Real Estate Distressed Debt Groups

Hey WSO. I'm a student at Uni and I'm looking at different internship opportunities. I've been interviewing for a real estate distressed debt originations group at a BB bank (GS/Citi/MS). I've tried to look online for more information about these groups, however, I have not been able to gather much info. Saw that the names for these groups vary by bank (distressed credit groups, distressed debt investment groups, special situations). Was wondering if WSO would be able to provides some more info about these groups prior to potentially joining. 

  1. I enjoy real estate, but not sure if this is something I want to do forever. Does this role pigeonhole me in real estate? 

 2. I have a fam member who is a senior employee in a CMBS group at a large bank. I can probably join this group (please don't judge, just being honest) as an intern. How does distressed real estate compare to CMBS? Does one offer better exit opportunities?

  1. Going off of Q #2, what are the exit opportunities for real estate distressed debt investing at BB banks? Do most people stay in distressed credit?

  2. Is it possible to move into REPE? I'm not yet sure if I am even interested, but, as of now, this is what I see myself doing in 5-10 years.

  3. Any insight on hours or work-life balance.

Thanks everyone!

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Comments (28)

Most Helpful
Mar 7, 2021 - 7:34pm

my two cents... (answers by number of your question)

1. No, a first job like this will not "pigeonhole" you in anyway (tbh, I find this thought beyond ridiculous, yet I guess it's become mainstream thinking, at least on WSO. I am referring to the idea that jobs just "pigionhole" a person, it's a very silly concept). In fact, solving problem properties makes you learn tons of transferrable skills to all sorts of area of the industry (just did a double take, is just for an internship?????? Please, you think you can get pigeonholed from an internship?)

2. Given these are internships, can't say it makes a major difference. I would personally be more interested in the distressed situations group (assuming its an actual principal investment platform, and not just special servicing). If the distressed group is in fact back office servicing types, then yeah, I'd go CMBS if it was front office work.

3. Distressed debt investing can be pretty complex, so you can probably make a legit play into any number of buyside roles (especially things like value add and opportunistic strategies). Distressed platforms shrink and grow with level of distress, so are growing now, will shrink in a few years most likely (unless more bad stuff happens). Few make careers just in distressed assets, but it can happen.

4. Sure, why not? Distressed investing strategies are very popular with the high-yield opportunistic funds that private equity firms manage. 

5. Can't personally comment, probably on par with other principal investment arms of the bank, expect shitty until proven otherwise.

Hope you get one! Sounds like great opportunities! 

  • Prospect in RE - Comm
Mar 7, 2021 - 10:34pm

Thank you Redever for the response. This is really helpful.

I understand this is only an internship, so, of course, I will have the ability to change my career path. The reason that I am asking, however, is that I am currently studying RE and have truly enjoyed it. I know that I want to be in real estate long term, just don't know what section I'd like to be in. Also, although these are only internships, they typically provide 1.5 to 2 week exploding offers, which give basically no time to shop around (let alone in this job market). 

Without revealing too much info, the CMBS group is frequently top 3 in league tables and there seems to be a lot of other information regarding the group online. However, I have essentially no info on the distressed / special sits debt group of the other bank I am speaking to. I'm not sure if you'd have this info, but do you happen to know which banks have strong CRE distressed debt groups? I'm looking to get a better understanding of which groups are particularly strong (deal flow, size of deals, etc.) in the industry, to help me in my potential decision.

Thanks for all of your help. 

Mar 8, 2021 - 9:36am

I understand your concerns, just getting an internship at a recognized firm is a win. Further, expecting to know while in UG what you want to do career wise long term is impossible, you will change your mind. So, if you get an "exploding internship offer" just judge on merits and move along. Rejecting one without another in hand is crazy. 

When you talk about banks with CRE distressed debt groups, be sure you are talking about a group that is actually acquiring distressed debt assets as an investment. There are also distressed asset servicing platforms (some times called workouts, special servicing, etc.), that is a group that deals with loans that have gone bad that the bank has made. Not an investment platform at all, it's a quasi-servicing back office with mixed asset mngt skills based team. 

The reason you don't find much info on these (compared to CMBS) is that this group may not have existed a year ago. Distressed debt groups would have been pointless before covid because there was so little volume of distressed deals. After the 08 GFC, many firms created distressed investment platforms, then shifted away from them as the market recovered. By 2012, the term was out of vogue. Because of covid, it's back. It is a strategy/investment mode, not really a standing platform in most cases. I'd guess the current ones will run for a few years then shift unless more distress comes. So, your seeking of info on who is strong, has most deal flow, is a guessing game, this is just starting. 

CMBS on the other hand moves exactly opposite direction (or well it can), origination volume plummets in downturns (a quick google search said CMBS issuance fell to 8 year lows in 2020, and that probably overstates it as the covid deal didn't really start till the very end of Q1). Back in 08, I knew people who transferred from CMBS platforms to distressed investing and servicing platforms overnight (I mean, had to stay employed right?). So, not sure what 2021 will be like, but deal volume could still be down significantly (maybe surging by summer, who knows). 

Personally, if seeking internships, worrying about market conditions and the like is not worth it. Take the best offer you get, many many people will go without as so many internship programs have been cancelled and may not come back until 2022.  

Mar 7, 2021 - 10:32pm

This is an internship and people do not expect you to have decided your entire career at this point in your life, so you will not be pigeon holed into anything at this moment in time.

RE is cyclical. Being able to work in a distressed focused position now gives you the experience for when the next cycle comes along. If you look at distressed debt/equity positions now, nobody is looking for a 3rd year analyst, they are looking for VP/Director level people that went through the GFC because most places don't want to trial by fire their staff when they are already at risk of losing capital.

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  • Prospect in RE - Comm
Mar 7, 2021 - 10:47pm

Thank you for the response. I understand that I am young and have the ability to switch positions in the future, so I'm less worried about being pigeonholed. However, I want to make the decision that puts me in the best place, whether that be looking for a new job following the internship or signing a return offer. From your understanding, does CMBS or distressed debt groups provide better exit opportunities? I know this is a bit premature to ask, but I essentially have the CMBS offer at a bank and I am extremely confident on the distressed group. Want to make the right decision with the most amount of info possible.

Mar 7, 2021 - 11:08pm

If it was me, I would go distressed over CMBS. CMBS tends to be a bit cookie cutter so while you will probably actually get to work on and close a deal in the 10 weeks you are there, even if all you do is run numbers and listen in on negotiations, a summer working on distressed deals would be much more interesting (both in talking points about your experience in interviews and in general). Plus if a deal is distressed, there has to be a resolution sometime, so even if you don't get to see the thing through before the end of the summer, it gives you a good reason to check in with your boss throughout the fall (hey, how did this deal or that deal finish up? Can we grab coffee and talk through it?).

The only downside of doing distressed that I can see is for return offers. If the economy gets better and there is less foreseen need for a person next year, you may not get a return offer. Banks do generally try and work it out for analysts, so may not be an issue, but something you may want to inquire about.

Mar 9, 2021 - 1:51am

Sounds like JP Morgan. If so, fantastic opportunity. Said group has more flexibility than even some debt funds, can write massive checks, and works across the debt stack (from senior to A/B notes to mezzanine) while utilizing less-than-typical-in-real-estate structures (PIK interest, etc.). You'll team up with all the elite debt funds (think Oaktree). Guy that runs the group basically has carte blanche. It's also not just distressed (think of it as distressed and special sits, or idiosyncratic events that aren't necessarily tied to economic/credit cycles). I'd frankly say it's the best way to get into REPE from the debt side because of the complexity - you need to think like equity to be good at this work.

CMBS, however, is much more vanilla. It's a volume business and a fairly commoditized product. Not to be a dick but a lot of REPE folks think CMBS guys are idiots.

Mar 13, 2021 - 9:38pm

Yeah I was gonna say JPM. Smart dudes doing cool shit. No brainer. I wish I could've been interned here growing up.

I had a flair for languages. But I soon discovered that what talks best is dollars, dinars, drachmas, rubles, rupees and pounds fucking sterling.
  • Investment Analyst in PE - Other
Mar 14, 2021 - 12:17am

I'd corroborate this guys last comment. Cmbs is extremely vanilla requires no actual critical thought or strategy. I would avoid working in cmbs if it's not your only option.

  • Prospect in RE - Comm
Mar 21, 2021 - 12:21am

I know this is a question asked too frequently, but what are the typical exit ops out of this / similar groups on the street? Do most stay on the debt side or move over to equity? Do MF recruit from these groups?

  • Prospect in RE - Comm
Mar 20, 2021 - 9:39pm

Interested in this as well. I thought of DB SSG when I saw this. Hoping to break into the distressed debt market. Does anyone have insight in how DB Special Situations is viewed in the market?

Jun 4, 2021 - 10:09pm

DB CRE SSG is an insane group. I know Deutsche is fringy for many, but its real estate group is top notch and they finance loads of the major trophy stuff, eg Hudson Yards. From a volume perspective, CRE lending at DB is perhaps top 3 in the US, along GS and JP. Terrific MF exits, as with Goldman and JPMorgan, people often leave for RE groups at BStone, Apollo, Brookfield, KKR etc..

Overall, highly respected group, smart people, loads of options after the 2 year analyst stint.

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