REPE - Capital Allocator or Vertically Integrated Owner/Operator

WSO Member - Anon account.

Do you learn the most at a traditional capital allocator (e.g. REPE 50) or at a vertically integrated owner/operator/sponsor? Has anyone here made the switch from one to the other? What did you learn in one and not in the other?

Background: Finance/Banking (2-years). Current: Associate working for a very respected and well known vertically integrated operator. Multiple vehicles with discretionary capital in a Tier 1 market. Few billion in AUM. Development and re-development. Will do JVs outside of our funds as well.

I'm getting a very broad experience, but worry that (1) I could be at a more institutional REPE firm and get a better sense for how these guys think and (2) am not seeing / closing as much volume as I would at a larger asset manager. I do think that I'm much closer to the assets and this has helped me tremendously in understanding RE. We also tend to run the financing process. Do capital allocators have a say when they do JV's? On the deal I've worked on, we pretty much run the show and just get their sign-off.

At the same time, I think I may just be suffering from some of "the-grass-is-always-greener" thinking. Here's what I'm getting at - is it better to be a Apollo or RXR? Yes, this depends on my goals. I ultimately want to be an investor with money behind me, but I think that having GS/KKR on my resume will help in raising capital outside my market.

Appreciate your thoughts on the matter.

Comments (18)

Oct 7, 2018

bumping this...great question. Would love to hear from someone who has experience at both, currently work for a vertically integrated sponsor.

Most Helpful
Oct 7, 2018

I have only worked for institutional REPE shops. I would say that working for an operator is far better experience for doing your own deals than is working for an LP equity provider. The benefit of working for an established LP equity provider is substantial transaction activity / deal-flow and learning institutional best practice / processes. I have executed on many more deals than my owner-operator counterparts. However, I don't think the VPs/Associates/Analysts in my shop are well positioned to do their own deals given their lack of day-to-day operational expertise.

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Oct 8, 2018

Appreciate the response.

If I were interviewing at your shop, what kinds of questions would you want to ask me? Where do you think my weaknesses lie? What would my biggest hurdle be in moving to an allocator?

Nov 1, 2018

Exactly what you would expect - modeling/technical capabilities and volume capacity. I'd want to make sure that if I hand you a couple of funky mixed-use assets to u/w that you are able to turn around a valuation and investment highlights in little time, without needing to ask me questions. Coming from an operator shop, I don't know if you are able to jump from one or two deals at a time to four or five. A main factor here is that at an operator shop you might be getting too caught up in the weeds for certain items. Lastly, operator to LP transitions likely means bumping up your work hours and coming in on weekends, so I'd want to make sure that this would not be problematic. This is not a given.

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Nov 1, 2018

Definitely go the allocator route. I made the switch from a GP to LP a couple of years ago. More deal flow, more markets (and more travel), more asset types, no time wasted pricing doorknobs.

People often ask: why real estate? Do not say, "because you can TOUCH and FEEL it" or "I like skylines"...sounds elementary. I think the best answer is something along the lines of a strong interest in learning what drives different markets and microeconomies, learning how people work/live in different areas, etc. etc. This can best be achieved through an allocator REPE role, not a localized GP.

    • 1
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Oct 7, 2018

I think everyone should start out doing asset-level deals, getting into the weeds of RE due diligence and learning how things like leasing and property management work. That being said, once you get that experience, I do think that having GS or KKR on your resume and having experience at an allocator will help you in raising funds for your own practice. Not only does it give your resume more clout because of the namebrand alone, but it also allows you to boast greater/larger deal experience when you're pitching your credentials to investors. You may also have access to a larger network within capital markets working for a globally recognized allocator.

At the end of the day, the hardest part of starting your own fund is going to be raising the capital. Real Estate investing is finance for C students - you don't need to be a genius, just a little experience. Once you've done 2 - 3 years in the weeds of property-level acquisitions and asset management, your focus needs to shift to building up your network and making the right connections.

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Oct 8, 2018

Appreciate the reply - this is my sentiment as well. Few questions:

  • Looking at your post history - looks like you came from a developer and are now in REPE. Let's say I want to move to a REPE 50 shop - what are you guys looking for from a candidate like myself? What would my "weaknesses" be just from a high level perception? I've worked on everything from redevelopment, development, and public-private partnerships. We've partnered with probably a dozen REPE 50 shops over the years. I'll note that I think one weakness is that we only do deals in our market..
  • What's the ideal time to move? I'm doing acquisitions and would want to move to acquisitions. I've got about 3-years of real estate experience (my whole career) so I think it would make sense to come in still at the associate level. My hesitation is that they'd make me come in as analyst - I'm not fond of that idea. But, can understand the logic (i.e. you need to learn our process and you cant be running the process as an associate if you didn't even know it at a lower level). Should I be trying to make this move asap?
Oct 8, 2018

Probably your biggest challenges would be;

  • A decent amount of the top REPE funds recruit predominantly ex-bankers or promote internally with a much greater frequency than they hire laterals from smaller shops. Look up Associates at Blackstone on LinkedIn and you'll see what I mean.
  • Sometimes at owner/operators and developers you get an incredible DEPTH of knowledge but not necessarily a very wide breadth of knowledge across different transaction types and asset classes.

As for the ideal time to move, that's not a straightforward answer. It's not easy to find new employment and it's not urgent that you leave your current job (as it sounds like a fantastic gig). I get asked this question too often and the only thing I can tell you is that you should ALWAYS keep EVERY option open. No you shouldn't quit your current job and go into 24/7 job hunting mode, but be on the lookout on LinkedIn and SelectLeaders for compelling jobs, contact a few headhunters or other connections and put a few feelers out. You should always collect every business card you can, touch base with every headhunter that reaches out to you and be at least vaguely aware of who is posting job openings on the major job boards.

Oct 9, 2018

Yeah, makes sense. I'm guessing you're talking REIB - but what you're really saying is perception. I will note that I was debt lending at a well-known bank and know of a few kids that ended up at places like my shop, REITS, some true-allocation-only REPE, and debt funds.

I understand what you're saying Re: timing, but have to say that there is in fact a critical period, generally. I've interviewed a number of kids that are 28 that could definitely come on as an associate but it's just not a 28 y/o's job and we've passed on those guys. That's not to say "you cant do it" - I'm a big proponent of the idea that you can do whatever the fuck you want to do - not to mention RE is probably the most rewarding finance-oriented space to hustlers.

Maybe a better question is this: what specific day-to-day tasks am I just not getting to do? I think it really all revolves around #2 - breadth of experience across various asset classes, locations, and the risk spectrum. Thoughts?

Oct 9, 2018

I think you have it right. Owner/Operators and developers (in my experience at a developer) keep a few large deals in their pipeline every year and pursue them cradle to grave. A lot of my time at a developer was spent as an information broker between property managers, municipalities, construction contractors and our leasing team trying to get everyone on board with pricing, lease terms, zoning agreements, etc. Our deals would take years from start to delivery and during my tenure I only worked on a handful of deals, but I was constantly updating the underwriting to adjust for construction pricing updates, ground rent/leasing term updates, etc. The investment teams at the large allocators move much more rapidly than that and when they do get in the weeds it has more to do with the financing structure of a deal versus getting into the weeds of construction phasing or ground rent negotiations.

As for timing, you're right that if you're a 28 year old analyst whose only ever worked with one asset class it wont be easy to switch. If you're trying to switch asset classes or from AM to Acquisitions or something of that nature, it's easier to do that before you get promoted to associate. After that your added-value starts shifting towards your ability to be a specialist within your role/firm rather than being a generalist analyst. That being said, there's no right answer to whether or not lateraling is going to benefit your career in the long run. So much of success in Real Estate comes down to being in the right place at the right time. Lateralling to the firm with the highest AUM is not neccesarily going to promise you the best prospects in the long run. The $1B AUM shop that you leave might grow to $5B AUM over the next decade and you may be leaving behind the opportunity to make VP at a rapidly growing fund that you have an inside edge at because you were one of the original guys on the team. You have to decide these things for yourself.

Oct 8, 2018

I would say it depends entirely on your career goals.

At an owner/operator you'll likely gain a more broad knowledge of RE with opportunities to learn everything from acquisitions to construction to property management whereas a fund, you might be in a more heavy finance role.

Oct 9, 2018

What exactly do you mean by more-heavy-finance role? I've heard this statement before but I cant exactly figure out what it means. My sense is that I'm already doing all that work - underwriting (Excel and Argus), dynamic cash flow models, whether we run a process or just reach out to our relationship banks, analyzing debt structures, returns analysis, waterfall and promote scenarios, fund-level return analysis.. Are you implying this is ALL i'll be doing at a REPE 50 shop? Gotta be honest with you -- outside of closing a deal, which encompasses DD, 3rd parties, legal etc., this is ALL I'm doing anyway.

Oct 9, 2018

Yes more of fund modeling and really just there for "approving" different projects. I guess it depends on the firm. Some can be heavily involved in what the operator is proposing in the business plan and others can be more hands off. Some might not even give a shit as long as they reach their returns.

Oct 9, 2018

Just had several lender calls over the weekend with a MF LP partner. They definitely have say in how terms get structured, and they have much deeper relationships with debt capital partners due to the number of transactions. Although as a sponsor we have a great name and reputation, the MF will have bigger clout.

Oct 10, 2018

Robert Clayton Dean: What is happening?
Brill: I blew up the building.
Robert Clayton Dean: Why?
Brill: Because you made a phone call.