Q&A With a Buy Side Analyst at Real Estate Investment & Development Firm

Hi Everyone,

I read a lot of these forums a couple years back and they helped considerably in terms of realistic expectations about day to day life as an analyst. I was hoping to return the favor by answering a few questions (if anyone has any) about life as an analyst at a buy side real estate firm.

A little background: I work for a privately owned real estate investment and development firm. We have approximately 5.5 billion in assets. Our main asset classes (should be no surprise) are industrial, multi-family, and office (first tier city and suburban).

I've worked here for a year. I'm a part of a team of 4 people who handle analysis and due diligence of every acquisition, refinance and disposition. To give you a sense of our flow in the past 4 months we've closed on approximately 200 million in refinancing, 150 million in acquisitions and 100 million in dispositions. I've been fortunate enough to be in a position where I see a ton of deal flow.

But really I'm hoping I can give back to the community and answer any questions you may have as I know how hard it is do find info on life in real estate when the internet (not just WSO) is filled with 100x more info about IB.

 
Best Response
Jeezy:

Whats your background? Is there a typical background for the analysts at your firm?

My background is what you would call non-traditional. I came from a non target school and spent two years doing leasing brokerage in NYC at a CBRE/JLL/CW. After about a year doing that I realized leasing brokerage was not for me and focused my efforts over the next year on continuing to do deals as a source of connections. I was lucky enough to apply for a position at my current job where the managing director had a relationship with a real estate family I had done two decent deals with. I used them as a name drop / defacto reference.

Typical background is tough to answer since my department is so small and everyone has been here for so long (besides me).

 

Thx for posting. Just looking for some brief insight here to these questions:

  • W/ $5.5B AUM, are we talking maybe 20MM SF? Did your firm make it on this year's PERE 50?
  • What % of your firm's deals are development vs. acquisitions?
  • What's the process like for your position in dispositions? And do you guys usually hire a broker like Eastdil to market the properties?
  • Any REPE shops in SF you'd recommend looking into for comp, lifestyle, etc? w/ 1-2yr experience
 
kmzz:

Thx for posting. Just looking for some brief insight here to these questions:

- W/ $5.5B AUM, are we talking maybe 20MM SF? Did your firm make it on this year's PERE 50?
- What % of your firm's deals are development vs. acquisitions?
- What's the process like for your position in dispositions? And do you guys usually hire a broker like Eastdil to market the properties?
- Any REPE shops in SF you'd recommend looking into for comp, lifestyle, etc? w/ 1-2yr experience

1) We have approx. 38MM SF across the portfolio. We are not on the PERE list, we don’t invest other people’s money. It’s all "house" money.

2) The deals I listed don’t include development. We are currently building two multi-family complexes. One is 600 units the other is 400. Development vs. acquisition changes depending on a lot of variables. Right now we are lowering our exposure to suburban office so with those sales we have 1031 exchange money to get rid of so acquisitions are up because you can recognize that exchange easier and quicker. We are also upping our exposure to multi-family (so is everyone else), right now is cheaper to build multi-family (even with tough construction financing) than buy it since everyone is fighting over the same asset class. So to answer your question its shifts depending on the opportunity.

3) We rarely use a broker for industrials but everything else we use brokers for dispositions. We use CBRE/Colliers more than say Eastdil. Just the nature of the relationships with certain brokers though.

4) Sorry I'm not very familiar with San Fran PERE firms.

 

How prestigious are your coworkers (FO)? I'm under the impression REPE isn't nearly as pretentious as traditional PE (in terms of caring more about "how" you did, versus "where" you did it). Would you tend to agree? Also, any thoughts on CFA in REPE?

 
FrankD'anconia:

How prestigious are your coworkers (FO)? I'm under the impression REPE isn't nearly as pretentious as traditional PE (in terms of caring more about "how" you did, versus "where" you did it). Would you tend to agree? Also, any thoughts on CFA in REPE?

I would think of it on a curve. My coworkers last job have all been what I would call pretty prestigious (RIETs, large development or AM firms). But their first job(s) in the industry are pretty diverse (small shops, brokerage, RE accounting for big 4 to name a few). I think its much more important to show you know how to "do the dance" and have someone be able to back you up with a potential employer to say "Yeah, we did that deal, it was a bitch and he/she came up with a good work out." I know more people who got PERE jobs connecting with people involved in a deal than applying with a name brand resume. Most PERE firms are not hiring in bulk and firing those that don’t work out. One or two people come on a year even in some of the largest shops so it’s more about finding that connection and having someone back up your deal experience (even if that experience is being a baller at due diligence).

I personally would stay away from the CFA...BTH even the hardest math and finance in PERE (even debt related funds) is not that difficult. But who knows it may help to get a job at a BlackRock if you come from a background where your access to deals is low (RE accounting for example).

 

I'm about to enter a FT position as a buy-side analyst, not with real estate though, for boutique firm in Europe with roughly 6B Euros AUM. What can an entry level analyst be expected to in said firm? Of all the things I've talked about with the company, they have been the murkiest on what my actual role will be.

"Yes. Money has been a little bit tight lately, but at the end of my life, when I'm sitting on my yacht, am I gonna be thinking about how much money I have? No. I'm gonna be thinking about how many friends I have and my children and my comedy albums."
 

Thanks a lot for the thread, these are always helpful. I'm a college senior myself.

You said your firm is all "house" money, but from your experience in the industry do you know if typical REPE firms charge the regular 2 & 20% like the rest of vanilla PE firms?

Also, is the line between Private Equity and Real Estate Investing so thin that flat out "development" can comfortably be considered REPE?

 
GorillaSachs:

Thanks a lot for the thread, these are always helpful. I'm a college senior myself.

You said your firm is all "house" money, but from your experience in the industry do you know if typical REPE firms charge the regular 2 & 20% like the rest of vanilla PE firms?

Also, is the line between Private Equity and Real Estate Investing so thin that flat out "development" can comfortably be considered REPE?

I'm not quite sure what the typical fund charges. I have a buddy at AREA and I know they use 80/20 for carried interest but their management fees have dropped to below 1% on committed capital and ~1.5% on invested. But I'm not an expert on this. I think across the board PE fees are kind of up in the air.

PERE is just a label. I would take a guess that there is far more money behind RE investment firms that play with family money or closely held partnerships that accomplish the same thing that the PERE firms you are thinking of do (i.e. highly levered, value add projects). You can call anything PERE if you want, real estate is private equity in itself anyways. You end up just arguing semantics of the name. The major factor is where to the fund come from? The second question is Does it matter either way if it’s the same investment strategy?

I hope that made some sort of sense. The second question is just arguing the meaning of a name.

 
kmzz:

Has your buddy said anything about what's going to go on at AREA since the acquisition by Ares?

Nice! I like to see people on here up to date with current events! From what I understand is that he has a spot as the funds he's working with are still active. Beyond that I'm not sure whats happening with the bulk of AREA.

I recently read that the Macks are spinning off a fund from AREA as a part of the deal. So maybe they'll pick up some personel from AREA.

 

I'm currently an analyst at one of the largest CRE lenders in the country and am looking to transition to the equity side in the near term. My search has been mostly focused on REPE firms thus far but would consider going to a buy-side firm like yours as well. What are your thoughts on coming from a debt background? Are any of your coworkers former bankers?

 
hopefulbanker99:

I'm currently an analyst at one of the largest CRE lenders in the country and am looking to transition to the equity side in the near term. My search has been mostly focused on REPE firms thus far but would consider going to a buy-side firm like yours as well. What are your thoughts on coming from a debt background? Are any of your coworkers former bankers?

No former bankers in my firm. The skills that you will want to emphasize will depend on how close to the "bricks" you want to get. If you want to go towards value add and development firms (very close to the bricks) you are at a bit of disadvantage. There are not many bankers there. You will want to emphasize your due diligence and modeling skills and come up with a way to talk about real estate at an asset level (i.e. why is building X potentially worth more than building Y even though they are across the street from each other and throw off the same cash flows) brokerage helped me stand out in that regard. These companies are looking for canidates who are curious about what makes buildings "tick".

On the other hand the mezzanine shops will love your debt experience and you will still be close to those bricks.

But have no fear, if you look at any REPE team and theres always one or two ex bankers. Someone has to finance those buildings and alot of entry into investments is first buying the underlying debt.

Keep in mind that its probably not that debt experience isnt applicable its that people enter the debt side for a reason; more number, less qualitative, less "bricks" but still real estate. I'm not sure what your job is but if you manage to talk to the analyst/associate on the other side of the transaction from you (easier if you are working closly with the originators) make sure to take them out for a beer or something. Like I mentioned a few posts above its your network that breaks you in, not the experience, use your experience to build that network.

Hell I invite the analysts I interface with on refinances and aquisitions out for drinks whenever I can. You never know who is going to know someone who you want to know :)

 
  1. How frequently did you use Argus when you were a broker?
  2. How frequently do you use Argus now?
  3. Whats your opinion on potential new hires that have Argus DCF Valuation "University Certifications" - credible? or not so much?
  4. What level of excel skills did you have before you were hired on? Were you fluent in return/waterfall modeling?
 
REValuation:

1. How frequently did you use Argus when you were a broker?
2. How frequently do you use Argus now?
3. Whats your opinion on potential new hires that have Argus DCF Valuation "University Certifications" - credible? or not so much?
4. What level of excel skills did you have before you were hired on? Were you fluent in return/waterfall modeling?

1) Never (I was a leasing broker) 2) Almost every day 3) I got hired without a certification but I know how to use it and could discuss how to use it during the interview. VP real estate guys love to talk about how much of a black box Argus is (because half of them don’t know how to use it) use that as a talking point :P 4) I was very proficient with excel, when I was hired I had some basic understanding of VBA.

I did not learn those skills in brokerage though. I had to learn Argus because I knew I wanted to get into RE investment. Argus is not hard to learn; I would say it’s easy to learn and difficult to master. You're always finding something it can do you didn’t know before even a year later. Just know Argus well enough to talk about it without sounding dumb but I dont think you need a certificate.

Alright I'm heading home. My bosses are at ICSC so I'm blowing the popsicle stand. More to come in about an hour.

 

Wish I hadn't used up my SBs, cause I would definitely hit you with one. I'm looking to jump in with a Big 4 in their RE department, so it's nice to hear some of your colleagues came from such a background. Couple of questions I could come up with:

  1. Can you tell us about a typical day of work for yourself or your team?

  2. Did you get picked up by a regional firm in the region where you were a broker, or were you picked up by a firm outside your area (or is your firm active on a national scale)? I've heard/read that RE can be very region-centric.

Any if no one else says it, thanks for doing this.

 
crackjack:

Wish I hadn't used up my SBs, cause I would definitely hit you with one. I'm looking to jump in with a Big 4 in their RE department, so it's nice to hear some of your colleagues came from such a background. Couple of questions I could come up with:

1. Can you tell us about a typical day of work for yourself or your team?

2. Did you get picked up by a regional firm in the region where you were a broker, or were you picked up by a firm outside your area (or is your firm active on a national scale)? I've heard/read that RE can be very region-centric.

Any if no one else says it, thanks for doing this.

1) Generally I'm working on two or three long term projects at a time; long term being things that take 2-3 months beginning to end. For example that would be a refinance package or an acquisition. While working on those I am working on another one or two week long projects. An example of that would be putting together due diligence for a buyer or someone doing our third party reports. At the same time I am then working on anything that pops in my bosses head, i.e. a quick analysis of a purchase or sale or some other random task (in real estate there are a lot of random tasks because every deal is different). For example last week I had to do a parking analysis of an office complex, meaning I had to dig through leases to find out how many parking spaces had been given out in the leases compared to how many parking spaces there were int he development. What did we find? parking was over allocated by 100 spaces...OK that's not that bad, not everyone drives there...The complex was only 70% leased...woops! Talk about a logistical nightmare we wanted nothing to do with.

2) Same region, my firm owns throughout the US but our office is in NYC. I would agree that real estate is is VERY region-centric because of two reasons. One, RE can be valued differently just two blocks away and two, RE is very relationship driven so much so I would say you will want to go to school in the region you want to work in.

 

How involved are you in the deals - from the early stages (sourcing acquisitions, planning dispositions, etc.) through closing?

For your modeling, does your company have a basic template you use or does each person in your group work differently? Do you use CF pro forma from argus for the basis of the models?

 
RJW1290:

How involved are you in the deals - from the early stages (sourcing acquisitions, planning dispositions, etc.) through closing?

For your modeling, does your company have a basic template you use or does each person in your group work differently? Do you use CF pro forma from argus for the basis of the models?

Involvement Refinances: Start to end. From putting together the packages to interfacing with the lenders and brokers to to closing the loan. there is usually some down time for me after we choose a lender and the week or two before loan closing since the lawyers are usually handling it. During that time I'm helping the third party guys get their stuff done. Dispositions: I put together packages, answer questions about the property and numbers we send out, put together the due diligence. The brokers handle a lot of the leg work for us here Acquisitions: Generally potential opportunities comes from several brokers we work with or personal connections from my bosses. Once we run our models and go after one the MD of the company handles the negotiations while I continuously update the model and dig through due diligence. Pretty standard analyst stuff.

Everyone in our group needs to have the same layout of the finished model or else our boss will freak. What we do is take a vanilla argus run (no debt or anything crazy) update to our assumptions and dump the CF into excel. From there we put it into the format we like to use in excel then model debt and everything else from there in excel. Argus is the foundation of our analysis but all bells and whistles are done in excel.

 
Specialxknc22:

Can you speak to comp. What are the pay structures and how does it compare to traditional PE?

I really know very little about PE comp but i imagine its tied very closely to the books performance.

I have no problem talking about comp. I'm just finishing up my first year here. I make 60K + bonus at year end. Bonuses are relativly arbitrary depending on how the company does that year. In 2012 I only worked here for 7ish months and got ~15% bonus.

Keep in mind that I am not in REPE that you think of. We do not pull in managment fees and have no set time limit for investments. We have more of an institutional mentality but with the flexability of a fund.

Izzisdashiz:

Good to see some more real estate blood on here. I'm on the multifamily debt side. Let me know if you ever need info or wanna chat real estate in the future.

If you're in NYC I'm always down for a beer.

 

Thanks for posting this! 1. Would you say most of your co-workers come from non-traditional backgrouns aka non-targets, diff. backgrounds as you mentioned and therefore makes it less competitive to get into this business(relative to other buyside gigs)? 2. Do you still drive a lot? Silly question i know but obviously in your prev. job as a broker it was way more important to be able to meet your clients and show them the sites but how important\needed is it now? Basically I am trying to ask if your technical\analytical skills are now more valued.

 
betapan:

Thanks for posting this!
1. Would you say most of your co-workers come from non-traditional backgrouns aka non-targets, diff. backgrounds as you mentioned and therefore makes it less competitive to get into this business(relative to other buyside gigs)?
2. Do you still drive a lot? Silly question i know but obviously in your prev. job as a broker it was way more important to be able to meet your clients and show them the sites but how important\needed is it now? Basically I am trying to ask if your technical\analytical skills are now more valued.

1) I'll be honest with you, I would like to say no but maybe? Although my firm is instantly recognizable and I know there was a lot of competition for this position. I think it’s more about the relationships you make in the industry and trying to leverage those. That’s how I get this job, leveraging relationships (you need to be a known quantity) and luck. Maybe a bit more luck than I'd care to admit.

2) Hah, I never drove! I was a broker in Manhattan and my current job is still here. I'm not at sites nearly the same amount I was before. I think that knowledge helps me in my day to day though. One example would be when talking to lenders about "leaseability" of rolling space or just general market/building talk. You can know the CF a building is throwing and have the rent roll memorized and seen the floor plans but if you don’t understand the specifics and quirks of the asset and what they mean in the real world (not just on a proforma) then you're missing half the picture.

 

Thanks for posting.

  1. What are the value-drivers in a building and do value-drivers differ per building? Maybe you look for immediate CF or long-term value?
  2. Do you keep up-to-date with economic and demographical developments or are those not that important?
  3. What method do you use yo buy property; auction, tender etc.?
  4. What makes a great real estate investor?
 
Walkerr:

Thanks for posting.

1. What are the value-drivers in a building and do value-drivers differ per building? Maybe you look for immediate CF or long-term value?
2. Do you keep up-to-date with economic and demographical developments or are those not that important?
3. What method do you use yo buy property; auction, tender etc.?
4. What makes a great real estate investor?

1) Value is in the eye of the beholder. In brokerage I worked with a family (large RE family in NYC) that saw bought buildings for value add investments. Examples were on the outskirts of a "hot" neighborhood and hoped to ride the wave as the neighborhood and rents expanded. Another was a building that was an institutional single tenant forever and they purchased it when the tenant didn’t renew and split it up for many smaller tenants. Another was a building in Union Square (incredibly hot neighborhood for RE in NYC right now) that had just a ton of deferred maintenance in 2010 for ~90MM, put 15MM into it and is now selling it for ~290MM three years later.

I mention those because my current firm would just call that risky without seeing the value. Our equity investments are pretty risk adverse (think almost institutional investing). Where we boost our return is with the developments, we are far more comfortable building for the ground up than a value add investment. It’s just our competitive advantage.

2) Of course!

3) We win deals on purchases by closing fast. We will do a 1 week due diligence period even on huge multi-family complexes if we have some measure of comfort with the current ownership. Our attorneys are in house, property management is in house, our access to financing is insane. We just have the backbone to close very fast and when time kills all deals sellers like that.

4) Tough question. Thinking about people I've met in the industry and admire, I would have to say deal flow, abstract reasoning and market knowledge. I think it’s all about just see and battling out a ton of deals. Because it’s always that one thing you haven’t seen before or thought about that turns a deal to shit and the guys I really admire just seem to have seen/done everything and they have the "battle scars" of deals that went south that keep them sharp. Next most important is market knowledge. It’s still finance and the efficient market hypothesis still exists in some form although obviously not to the extent of the public markets. Finding that piece of info that no one else has is incredible difficult (especially in the first tier cities), even if it’s getting to a deal a week before anyone else that could make your investment. "Those who know more will make more" as an old boss once said.

 

Thank you for posting, this is all great stuff. I just graduated and I will be starting as an Acquisitions Associate in July and have some free time in June.

What would you suggest doing (besides relaxing and enjoying my last month off for a long time) to prepare for the first job? I am certified in ARGUS, proficient in Excel and PPT and I usually read nreionline, wsj, WSO, PERE, MFE, Real Deal and other publications to stay in tuned with the markets. Thanks!

 
Sweatingequity:

Thank you for posting, this is all great stuff. I just graduated and I will be starting as an Acquisitions Associate in July and have some free time in June.

What would you suggest doing (besides relaxing and enjoying my last month off for a long time) to prepare for the first job? I am certified in ARGUS, proficient in Excel and PPT and I usually read nreionline, wsj, WSO, PERE, MFE, Real Deal and other publications to stay in tuned with the markets. Thanks!

Congrats!

I dont know what else to add. You seem to be on top of it. Just keep reading (I read a ton) and expand your network. Besides that you'll learn everything you need to in time. Just take a breather but keep reading! If you havn't try and learn a bit about the debt side of RE investing. Not nessecarily debt investments but about the commercial mortgage market and what its doing.

Not much you can do untill you start doing...that sounded like a Yogi Berra quote

 

Thanks for the great thread. I am almost exactly the same. 2 years as a leasing broker and now at a PERE shop in manhattan.

Could you comment on industry standard comp for the analyst and associate level?

I have found that most analysts have at least 2 years experience doing something else, so I figured comp would be better than $60k + ~15% bonus. Do you think comp would be consistent across companies like Blackstone, SL Green, Boston Properties, Related?

 

a lot of good stuff here. Thanks OP, very helpful. Was going to start a new thread, but saw this one was RE related...was wondering if anyone had a DCF for multifamily property ready? I'de really appreciate it, thanks.

 

thanks OP, great thread. can you speak about the interview process at your firm? Most RE shops are smaller and if you're on the acq and development team, involvement with senior management is crucial. How did you set yourself apart in the interview process? did you highlight your quantitative skills? or did you get close to "brick" so to speak and highlight the real estate process.

 
chrisjr:

Thanks for the great thread. I am almost exactly the same. 2 years as a leasing broker and now at a PERE shop in manhattan.

Could you comment on industry standard comp for the analyst and associate level?

I have found that most analysts have at least 2 years experience doing something else, so I figured comp would be better than $60k + ~15% bonus. Do you think comp would be consistent across companies like Blackstone, SL Green, Boston Properties, Related?

Well you're doing the same thing I do with the same background so you know as much about comp as me. In terms of bonus they prorated it because I was only with the company for 6 months at that time. So I guess it would have been around 60k + 30%. But honestly I am just happy to be out of leasing. I would have taken this job for less so I could get the name and experience on my resume.

The PERE world is a fraction the size of IB/HF/PE so I think once you get outside of the 5 or so mega funds comp is up in the air. That being the case a person like me has a better chance of getting into the business through hard work and networking without having that target school degree and initial analyst experience when compared to finance. Are there people doing the same job as me for more money? Most likley.

inspiredanalyst:

thanks OP, great thread. can you speak about the interview process at your firm? Most RE shops are smaller and if you're on the acq and development team, involvement with senior management is crucial. How did you set yourself apart in the interview process? did you highlight your quantitative skills? or did you get close to "brick" so to speak and highlight the real estate process.

Two round, first one was standard fit/skills with the VP of finance and HR; Why you? Why us? Do you know argus? How well do you know excel? What is NOI. Second interview was with the MD and VP where they asked more about market/economic knowledge. Why are IO loans risky for lenders, why would we like them; Where are cap rates in NYC, when interest rates rise what usually happens to cap rates?

I had a plan for how I was going to market myself. I knew I could stand up to someone with a fancy shmancy degree who may have had some analyst experience toe to toe. So I positioned myself as having those skills but with the edge of building or "brick" sense. I talked about how leasing gave me the opportunity to really see how companies look at space from their end and what makes a building valueable outside of the offering memorandum that was sent out.

These guys want smart people but hard quant skills will not get you the job. You definitely use more higher level abstract thinking and problem solving. Dont get me wrong you need to have the math skills to create models and do quick numbers in your head when you're boss asks you a question but the math involved in even the most complex deals is little more than algebra, figuring out how to model it or present it to someone is where the headaches come from.

 

Hi. Could you give an overview/advice for an interview case study? I'm an analyst that recently left a private fund after 3-4 years (winding down) and have a second round interview coming up that include case study to 'see how I model deals'. The problem is that my previous firm (like many) was hurt in 2008 to the point that they did no further acquisitions, so I have little acquisition modeling experience. I have experience with dcf's/pro formas, rent rolls, budget projections, and a little argus experience. I mainly ran dispositions from analysis to close and worked with counsel on restructurings.

This firm is large (public), in acquisition mode, and deals with all commercial property types.

Thanks in advance.

 
therightcoast_:

Hi. Could you give an overview/advice for an interview case study? I'm an analyst that recently left a private fund after 3-4 years (winding down) and have a second round interview coming up that include case study to 'see how I model deals'. The problem is that my previous firm (like many) was hurt in 2008 to the point that they did no further acquisitions, so I have little acquisition modeling experience. I have experience with dcf's/pro formas, rent rolls, budget projections, and a little argus experience. I mainly ran dispositions from analysis to close and worked with counsel on restructurings.

This firm is large (public), in acquisition mode, and deals with all commercial property types.

Thanks in advance.

If you've seen one pro forma you've seen them all. It sounds like they just want to make sure you know how to lay out a pro forma in a cohesive and easy to read manner. With little aquisitions experience I highly doubt they are looking for your opinion on where you see exit caps in 5 years. Hopfully its not a multi family model which could be a pain.

Obviously you just learn by doing. There are RE models all over the internet, I would DL a few and paly around with them and then try and recreate them on your own.

I can give advice if you have any more specific questions.

 
inspiredanalyst:

you mentioned that multifamily dcf could be a pain...why is that? one would think hotels or a commercial office building would have a more complicated mdoel

Well I guess it all depends. I was assuming they werent going to give him any over complicated to model for a case study. Multi family is just tedious not necessarily complex.

 
Izzisdashiz:

Where are you guys placing your debt? GSEs? Life companies? Conduits?

Good question! It really depends, size, term, asset class are all deciding factors on who wants it the most. Right now the conduits are not overly competitive on our product. That’s not to say we haven’t done a conduit deal or two in the past 6 months though but I think those were because the particular conduit wanted to reopen a relationship with us and aggressively bid down. The life companies love the industrials and multifamily (everyone loves multifamily right now), we just did a GSE loan for a new multifamily complex we are closing. Will close on a 70MM+ portfolio loan in two weeks with a national bank for their portfolio. So it’s a little bit of everyone, there seems to be one or two different companies every time that just bid very aggressively for our business.

To give you an idea of rate we are getting, the industrial portfolio is priced at 150 bp over 7 year swaps.

 

Here's my question -

If you are working for a top5 or top10 of the PERE top 50, what do you say when people ask what you do? Real estate? Real estate investing? Real estate investment management? Real estate private equity? I go with REPE but i dont know which one is correct

 
REFIN:

Here's my question -

If you are working for a top5 or top10 of the PERE top 50, what do you say when people ask what you do? Real estate? Real estate investing? Real estate investment management? Real estate private equity? I go with REPE but i dont know which one is correct

I dont think there is a "correct" one. "Private equity" in real estate does not have the same meaning as corporate finance. I think its more applicable to define by how your firm/fund work. "I work for a real estate investment firm that focuses on value add opportunities" or "I work for a real estate firm that invests in core properties"

I hardly ever hear anyone in the business say they work for a real estate private equity firm...the whole name is kind of a misnomer is 90% of the situations its used it.

Weird question but still a question!

 

Could you please share any advice or suggestions regarding Industrial properties. Market news, valuations, and data sources and if there is any resources that you would recommend online or books please.

Thanks!

 
seando:

Could you please share any advice or suggestions regarding Industrial properties. Market news, valuations, and data sources and if there is any resources that you would recommend online or books please.

Thanks!

Research reports should give you a decent insight...most of the big brokerage firms (I use Cushman and Newmark pretty extensively) publish them quarterly by property type and region.

 

Fund fees really depend on the firm and what kind of returns you're offering. I'm not sure what the top PERE guys are charging, but I'd guess Blackstone/Starwood still get 2 and 20 while offering some kind of preferred.

I work for a large REIT, and our funds are below 2% management fee. The preferred changes depending on investment type. Core (10-13% LIRR) would be around 8%, and you could expect opportunistic/value (15%+) to probably offer 9% or more to comp for the added risk. 80/20 after promote.

 

thanks for the thread man. so i know on a basic level what a "cap rate" is and obviously how it differs from IRR.

My question is: if cap rate= Annual Income/Property Value, and you are producing more income relative to the rate at which the property value is increasing (aka cap rate is going up), is a high cap rate better when you OWN the building? this seems to say that you are getting more return on your money even though your property value isnt increasing by much...

BUT, then when you rearrange the formula, Property Value= Annual Income/cap rate, showing that the cap rate is inversely related to the property value

ultimately, do you want a high or lower cap rate when you OWN the building, and when you want to BUY the building do you want a high or low cap rate? sorry if this is obvious or if i am over thinking it, i just want to understand this concept as more of just a formula but also conceptually from both sides.

I don't throw darts at a board. I bet on sure things. Read Sun-tzu, The Art of War. Every battle is won before it is ever fought- GG
 

Most simply a cap rate is the rate when a properties NPV equals 0. Keep in mind that cap rates are market driven.

There’s no easy answer to your question as you use cap rates as a very fuzzy target when investing. Its more important to look at where you think cap rates are moving.

If you are selling a property you want the lowest cap rate possible (obviously) because the lower the cap rate the more the buyer is paying for the current stream of cash flow. If you are buying a building, the higher the cap rate the better because you are essentially pay less for the same current stream of cash flows.

Obviously anyone would love to buy the GM building for a 7 cap, but that’s just not going to happen. Saying you want a high cap rate is just another way of saying you want to buy the building for the lowest price possible.

I wouldn't get too caught up on cap rates. They are important in advanced modeling when you take into account inflation and interest rate changes but its important to know that cap rates are market driven, you may want a low or high cap rate but that doesn't mean you are going to get it.

 
SHB:

Most simply a cap rate is the rate when a properties NPV equals 0. Keep in mind that cap rates are market driven.

There’s no easy answer to your question as you use cap rates as a very fuzzy target when investing. Its more important to look at where you think cap rates are moving.

If you are selling a property you want the lowest cap rate possible (obviously) because the lower the cap rate the more the buyer is paying for the current stream of cash flow. If you are buying a building, the higher the cap rate the better because you are essentially pay less for the same current stream of cash flows.

Obviously anyone would love to buy the GM building for a 7 cap, but that’s just not going to happen. Saying you want a high cap rate is just another way of saying you want to buy the building for the lowest price possible.

I wouldn't get too caught up on cap rates. They are important in advanced modeling when you take into account inflation and interest rate changes but its important to know that cap rates are market driven, you may want a low or high cap rate but that doesn't mean you are going to get it.

this helped a lot. thanks for the clarification!!

I don't throw darts at a board. I bet on sure things. Read Sun-tzu, The Art of War. Every battle is won before it is ever fought- GG
 

Think of cap rates as a multiple, like P/E or EV/EBITDA. It's helpful to get a sense of its relative pricing to the market and perhaps how cheap it is versus history.

I don't know if I agree that cap rate is when NPV is 0. IRR is when NPV is 0. One is a rate of return over time, the other a static multiple applied to a single time period. Again a P/E versus an IRR.

A LTM P/E applies to last year, NTM P/E next year. Same with a cap rate. You can take current, projected, stabilized, and you use it as a terminal value for exiting an investment.

 

Maybe I was being too simplistic. Its obivously not when a project's NPV is 0 IRL but it would be given the purchase price and if the cashflow year used in the cap rate calc was the same cashflow forever. I was just trying to make a point that all else equal cap rates are the markets acceptable rates for a specific property given assumed appreciation and risk.

P/E is definitely an applicable comparison, with some caveats.

 

First of all, great thread, thank you for this Q&A.

As a first time poster, I had a some questions:

-It appears you may also be doing asset management work in addition to refi, dispo, and acquisitions. If so, how do you allocate your time between existing and potential assets, and do you prefer acquisitions work above the rest? -Do you get to work on investing in other parts of the capital stack, eg pref equity or mezz? -Where are you seeing the most opportunity in the market? (If you had $100M to invest where would you put it)

 
flyinhawaiian:

First of all, great thread, thank you for this Q&A.

As a first time poster, I had a some questions:

-It appears you may also be doing asset management work in addition to refi, dispo, and acquisitions. If so, how do you allocate your time between existing and potential assets, and do you prefer acquisitions work above the rest?
-Do you get to work on investing in other parts of the capital stack, eg pref equity or mezz?
-Where are you seeing the most opportunity in the market? (If you had $100M to invest where would you put it)

-Really the only thing I do that crosses over the what some asset managers do is refi's. Everyone once in a great while I'll run present value schedules on a very big lease though. Outside of that we have an inhouse leasing team and inhouse property managers so asset managment isnt somthing I would say I do. -I think I've said before, we like simple ownership structures. We will bring an operational partner on a deal only if its a market we are unfamiliar with. We dont do projects that we cant control. -I think real opportunity is granular, meaning that its asset to asset and hard to give broad assumption. BUT I can tell you where I think some value is. I would probably look at second tier urban office. LA, NYC, Chi have all been heating up right now. NYC is crazy there is so much dumb money chacing yield that certian building are trading for 3 caps. Sounds a little like 2006. That money hsan't flowed ot many of the solid second tier cities yet though and hopfully with a turn around there could be some significant upside while still holding a solid asset. Also in the next 2-3 years an interesting part of the capital stack will be the mezz guys considering how many conduit loans out there will be maturing at that time. I think theres going to be a lot of demand for mezz financing to make up for the gap when it comes time to refi.
 

Thank you for stepping out and doing this q+a.

What is your favorite part of the job? Least favorite?

Where do you see yourself (e.g., in what position and area of acquisitions/development) in the next 3-5 years?

In your experience, how and in what time frame does one move from Analyst > Associate > VP/P > Director etc. within an organization (or is it easier to take your 3-5 years of experience and move to another firm for advancement)?

Best wishes.

 
Jaime_Lannister:

Thank you for stepping out and doing this q+a.

What is your favorite part of the job? Least favorite?

Where do you see yourself (e.g., in what position and area of acquisitions/development) in the next 3-5 years?

In your experience, how and in what time frame does one move from Analyst > Associate > VP/P > Director etc. within an organization (or is it easier to take your 3-5 years of experience and move to another firm for advancement)?

Best wishes.

My favorite part is doing something new. Even now there’s always some new problem or unique investment that needs some brain power (and causes form headaches) which is fun. Even if it’s my boss coming in my office at 5:30 and says he needs some questions answered and I'm scrambling like a mad man, it’s still fun.

My least favorite is doing the refinance stuff. It’s usually very repetitive and you have to manage a bunch of different parties, sometimes it’s like herding cats. What may be even worse is handling the due diligence for a sale, that can get boring plus the guys buying will email you at all hours saying they need a certian document.

In the next 3-5 years I would like to be managing a team doing the same thing, maybe a little bit up the risk spectrum.

Just the way my firm runs everyone has been here forever. You move up in title/pay like any other firm by generally responsibilities are only inherited when someone retires. So for my goal to manage a team in the next 3-5 years I would have to move to a different firm.

 

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