industry organization like ULI or NAIOP to hear about the jobs that no one is listing; be skilled enough to prove your chops around a financial model so people can trust you to run the numbers, then just start telling everyone what you are looking for specifically. "I'm looking to be at a REIT/Developer/Investment group/etc. do you need an analyst/another analyst if you're expanding the team."

  2. I have only seen GIS used for a glorified google maps that had asset level data overlayed on it called Land Master. I think it's still or will always be a government tool and less private sector because it's just not really needed. I'd guess the retail guys and corporate services use it more with site selection and employment metrics for placement. I think once AI is incorporated with GIS we'll see some better tools come out because right now it feels like just a bunch of interesting but challenging to use data.

May 15, 2018 - 12:03pm

You say fall flat, but what timeline are you giving yourself? I'd say a masters in real estate is helpful if you want to transition because you get into the circles and start to know the players. If you continue to network you'll just continue to be more and more experienced without the track record in RE.
What type of consulting though? I know a few firms that do both consulting and RE so you could even try to join a group like that and transition internally. Point B would be one example of such a firm.

May 15, 2018 - 12:08pm

With my current knowledge i'd be comfortable doing a development but I'd lean heavily on my mentors and peers when the inevitable challenge is presented. There is so many moving parts with development deals.

I've done value-add investment deals on my own because i'm comfortable with the numbers, understand the market, and know how to be an asset and project manager. When it's your own cash, every detail matters.

May 15, 2018 - 5:11pm

Sure. The most current deal that I just sold was a smaller multi family value add. It was partially a mix of deferred maintenance and improvements to raise rents and sell it. For smaller deals that I'm able to get into without outside investors, I want to get in, improve the property enough to warrant rent bumps to where market is without over improving, then sell it to get a 1.5-2x ERM. I try to do at least one of these a year because the cashflow just isn't worth my time to hold it longer term unless it's a property that has something cool about it.
If I get into a development it'll be either in unique creative office, healthcare or 5+ unit multifamily. For these, since there is no existing cashflow, I'll use outside investors so I'm not tapped out.

May 18, 2018 - 12:32pm

I'm going to ask some pretty specific questions about those side deals, so feel free to answer with as much / little detail as you feel comfortable with:

A) At what point in your career (i.e. years after graduating UG or MBA/MSRE) were you when you did your first investor deal? And your first non-investor deal?

B) How much were you making more or less and how much of your own money did the projects cost and sell for upon completion? Were they in a primary, secondary, urban, suburban or rural area?

C) Did you meet the connections for those projects in college or after graduating, or were they friends and family?

D) Can you walk us through the structure of one of these deals, from sourcing to sale?

Most Helpful
May 18, 2018 - 6:47pm

A) I started looking while I was still with my first boutique group which helped me understand the market at a different level to what the firm looked at. I continued looking and learning until I got into my first deal about 4-5 years after getting into the industry.

B) Secondary market with my own cash. I put in about 50k and was making around 80k at the time. Most of the time an IRR is much less important because the dollar amount just isn't worth your time even though it met a 15% threshold. "Wow 15% IRR but it's only 10k pretax annual with a ton of risk and unknowns"

C) Connections are all post college. Most of the people I met in college are spread out across the US now either going back to where they grew up or a job took them into a different area.

D) This is more of a fun question. So a side deal is typically anywhere from a little to a lot different from what your firm looks at due to scale/non-compete/and all sorts of reasons. I primarily do office/healthcare yet a lot of side deals are in multifamily because the cashflow and financing. Sourcing is similar but using different connections or just on my own trying to hunt offmarket. Once you find the deal, it's a matter of looking at your bank account and seeing how much you can put in as either the entire amount needed or as the sponsor. That's why it's important to always drop it into conversations that you do deals that use a few investors before you need them. The operation part is pretty much the same except there are no meetings to attend to discuss this or that so you're way more nimble but you better be making the right choices. I'll try to ping a friend or two on anything major but it's all based on your own skillset. The sale is pretty much the same. While there are nuances for larger more complex deals, but the path is pretty much the same regardless. Most larger deals can only be done by larger companies because of financing and dealflow.

May 15, 2018 - 11:29pm

What's the difference between what an appraiser does, and the valuation work you do? Are they the same? Why would you hire an appraiser when you could do it yourself?

May 16, 2018 - 2:02pm

Appraisers are mostly just for the bank to sign off on a 3rd party value that corresponds to the value you've come up with. When we look at deals, I'm going to come up with a price that I want to pay based on a ton of current and future assumptions and that is my "value" that I'm placing on the asset. Appraisers look at past and current data to use either cost, income, or comps to come up with a value. A bank will generally require a 3rd party appraiser so it's just another cost you need to add to your closing costs.

May 16, 2018 - 12:09am

I always wondered what firms like CBRE do? Where do they fit in the whole real estate execution process?

May 16, 2018 - 2:04pm

CBRE is a brokerage firm primarily and also have RE services such a project management, property management, brokerage, capital markets, corporate services, and I'm probably missing some. We use CB for their leasing and sales brokers and that's where I create relationships so they bring tenants to our buildings and deals to us.

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