I am curious to hear about the experiences of the different real estate acquisitions positions across different real estate investment platforms. How would an acquisitions shop at a top REIT compare to top PERE firms? Do the hours and pay vary substantially? Any major differences in Culture? From my experience it seems that the REIT culture is slightly more laid back but would like to hear other opinions...
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depends on the REIT. biggest difference is you are at a public vs private firm. This effects the day to day significantly, as well as how you approach a deal. Depends on the asset, but youll find that REIT's often use revolvers and close quick, whereas PERE is more traditional secured debt.
because you're working at a public REIT, you have to deal with a lot of nuances you dont in PERE...such as earnings season, the Qs Ks and supplementals. Yes acquisitions is removed from this and most will fall to the FP&A associate....but don't kid yourself that your budget and expectations will be directly tied to their analysis.
Comp wise honestly I can't think there's a HUGE difference. Yes PE has the ability to pay a little more freely. Again, public REIT has to disclose salaries one way or another. Analysts start to slam a shop for having high G&A or salary expenses...bet your raise is going to be thin. PERE doesn't quite have as much scrutiny in that regard.
There's pros and cons in both. Yes traded REIT has more corporate accounting red tape and scrutiny, but revolving lines of credit can be really nice when you want to close effectively and fast. Equity in the form of stock issuance can also be a nice way to get money to deploy...rather than having to hunt down private investors and/or funds to plug your deal flow. I'd say the biggest thing working in acquisitions at a public REIT is how you value your asset. Somewhat gone will be your heavy analysis on promote and IRR...but a much larger focus on SIMPLY how accretive is your deal to the company and stock price? If you are in acquisitons and you pitch a potential deal, there will be an analyst who runs your numbers through an accretion analysis. Might look great to you, but if it doesnt move the needle for hte company, it simply isn't worth it. Compare this to PERE where, IMO, acquisitions is more singular and "deal by deal"
Why can’t PERE use credit revolvers?
You need steady cash flow for a revolver typically. REPE funds get capital commitments of say $500MM. They then get a subscription line that can be anywhere from 50-90% of the capital commitments. So then your capital stack looks like $500MM in uncalled capital commitments and say $375MM in a subscription line that is secured by the uncalled capital commitments. They then begin making acquisitions using the subscription line and the capital commitments. As the subscription line is wound down it can be replaced with a revolver, but they won't begin with a revolver.
This is on the money. We have purchased deals that have shitty 'market returns' i.e. IRR, EM, but provide a great revenue stream. To the point where the acquisition group was against the deal, but we bought it anyway, and we are losing money, but for some fucking reason it was purchased. Also we've had a deal killed because on a quarterly basis the deal was 'fucked', but on a monthly basis it was fine. But we look at everything quarterly especially the way our cost of capital is calculated. So fucking stupid.
Can you further explain your point on buying money losing buildings if you need to show CF’s? Isn’t this defeating the purpose?
Curious, how did a deal perform on a monthly basis but not a quarterly basis?
Oh and no I'd disagree on culture. REIT's I think are much more stressful because you have to meet stock prices, earnings, etc. You have executives who's compensation and net worth can swing wildly with a bad release or market movement. The hours I don't think are much different. In acquisitions your job is to hunt down and close deals...no matter where you are. Prior post explained why those deals might be different in approach or application, but the overall goal is the same. But expect the people around you, especially FPA, accounting, etc., to give off a much more stressful atmosphere during quarterly reporting and the rest.
Overall, I'd say there is much more talented people on the private side due to the incentive structure. There's certainly exceptions, yet just what I found interacting with top investment professionals on the public and private side.
There are some differences in approach...at least in my experience and pros and cons to each. I have decent context here, I worked for 3 years as an acq analyst at a major public REIT $30B market cap and left for an $18B AUM PE shop and spent 3 years there (before I got my current role in a family office).
The big advantage of the REIT was they leveraged at the corporate level, so deals are closed all cash. We had to constantly talk to our treasury group to get our WACC because there were so many factors that comprised it i.e. bond issuances, stock price etc. In the end, this approach allowed us to do more deals I think because we could pay a bit more during a time that credit underwriting was super tight for everyone else.
The big advantage of PE shop was we didn't have to answer to Green Street (sell side research firm) or the equity analysts at XX bank who would beat up my CEO on our new deals and question our investment strategy. The PE fund only needed approval of our investment committee and no one else (except our largest investor on deals over $200M). Also, PE did pay better (about 50% better).
In the end, I only got the role at the PE shop because my time at the REIT so it was worth the lower base in the short term to get the experience. I would say both groups were equally qualified and competent and the people could have excelled on either side...so no difference there.
Hope that helps. Feel free to reach out if you have specific questions.
Was there a difference in how the different groups looked at deals? Did the REIT place a bigger emphasis on cash flow versus IRR?
Yes actually. The REIT had a longer term investment horizon so less focus on asset appreciation/exit cap rates and more focus on stabilized cash flows. This is to appease the retail investors who were buying our stock for what they percieved to be a stable dividend. We would underwrite out to 10 years (by which point assumptions are meaningless) and sometimes even price in cap rate compression because it didn't matter the plan was never sell. Granted these assets were core A+ in major metros.
This was only marginally different from the PE shop which had a similar strategy but definitely more sensitive to exit underwriting.
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