Real Estate Career from Scratch

Hello Monkeys, I have an interview Wednesday at a commercial mortgage banking firm for an Analyst position and I have no idea where to start in preparation for it. The firm has organized debt financing for retail centers, office buildings, industrial parks, storage facilities, hotels and others. This firm also operates in a mid-size market in the southwest part of the country.

My professional background thus far consists of a Financial Analyst role at a small company ($100m in revenues) and a Risk Analyst role at a very non-BB bank (~$5b AUM)

I have been reading around WSO and M&I for general information, but would love to be able to get some tips from anyone here who wants to provide their own advice. As someone with zero RE experience, I have a few questions such as; What are key formulas I should know? Aside from researching the company and being prepared to talk about recent deals they have completed, what are some major curveball questions that these firms like to ask?

Thanks!

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Comments (29)

Aug 24, 2015

NPV/XIRR/SUMIF/INDEXMATCH/VLOOKUP/HLOOKUP/OFFSET

If you have no real estate experience, I wouldn't expect crazy curves, maybe valuation methods, diff between irr/npv, reimbursement methods and other debt stuff (dscr, debt yield, loan constant)?

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Aug 25, 2015

Thank you. I noticed the DSCR is listed on their website for some of the deals, but the ratio seems fairly low. Should I be worried about the stability of the firm if that ratio seems to be on a significantly risky end of the spectrum?

Aug 25, 2015

I wouldn't read too much into DSCR unless you know the entirety of the debt structure/the deal. A 1.10x on a 10 year IO loan that was done at a 3.75% isn't the same thing as a 1.10x on a 30/30 at a 5.75%.

Aug 25, 2015
mrcheese321:

I wouldn't read too much into DSCR unless you know the entirety of the debt structure/the deal. A 1.10x on a 10 year IO loan that was done at a 3.75% isn't the same thing as a 1.10x on a 30/30 at a 5.75%.

Ok, thanks. Would you recommend studying up on the differences between cases like the example you provided for a first round interview?

Aug 26, 2015

This is a bank right not private equity so their underwriting criteria is fairly standard. RE is not complicated unless you're doing a hotel or some RE operating business. Know the following:

  1. appraised value of the assets agaisnt which you're lending
  2. LTV ratios, recourse/non-recourse debt, DSCR, entry/exit cap rates, NOI

I doubt you will actually be negotiating the terms of the loan itself (prepayment, defeasance, release of funds, cure rights, events of default, etc) since those are worked on by counsel and more senior level guys at the bank, probably all fairly standard too.

As for modelling, doubt you will be doing traditional real estate cash flow modelling since again you're at the top of the cap structure and you're not really concerned with equity IRR, just the % of equity in the cap stack

GL.

Aug 26, 2015

I was bamboozled. It was a position where you would be working with the models they already have, going out to do site inspections, analysis of negotiated terms to determine if the firm can put it together, and a little bit of client facing networking. My current modelling and analysis experience blew their minds since it was much more advanced and complex than what they normally deal with which I guess got them thinking that I was overqualified. After running through my experience, they started talking more about how much you could make with them once you're promoted from being an analyst to an associate as opposed to the actual analyst opportunity or things you would learn in it.

Not really what I was expecting or what it was marketed as (unless I read it completely wrong, which is possible). It wouldn't be worth a $25k drop in pay, so I had to say no thanks.

Aug 27, 2015

anyone buy the REFM real estate modeling training? I'm trying to get others' opinion before I buy

Sep 30, 2015

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Sep 30, 2015

Cap rates, NOI, basic lease structures, comps, Differences in different asset classes multifamily, retail, office, hotel, industrial. And if you are interviewing in REPE you should probably know enough about the industry to articulate why you want to be in REPE it is a pretty specific field

Sep 30, 2015

It's more like a research role.

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Sep 30, 2015

I am assuming this for entry-level, correct? If so, know:

*cap rate and what it means
*IRR and NPV
*what an operating statement looks likes
*the advanced excel functions (sumif, countif, vlookup, transpose, etc)

I think there may be more I didnt cover. Search my old posts. I find myself ansewering these questions a lot.

Overall, the interview will be more about "fit" than about your understanding of real estate finance.

Man made money, money never made the man

Sep 30, 2015

^ what he said - also, if your'e doing PIPEs and M&A, it'll be more 'investment banking' than 'real estate,' so just study as if it's for an M&A job.

as far as resources for getting caught up on the industry, check out pere news, costar news, globest, real estate section of dealbook, etc. Might also try to get your hands on an ER report on a REIT to understand how multiples/valuation are different (FFO, NAV, etc)

Sep 30, 2015
prospie:

Might also try to get your hands on an ER report on a REIT to understand how multiples/valuation are different (FFO, NAV, etc)

That's actually a great idea, never thought about that. That info is always public for public REITs, correct? Silver banana for you.

Man made money, money never made the man

Sep 30, 2015

Awesome guys. Thanks for the help.

Sep 30, 2015

I don't know how much technical knowledge you have of RE, but RE is basically run off of cap rates and value creation as your two main drivers.

Assuming you're familiar with a RE income statement/cash flow, you want to take your beginning NOI and divide it by your cap rate to get to your purchase price, and ending NOI/cap rate to get to your exit price. Obviously cap rate is the percentage of NOI to price, and has an inverse relationship to your price. In other words, the lower the cap rate, the higher the value.

I would probably be aware of how RE statements flow from the sources and uses, to the income statement down to NOI then from there how to calculate cash available for debt repayment, FFO, AFFO, etc. If I was feeling ambitious I'd study up on cash flow waterfalls and seniority of debt, how different traunches of debt allow for juicier returns (i.e. mezz with x% current pay coupon, x% PIK).

Sep 30, 2015

thanks gametheory! this is helpful. i guess it sounds somewhat similar to the DCFs i've been building but need to get more acquainted with RE statements.

anyone know of a good RE valuation book?

also, anyone know modeling in argus differs from excel?

Sep 30, 2015

I'm currently a financial analyst with a REIT, and work alot with acquisition analyses and the like. I can tell you from my experience that alot of the modeling is all about projections within given markets. The numbers we are focusing on are Cap Rates and IRR's. Alot of work with excel (of course) building models. As noted above, common language includes FFO & AFFO. As for books, you can search some out at bookstores and online of course, but I feel there are alot of websites out there that go over RE terminology specific to the industry.

Argus has its own format, but you do have the ability to copy and paste what it spits out into an excel document. I'm beginning to work with the program, and it seems very straight forward.

As for interviewing, I'll assume you are appplying for an analyst type of position, where you will be crunching numbers and reporting to managers. If you show you have the ability to learn the concepts (should be a training period where you learn firm/industry specific skills), interepret results and report back, you should be good to go. Obviously, you have to prove to them why you are a better candidate than the other interviewees.

Sep 30, 2015

thanks LU Pitcher.. i had a chance to read up on RE valuation this weekend. its slightly different from your typical DCF. also, direct capitalization was a new concept to me. however, i think i should be able to grasp everything without any problems.

do you or another other ppl on this board know any specific interview questions they ask for an entry-level acquisitions analyst position?

Sep 30, 2015

so your an asset manager for RE properties. I think you would want to be on the acquisitions side, at least thats what I prefer. You basically have a portfolio of commercial RE properties that you overlook, do market research, value on a quarterly/yearly basis for the books, and make sure everything is running good. (hire new prop manager, talk with leasing officers often, drive up vacancy). You are basically over shadowing everyone that has to do with the property.

Cool job, not very exciting unless you love RE.

I'm on the Acq side, so once I close a deal, I send it over to AM and they manage it.

--
"Those who say don't know, and those who know don't say."

Sep 30, 2015

agree with nutsaboutWS. Asset management is a great start. Just make sure you get some modeling experience while you're there

Sep 30, 2015

Thanks for this. I am really hoping one of the two commercial real estate interviews I have work out; this job is my fall back. It sounds like it is very property management oriented, but I wouldn't mind this learn the ropes and hands on experience in the near term.

It's such a small firm that I figure I will get my hands on transaction deals, valuations, or market research. On their somewhat shabby website it says they do "construction progress draws". From what I understand this is basically construction financing? Asset management is interesting to me which explains why I am pursuing CFA, but long term I think I would like to move into financing and lending.

Can you guys suggest any readings to familiarize myself better with the real estate asset management process or things I should find out about the firm before joining?

Sep 30, 2015

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Sep 30, 2015