Real Estate Private Equity Interview

Rank: Baboon | 170

I have an interview with a real estate private equity firm for an analyst position and I would like suggestions on how to prepare. I have three years of work experience in the real estate consulting group for one of the Big Four. I know a ton about the valuation side of things. I don't have much transactional experience though. What else might they expect me to know? Coming from a consulting role, what worries might they have about me? How can I kill this?

Comments (141)

 
3/7/10

i would imagine they are very interested in understanding your experience in modeling...be prepared to talk about your modeling skills, as well as why you will be successful in getting up to speed...

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3/7/10

Do you think it would be sufficient to demonstrate competence in excel, or to need to be able to explain/build an LBO model (which from my resume it is obvious I have zero experience with)?

 
3/8/10

Demonstrating modelling skill will be essential but not corp LBO modelling. You need to be able to build a leveraged investment model for a property or portfolio of properties...i.e. forecast operating performance of the property, build a debt waterfall and price the residule CF to equity less any other costs. Many firms have some program for modelling property CFs so you prob will need to be fluent in RE operating theory more than you'll need to be able to model lease level cash flows.

Some firms are more RE fundamentals focused and others are more financial engineering focused (in terms of culture/background, and approach) and your interviews will likely fit the character of the firm. One indicator would be the background of the juniors. If they are all former M&A guys or CDO structuring guys (very different, I realize this) then it will be very quant in culture/approach but if there are many guys from valuers, accounting backgrounds, developpers, etc. then the focus is more likely to be on the real estate. You probably wouldn't have gotten the interview if the former was true.

Focus on what you know and you should be OK.

 
3/8/10

Demonstrating modelling skill will be essential but not corp LBO modelling. You need to be able to build a leveraged investment model for a property or portfolio of properties...i.e. forecast operating performance of the property, build a debt waterfall and price the residule CF to equity less any other costs. Many firms have some program for modelling property CFs so you prob will need to be fluent in RE operating theory more than you'll need to be able to model lease level cash flows.

Some firms are more RE fundamentals focused and others are more financial engineering focused (in terms of culture/background, and approach) and your interviews will likely fit the character of the firm. One indicator would be the background of the juniors. If they are all former M&A guys or CDO structuring guys (very different, I realize this) then it will be very quant in culture/approach but if there are many guys from valuers, accounting backgrounds, developpers, etc. then the focus is more likely to be on the real estate. You probably wouldn't have gotten the interview if the former was true.

Focus on what you know and you should be OK.

 
3/11/10
LeatherPantz1 wrote:

One indicator would be the background of the juniors. If they are all former M&A guys or CDO structuring guys (very different, I realize this) then it will be very quant in culture/approach but if there are many guys from valuers, accounting backgrounds, developpers, etc. then the focus is more likely to be on the real estate.

I'd have to disagree with you, LeatherPantz1. I had an interview today with a repe firm with M&A / bankers as directors and the interview was ALL real estate based. No modeling whatsoever.

MKballer

 
3/12/10
mkballer wrote:
LeatherPantz1 wrote:

One indicator would be the background of the juniors. If they are all former M&A guys or CDO structuring guys (very different, I realize this) then it will be very quant in culture/approach but if there are many guys from valuers, accounting backgrounds, developpers, etc. then the focus is more likely to be on the real estate.

I'd have to disagree with you, LeatherPantz1. I had an interview today with a repe firm with M&A / bankers as directors and the interview was ALL real estate based. No modeling whatsoever.

Maybe but the culture of the firm and they way they do deals will be different than if it were a bunch of former valuers..,

 
3/8/10

This is great advice, thanks.

 
4/13/10

Former "valuers"??

I would love to see a shop that has a sole type of middle/senior management. Most RE firms have a pretty eclectic group of backgrounds. Ultimately, regardless of the views of senior management, if you are buying equity positions in single properties it will be RE focused. You can lever something up 99% but if the RE does not make since it will fall apart.

 
 
 
4/13/10

Do you have any specific questions related to NPV / IRR? The concepts are relatively straightforward. IRR represents the prospective returns of an investment, based on a given purchase price and other assumptions. NPV is essentially the additional amount over the given purchase price that you could pay to generate the given target return.

In the case study you've outlined, the simple question is which lease alternative will result in greater net operating income (NOI)...greater NOI will provide greater interim cash flows (positive to IRR and NPV) as well as likely a higher terminal value since you will probably capitalize the next year's cash flow to calculate exit price (again, positive to IRR and NPV).

Without knowing anything else, in general the gross lease will win. This assumes that in the gross lease example, your year one gross rent is sized so that NOI after operating expenses is equivalent to the NNN rent from the net lease example, and both leases have equivalent rent bumps. The reason the gross lease will win is that the annual rent increases will apply to a higher base rent, so gross income will grow faster, meanwhile the gross tenant (assuming a "full service gross" lease) will also be paying you reimbursement for operating expense increases over the base year, so your expenses will stay flat.

 
4/13/10

sounds like youre just going to be making a pro forma off a rent roll. i think you are overestimating how hard it will be. just study up on reimbursement methods and retail sales (and percentage rent in lieu)

 
 
4/13/10

PM as I have interviewed with some of the top REPE firms in LA and SF over the past few years and could probably give you some tips. But I am assuming it will be a basic P&L and 5 - 10-Year CF model with potentially a three tier waterfall with a few sensitivities.

 
4/13/10

A possible fringe (or not so fringe idea) would be to use REFM's personal coaching platform. Bruce Kirsch was the editor for Linneman and he is the principle at REFM. He has intimate knowledge of what each firm is testing on. If it were up to me, I'd spent $1000 in order to be properly prepped.

Just a thought.

 
4/13/10

Seems excessive but as you know an hour will fly by. Probably building a nuts and bolts model, testing how you present and format. Maybe some data tables? I've only had case studies.

 
4/13/10

Are you sure it's not "the limit on how long you can work on it is one hour" instead of "you will spend one hour typing nonstop until your fingers bleed?"

Just thinking you might be stressing out when you don't have to be

 
4/13/10

How was the excel test? Can you share any details?

 
 
4/13/10

send me a PM of the firm. i've taken a modeling test at a top 5 REPE fund and maybe I can help you

 
4/13/10

I can perhaps help you also. I'm a 2nd year analyst at a PERE shop. PM me if you like.

 
4/13/10

Hey guys, I have a modeling test coming up with a REPE firm in Chicago; would any of you guys mind sharing what I can expect? I'd PM you directly but I don't have enough posts yet.

 
4/13/10

Just out of curiosity what do these tests tend to be like? How challenging/extensive are they?

 
4/13/10

RJW, if you want to PM me go ahead. I took my test a bit ago and can give you more details if you'd like.

 
4/13/10

Hey guys, I don't know if you're still opening any mail from this thread, but I will also be interviewing with a large manager where I was told there would be an on-site modeling test. My background is actually in architecture and I just spent a year working in RE via a FoF, so I am familiar with industry terminology and the like. However, modelling is a different animal and I've taught myself as much as I can on a personal basis....would you guys have any advice to offer? I would PM but I don't have enough SBs :( Thanks in advance for the help lads, appreciate it.

 
4/13/10

I recommend taking one of Bruce Kirsch's seminars. www.getrefm.com

Good luck.

 
 
4/13/10

Just as a quick answer, RE is all about cap rates. There is a RE company in Orlando being restructured right now, so I wonder if that's the one they meant. You can google cap rates though to read more, but that's a basic valuation metric for RE analysis.

 
4/13/10

Also, I wouldn't address questions you didn't know in a follow up. Having been on the other side, it doesn't help me that someone was able to go find an answer to a specific question I asked. I want to see general thought process if they don't know the answers. Perhaps a higher-level statement about not being as familiar with the RE specific types of valuation, but eager to learn and translate the general princinples you've learned in your past experiences into the RE field.

 
4/13/10

Comparables, especially of recent trades. These's lots of activity in FL with these ~100 unit subdivisions. Lots of busted condos.

100 units in Orlando is about 10 - 25mm depending on condition, neighborhood. Assuming its finished/built, find active brokerages in the region (HFF, CBRE, Marcus Millichap, ARA, call them up and ask to speak to person in charge of the area, ask for his/her opinion, recent transactions. They are all called something similar to "National multifamily housing group" Do that with all the brokerages around. Assuming you know the size of the units, you'd ask about how much each would rent for, as a unit or psqf, don't forget local brokers/agents, find out what's the typical vacancy, plug a reasonable number for bad debt. Essentially you just need to do some research of the local market by calling people who would know the best, and piece together the information.

Expenses can include, payroll, service contracts, management fee, admin, professional fees, repair maintenance, supplies, fuel/electricity/water.

Get an idea of cap rates, cap rate trends, use the I&E to get a NOI and then get a price. GL

 
4/13/10

To answer the question I would look at average rents in the area for the 1 and 2 bed apartments for similar product($1000 / month) and also look at the cap rate that properties are trading at (6%). Look up what a competitive operating margin is for apartment blocks (75%). Note: I estimated the number, I really know nothing about Orlando...

NOI = 100 units x $1000 / unit / month x 12 months x 75% = $900k

Rough Value = $900,000 / 6% = $15 million

The above poster covered most of the expenses.

 
4/13/10

All,
Thank you for the timely, though-out responses- greatly appreciated!

@Mandava: You are exactly right in mentioning that they want to know your thought processes. The way they worded their questions during the interview, and their responses to my answers, I could tell they wanted to see my thought process.

Received an email today explaining that they'd like to move forward with the interview process. I need to send them a 3-hour time slot that I'm free to complete a case study. Should I expect something similar to what we've been going over in this thread?

Regards

MKballer

 
4/13/10

assume you're going to have to build a leveraged investment model of some sort.

cap your net operating income then deduct transaction costs. Depending on how the rent/quality compares to other properties in the market you can adjust your cap rate higher or lower...

 
4/13/10

what firm is this or where is it located. I had a similar type of interview a few days back in baltimore, asking some of the same questions and a case study follow up.

 
4/13/10

If you have more than a week before your next interview, I would seriously consider finding peter linneman's book at the school library and reading it completely. I would say it is the best book on real estate investing.

http://www.linnemanassociates.com/textbook.html

 
4/13/10

Thanks for the info. I'll definitely look into Linneman's book.

@moneymaker, I'd rather not reveal the name of the firm at the moment.

Regards,
MKballer

MKballer

 
 
4/13/10

Depends on what the reps specializes in

 
4/13/10

Multifamily value-add in secondary markets

 
4/13/10

Modeling skills are always a given. MF Value-add is all about feasibility. Think the scope required to achieve expected yield on costs, market acceptance of renovations (rent delta) and Capex budget review. PM me if you want further details (I work in multifamily).

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9 LBO Modeling Tests, 10+ hours of PE Cases and 2,447+ interview insights across 203 private equity funds. The WSO Private Equity Interview Prep Course has everything you'll ever need to break into the competitive PE industry. Learn more.

 
 
4/13/10

1) All I know is that you have to assume a pre-sale velocity of how many units sold per month. I know for condos you only model sales in the reversion year.-not sure this helps.

2) to figure out a good investment return rate for debt it would probably compare to what cmbs/banks are looking at for debt yield so anywhere from 7% to 8% on debt. Equity discount rate depends on if pref equity of JV, 15% for pref and maybe 30% for JV not sure. I hope someone who does this all day can lend a hand.

 
4/13/10

There was a condo development thread a couple months back that was pretty good. A running theme there was whether or not the developer would be paying association dues for the project on unsold units, but there other discussion is probably very pertinent to your question.

 
4/13/10
  1. how does pre-sale residential work? (deposit as cash flow? assuming rest of the payment due in construction completion? pre-sale means actually selling flats? so chunk sale proceeds and no rental revenue afterwards?) - any background on the possible situation, background.

you basically have three variables: delivery pace, settlement pace, and deposits. delivery pace will tell you when the units come to market (6 units/mo..or whatever). you get 0 revenue from the units delivering, but this is important because there are usually HOA fees that need to be paid on these units once they are delivered, and if units are on the market (aka delivered) but haven't been sold, you as the owner have to pay those fees (recorded as a cost) until they settle. also, the delivery pace will probably impact when your capitalized interest for development costs turn off. settlement pace is when the units actually sell (assume 6 units/mo or whatever..), and this is when you realize the $$ and when your HOA fees start burning off. For deposits, just use an assumption like 1 mo before settlement, and have it hit your revenue line then. Once everything is sold, you're done. no rental stream.

  1. things to consider specifically when forecasting future cash flows

wouldn't be surprised if they throw in parking/storage unit sales, in which case you could match that with the % of units sold each month (for example if there are 300 parking spots selling for $1,000/space, calculate the % of units settled during any period and apply that % to 300*$1000...or some other assumption you can think up). also, you have to pay commissions for each sale, so you have to record that as a cost or contra revenue account (3-5% of sales price, but it depends). also, need to take into account taxes, entitlements, and all the other fees you get caught up with, which will help you derive your pre tax and post tax profit. assume that's 30%? not entirely sure how that's calculated.

  1. what discount rate would you use for DCF model?

If it's a shitty and risky location/deal, start off with 9%+. If it's a good location/deal, start off with =<6%. If you don't know, start off with 7.50%. Then factor in your cost of debt (assuming you're doing a leveraged DCF) and other adjustments to your cost of equity.

 
4/13/10

also, congrats on the interview

 
4/13/10

thanks everyone for the help. So from what I gathered so far, the equity/debt injection is not so structured as they would be in a traditional LBO scenario. You have equity getting injected when there is negative cash flow (construction/development costs > deposits from pre-sale).

With this uneven cash flows for both equity and debt, you can work out what the IRR would be for both. But then how would you make a case for which is a better investment?

 
 
4/13/10

1). Biznow is good, you can register for free and select the market(s) you are interested in.

2). NAV is used for valuing REIT stocks and not property level deals. If you are talking about a property level deal you will likely be using the income approach (direct cap or DCF) and the sales approach as you mentioned. You should also look at the replacement cost (cost approach) of the asset as well...Regarding DCF vs. direct cap - direct cap is basically like the P/E ratio for a stock it just divides the NOI by a cap rate. The cap rate that you use is just like using a multiple to value a stock. Direct cap is good if the property is stabilized (fully leased). If the property is not stabilized or if there will be large cash outflows in the future (below the NOI line) for rehab, leasing (TI/LC), etc then you should use DCF. You really should use DCF no matter what and direct cap as a dumby check. To do a DCF you have a have an exit cap rate which means you need to have a feel for current cap rates anyway....Regarding specific DCF nuances for RE compared to corp fin like I said you are using the cap rate vs. the exit multiple and the discount rate for RE is more market driven than just simply using WACC as the discount rate in corp fin.

3). To answer your quiz question yes the "ROE" you have would be correct at 7%. Good job.

Hope that helps.

 
4/13/10
"IRRelevant" wrote:

1). Biznow is good, you can register for free and select the market(s) you are interested in.

2). NAV is used for valuing REIT stocks and not property level deals. If you are talking about a property level deal you will likely be using the income approach (direct cap or DCF) and the sales approach as you mentioned. You should also look at the replacement cost (cost approach) of the asset as well...Regarding DCF vs. direct cap - direct cap is basically like the P/E ratio for a stock it just divides the NOI by a cap rate. The cap rate that you use is just like using a multiple to value a stock. Direct cap is good if the property is stabilized (fully leased). If the property is not stabilized or if there will be large cash outflows in the future (below the NOI line) for rehab, leasing (TI/LC), etc then you should use DCF. You really should use DCF no matter what and direct cap as a dumby check. To do a DCF you have a have an exit cap rate which means you need to have a feel for current cap rates anyway....Regarding specific DCF nuances for RE compared to corp fin like I said you are using the cap rate vs. the exit multiple and the discount rate for RE is more market driven than just simply using WACC as the discount rate in corp fin.

3). To answer your quiz question yes the "ROE" you have would be correct at 7%. Good job.

Hope that helps.

Agree with everything in the above except with the exit cap on a 5 year DCF you should assume some cap rate expansion to be conservative because it's not 100% right to assume that cap rates will be the same in 5 years. We tend to pick a certain bp increase per year and add that to current cap rates.

 
4/13/10
Quote:

Agree with everything in the above except with the exit cap on a 5 year DCF you should assume some cap rate expansion to be conservative because it's not 100% right to assume that cap rates will be the same in 5 years. We tend to pick a certain bp increase per year and add that to current cap rates.

Agree with this comment. Increases to cap rate are broadly based on interest rates. If we're expecting an increase in September, the model should account for cap rate expansion in that period. Histrionically, cap rates in major markets such as NYC and SF are expected to "expand" less than in other regions such as Midwest.

 
4/13/10
"G Spread" wrote:

-If you have an LTV of 75%, a cap rate of 4% and a 3% interest rate, what is your ROE?*
-Do you have general advice for these sorts of interviews? It's for an entry-level role. I already checked other parts of the forum, but was wondering if you might have any new insights.

Thats a solid question for a repe interview..do you have any more? is there a resource out there that has similar style questions for repe?

 
4/13/10
"inspiredanalyst" wrote:

"G Spread" wrote:
-If you have an LTV of 75%, a cap rate of 4% and a 3% interest rate, what is your ROE?*
-Do you have general advice for these sorts of interviews? It's for an entry-level role. I already checked other parts of the forum, but was wondering if you might have any new insights.

Thats a solid question for a repe interview..do you have any more? is there a resource out there that has similar style questions for repe?

I found it in the company profile section of WSO. You can filter the interviews by group, so I just searched for "REPE" or "real estate."

 
4/13/10
"G Spread" wrote:

NOI is 4% of the property value. Interest expense is 2.25% (75% * 3%) of the property value. ROA = 4% - 2.25% = 1.75%. ROE = 1.75% / (1 - 25%) = 7%.

I believe you mean ( 1 - 75% ) but yeah that's right

 
4/13/10

Just to pile on a little bit - "precedent transactions" are called comps in RE. Also, to answer your question about DCF, you would discount your cash flow (NOI less capex) not NOI

 
4/13/10

Yeah I totally agree and was just trying to say you have to know current market cap rates anyway as a baseline for your exit cap.

 
4/13/10

Thank you very much everyone! Your answers were very helpful.

"IRRelevant" wrote:

1). Biznow is good, you can register for free and select the market(s) you are interested in.

2). NAV is used for valuing REIT stocks and not property level deals. If you are talking about a property level deal you will likely be using the income approach (direct cap or DCF) and the sales approach as you mentioned. You should also look at the replacement cost (cost approach) of the asset as well...Regarding DCF vs. direct cap - direct cap is basically like the P/E ratio for a stock it just divides the NOI by a cap rate. The cap rate that you use is just like using a multiple to value a stock. Direct cap is good if the property is stabilized (fully leased). If the property is not stabilized or if there will be large cash outflows in the future (below the NOI line) for rehab, leasing (TI/LC), etc then you should use DCF. You really should use DCF no matter what and direct cap as a dumby check. To do a DCF you have a have an exit cap rate which means you need to have a feel for current cap rates anyway....Regarding specific DCF nuances for RE compared to corp fin like I said you are using the cap rate vs. the exit multiple and the discount rate for RE is more market driven than just simply using WACC as the discount rate in corp fin.

3). To answer your quiz question yes the "ROE" you have would be correct at 7%. Good job.

Hope that helps.

An SB for you!

 
4/13/10

I suggest you pitch a product type in a particular region (or submarket if they're local players). You want your answer to align with their investment strategy. It gives them the impression that you're passionate about their style of investment and will not bolt as soon as better opportunity comes up (even if that's your intention).

 
4/13/10
"G Spread" wrote:

Where can I get up to speed on real estate market trends and recent deals? Is there a website or specific news source (preferably something free and online)?

Check the websites of your market's (or other markets' if you are interested or think they're relevant) big commercial brokerage firms. CBRE, JLL, Colliers, etc. A lot of times they'll post free quarterly market reports or you'll be able to provide your email address and receive them.

"G Spread" wrote:

Do you have general advice for these sorts of interviews? It's for an entry-level role. I already checked other parts of the forum, but was wondering if you might have any new insights.

I just started a pre-grad school internship with a REPE shop. I studied excel and the market like crazy leading up to it and stressed over everything. Interviewed with the company president and he talked to me about my background...and then talked to me about fishing and bee keeping. He wore jeans and has every day since. My advice is that it's never as difficult or as stressful as you think it will be. If you have an interview, they already like your resume. Your job is to not mess that up, be yourself, and hope they like your personality.

 
 
4/13/10

Use the search function.

 
 
4/13/10

What stumped you? Examples of questions? Was there an excel or model test? There's a ton of reading on REPE on the internet alone. The more you create and support REPE excel models and the more you read, the more you will inevitably understand. There no dictionary to memorize. Short answers are the worst answers IMHO. Always expand your answers to ensure the interviewer believes that you know your stuff. Its about fluid conversation regarding past and potential deals etc.

My 2 cents at least.

 
 
4/13/10

forgot to say its full-time analyst position. i'll be graduating this may.

 
4/13/10

I had an interview for the same type of gig a few weeks back. It was essentially all behavioral other than talking about some related coursework and my interest in real estate. This was only first round so it may not be relevant to you, but I was pretty shocked as to how focused it was on fit rather than technical.

 
4/13/10

hm ok. yeah it is first round as well. ive been on interviews where it was 100% technical and others where it was 100% behavioral. trying to figure out what exactly PERE firms ask....

 
4/13/10

for technical

they might ask you DCF..

for real estate appraisal
1. cost approach
2. sales comps
3. income

 
4/13/10

1st round for an undergrad hire likely to be behavioral. unlikely you'll need anything beyond what you've learned in re classes at usc (program has a great rep). if anything, "technical" questions will likely test your knowledge of basic industry metrics (cap rate, yield on cost, debt constant, etc.). in office visit might get a little more technical, but i don't know of many pere shops that give an excel test or case study.

 
4/13/10

ditto pretty much what everybody else said.

def show a passion for real estate, thats VERY important out of undergrad as you cant get too technical on a guy who's enrty-level.

know the basics to valuation, and dcf in the context of an income-producing commercial property.

you wont need to know this, but just in case:

*cap rate and how/why its relevant
*debt-service coverage ratio
*loan-to-value
*and know how these ratios relate to each other

read stuff in ca real estate journal, globe st, costar, any re publication. research the firm and know their recent activity. know what trends are for the product type and area the firm is investing in.

thats about it, good luck!

man made the money, money never made the man

 
4/13/10

just noticed this thread is kind of old, oops. how did the interview go?

man made the money, money never made the man

 
4/13/10

went well. i interviewed for a internship for the spring semester as well as a full-time position. mostly behavioral. only question i got was walk me through an investment opportunity and why our firm should invest in it.

 
 
4/13/10

Very interested in this as well, was about to ask the same question regarding a PE Real Estate/REIT fund.

 
4/13/10

I work for a mid-size PE real estate firm. In our interviews we look to see if you have an understanding of cap rates (reverse PE ratios), the different types of easements and an understanding of property rights (surface rights, subsurface rights, etc). Other than that, you are mostly judged on your understanding of financial concepts and fit.

Hope this helps.

 
4/13/10

Agree. We have a massive RE portfolio underlying our existing operating portfolios and if I were interviewing you for a position I would question your knowledge of industry trends (increasing cap rates, higher vacancies, reduced rents, etc.). I would expect you to be familiar with how to value a property so for example,

say i own a retail center with 300,000 sf and I think on a highest and best use basis I could rent it out for $9.00 psf at a 7 cap...I would expect you to say ok, total market rent would be $1.8M on 300,000 sf at 9 bucks...the net property value equals the market rent $1.8M divided by 7% (the cap rate) or approximately $25M. I would then ask you what your perspective is on LTV for this type of property based on current market terms (i.e. 65% LTV). I would be familiar with the CMBS market (or lack thereof).

 
4/13/10

ha note i did the calc based on 200,000 sf friday give me an fing break have a good weekend

 
4/13/10

hmmm rental revenue doesnt equal Net Operating Income, remember that for your interview.

cap rate = noi/property value NOT cap rate = rental revenue/property value

some key ratios:

loan to value = loan amount/property value

cap rate = (above)

debt service coverage ratio = noi/ annual debt service

where i use to work, we would have guys put together cash flow statements from scratch using rent rolls and a few assumptions, though i dont know how entry-level of a position youre interviewing for. good luck, im surprised PERE is even hiring entry level. just curious, why go from ib to pere? pere is in the dumps right now and will be for a while.

man made the money, money never made the man

 
4/13/10
mr1234 wrote:

hmmm rental revenue doesnt equal Net Operating Income, remember that for your interview.

cap rate = noi/property value NOT cap rate = rental revenue/property value

some key ratios:

loan to value = loan amount/property value

cap rate = (above)

debt service coverage ratio = noi/ annual debt service

where i use to work, we would have guys put together cash flow statements from scratch using rent rolls and a few assumptions, though i dont know how entry-level of a position youre interviewing for. good luck, im surprised PERE is even hiring entry level. just curious, why go from ib to pere? pere is in the dumps right now and will be for a while.

In my case, I'm in S&T not IB, so it's even more of an unusual jump. However, the fund I am interested in, is my cousin's fund, and they have a lot of dry powder.

 
4/13/10
 
4/13/10

Also, it's for an internship, so I don't know if the interviews are different. Just became interested in RE after working on some deals.

 
4/13/10

well it sounds like your applying for a really basic, really entry level type internship since you dont have any re background. i dont think your interviewer will expect you to know much. so if you demonstrate that you know the economics behind the ratios above and you can explain what re trends are doing today, you'll be good.

man made the money, money never made the man

 
4/13/10

Are there any good websites out there than can give you an overview of the industry and that go into the minutia like the cap rate etc. ?

Also, how transferable is the skill set from RE PE to traditional PE or hedge fund work?

 
4/13/10
monyet wrote:

Are there any good websites out there than can give you an overview of the industry and that go into the minutia like the cap rate etc. ?

Also, how transferable is the skill set from RE PE to traditional PE or hedge fund work?

look at my old posts, you'll find all kinds of useful stuff.

also, the skill sets do not tend to be transferable at all. from my expereince, i have not heard of anybody moving from repe to vanilla pe, BUT i have heard of people doing the opposite.

man made the money, money never made the man

 
 
4/13/10

Is this with Morgan Stanley? I have that interview coming up this week on Thursday. From what I have heard, it is mostly behavioral compared to I-banking. Having that said though, I have also heard that having a good knowledge of products and of RE is pretty vital.

Good luck with the interview. Btw, do you know what pay packages in REPE are like relative to IBD?

 
 
4/13/10

You're a junior in HS..?

He probably wont ask you much other than...why real estate and where do you think it's going...

 
4/13/10

.. kids get internships in HS nowadays? kudos to you

Take it as it comes
JJ

 
 
4/13/10

Actually decided to start a blog that discusses some basic real estate finance concepts. Only has a few posts so far, but will still help you out in your interview. basicrealestatefinance . blogspot . com /

 
4/13/10

there is actually a lot of news that covers REPE and real estate in general. The WSJ has a real estate section as well (you definitely should be reading some form of literature to stay up to date on world events)

costar.com/news
perenews.com

you can start off with those. best of luck on the interview.

 
4/13/10

Not much help here, but I would love to be in your position. If you dont mind me asking, what were your previous internships/ how did you get this internship?

 
 
4/13/10

What firm if you don't mind me asking? I recently interviewed for a REPE firm and was asked mostly behavioral questions. Biggest advice I have for you: make sure you have a solid (and unique) answer for why RE. I can't emphasize it enough.

 
4/13/10

Assuming you're interviewing for entry-level, you shouldn't expect a lot of technicals. Know:

*Cap rate
*IRR and NPV
*NOI and how to calcualte it
*Argus, download the trial version and play with it

Fez is right, have a thoughtful answer when they ask you "why real estate"?

Man made money, money never made the man

 
4/13/10

What if their definition of entry level is 1-2 years. What would I need to know then?

 
4/13/10

At 1-2 years experience, you still need to know:

*Cap rate
*IRR and NPV
*NOI and how to calcualte it
*Argus, download the trial version and play with it

Fez is right, have a thoughtful answer when they ask you "why real estate"?

+

Find a way to demonstrate real-estate excel experience. What kind of real estate do they focus on?

 
4/13/10

You need to know the strategy and capabilities the firm has that you are interviewing with. Once you know their strategy then you can familiarize yourself with the type of lingo they want to hear. You should be knowledgeable about their previous transactions (assuming they are public or you can find press releases), get an idea of how they are valuing real estate, their source of capital, other relevant transactions in the marketplace, etc. good luck

Debt, Equity, Mezzanine and everything in between.

 
 
4/13/10

Not sure how in depth they will want you to go? What is your background? If you are RE IB they will expect a much more detailed analysis, are you straight from UG?

 
4/13/10

Office rescues are a pretty common strategy in the opportunity fund space. The idea here is that a fully-leased, institutional-quality building with little to no deferred maintenance will normally trade based on cap rate to a REIT or "core fund" that is buying for yield. Falling fixed income yields have driven a lot of traditional yield buyers up the risk curve, so there's a lot of demand for stabilized, relatively low-risk real estate assets seen as a good substitute for fixed income.

The strategy as an opportunity fund is to buy a broken office building with "good bones" in which a prior owner has failed to make adequate reinvestment. Often this follows financial distress: the value of the property has fallen below the value of the debt, so the prior owner has no incentive to spend new money on tenant improvements and leasing costs, and as a result vacancy soars and the building falls into disrepair. This presents an opportunity for a private equity fund to buy the building (often through the debt), invest in modernization and repositioning (which are often called "market-ready improvements"), and then offer TI packages and broker bonuses to lease up the vacant space.

One important metric to evaluate is yield on cost, which is essentially the NOI you believe the property will generate once you have completed lease-up divided by the stabilized basis (which is your purchase price plus all the capital and leasing costs required to stabilize the asset). What you are trying to arbitrage is the gap between a stabilized yield on cost and a core cap rate. Simple scenario: if core buyers are typically pricing stabilized assets to a 6% yield, but you can buy this vacant asset and stabilize it to an estimated 9% yield, you can make a ~1.5x multiple excluding interim cash flow. Payback period would not typically be something you consider during your hold as a PE fund.

As for your modeling questions, when you evaluate returns you care about cash. Amortization of capital items is an accounting concept, and something that you always attempt to reverse when you perform a DCF or IRR analysis (not just in real estate). Capex, TIs, and LCs should be registered as a negative cash flow in the period where the cost is paid.

 
4/13/10

re-ib-ny, you should really start a CRE blog.

 
4/13/10

Great feedback from re-ib-ny... SB + 1 for you.

Good to see other RE guys on WSO.

 
4/13/10
 
 
4/13/10

Try to get a handle on the real estate valuation process, Sales Comparison approach, Direct Capitalization(understand cap rates in general), Cost approach, DCF. Express your interest in real estate, make sure you come across as wanting to work in the real estate industry. Firms can sniff out the kids who are more interested in interviewing at traditional PE, Hedge Funds etc.

 
4/13/10
Jeezy wrote:

Try to get a handle on the real estate valuation process, Sales Comparison approach, Direct Capitalization(understand cap rates in general), Cost approach, DCF. Express your interest in real estate, make sure you come across as wanting to work in the real estate industry. Firms can sniff out the kids who are more interested in interviewing at traditional PE, Hedge Funds etc.

Yep, this. Word to Jeezy

 
4/13/10
 
4/13/10

Also, I am probably stating the obvious but depending on what this firms strategy is you should look into what types of product they invest in, is it multifamily, retail etc. and get a feel for that market.

 
4/13/10
 
4/13/10

NPV, IRR, cash on cash, discount rate, wacc. On the non-technical side, be specific and enthusiastic about why you want to be there. I know it sounds obvious, but many people don't do this when interviewing.

 
4/13/10

NPV, IRR, cash on cash, discount rate, wacc. On the non-technical side, be specific and enthusiastic about why you want to be there. I know it sounds obvious, but many people don't do this when interviewing.

 
4/13/10

+1 to above

Because Real Estate is such a relationship-driven industry, firms are looking for someone personable who's actually excited to be there, it doesn't take a quant phD to do back of the envolope calculations. My last part of the interview was, "Oh and I guess we didn't bring this up earlier but you know about waterfalls, JVs, IRR, and cash on cash returns right? OK Cool."

Fill the unforgiving minute with 60 seconds of run. - Kipling

 
4/13/10
Gene Parmesan wrote:

+1 to above

Because Real Estate is such a relationship-driven industry, firms are looking for someone personable who's actually excited to be there, it doesn't take a quant phD to do back of the envolope calculations. My last part of the interview was, "Oh and I guess we didn't bring this up earlier but you know about waterfalls, JVs, IRR, and cash on cash returns right? OK Cool."

This 100%. Just wrote a blog entry about it. Silver nanner for you

 
4/13/10

CRE - what's your blog? I'd like to check it out

 
4/13/10
RJW1290 wrote:

CRE - what's your blog? I'd like to check it out

hah, it's nothing big. Right here on WSO

http://www.wallstreetoasis.com/blog/129571

There are 4 whole postings right now

 
4/13/10

I come to America to make party, yes?

Fill the unforgiving minute with 60 seconds of run. - Kipling

 
 
4/13/10
 
 
4/13/10

Is this to buy or sell

 
4/13/10

The only correct answer is comps. Anything else is BS to make it more complicated

 
4/13/10

If it's an income producing group (development) of SHF's then there is much more to it than comps. Get the noi and expenses and do the dfc (this is 1 of 2 income approaches-the other being a straight cap). Yes get comps. Connect these 2 findings (income approach and comps) and narrow the price gap to something in between the two (justify with common sense and market knowledge). If it were me I'd find construction numbers for the cost per pound approach as well. Call brokers, call developers, costar it, registry of deeds if you don't have costar or a good lookup software, call a gc to discuss the cost per foot of those style homes. Go above and beyond.

 
 
4/13/10

LReed, have you checked out these or run a search:

No promises, but maybe one of our professional members will share their wisdom: @Chu Chuen-Chang @marqix @Kush-Patel123

Fingers crossed that one of those helps you.

 
 
4/13/10

I've done these interviews before. It's really nothing, the recruiter will ask you a few basic questions and throw your resume into the stack. I wouldn't take time off for it, ask them if you can do the interview on a Saturday morning or a weekday after work.

 
4/13/10

That's exactly my thought too. Do you know how much power they have in the recruiting process? Also, I have to fly down to my college (Midwest) for the interview, which makes me think that they are some what serious since they are making some investement for themselves as well.

 
4/13/10

The recruiter is footing the bill for you to fly down for the interview? In that case I'd say go for it! Its only one day of PTO. What do you have to loose? You can't home runs if you aren't swinging.

 
4/13/10

No, I meant to say they are paying for themselves to hire us, not to me personally. Sorry for the confusion, it was stupid on my part to mention this to you. lol

 
4/13/10

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Fill the unforgiving minute with 60 seconds of run. - Kipling