Running your own shop

I already know there are threads about this topic with some great info. Starting this one to ask what would it take for you to start your own shop development or repe? Also do any of you do your own deals on the side to build a good base/track record before thinking seriously about going off on your own? Have you taken other steps to be ready to go down the road?Interested to see what you guys have to say, for me it's a pipe dream at this point but fun to day dream about sometimes. The ability to set up my own shop one day is also a big reason why I want to be in real estate instead of more traditional 'finaance.'

Comments (8)

 
Sep 29, 2020 - 3:48pm

I'll add to this as unlike some other businesses, the upfront capital needs is large and credibility is needed.  Not sure if mentioned already, but you should find a good partner, ideally 10-15 years older than you, with either a Balance Sheet or Veteran Experience but limited in the area you have expertise.  The scenario is you have 10-15 years of experience and know your stuff and meet this partner and do something great together.

Have compassion as well as ambition and you’ll go far in life
 
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Sep 26, 2020 - 10:32am

Opening my own shop is my goal and I feel that I'm actually on track to do so in the next 5ish years. For context I'm currently a Development Manager at a smaller firm that does both private equity placement as an LP and development acting as operator on our own deals (pretty unique in the RE space). I'm posting this so other younger users can take some of my techniques they find useful as well as others more senior can add some suggestions.

Generally the biggest challenge for those looking to start their own shop is raising the initial equity for both start up capital and deals. Developer fees (and acquisition, asset management, etc.) are key to getting stable cash flow to support back office and fixed cost and until you've got 2-3 deals going or at least 1 big deal you'll be stretched from a staffing perspective. 

The four most common paths of operators who have raised equity I've seen who bring us deals:

  • Be wealthy or in a rich family - you are already wealthy. If you are in this position you probably already work at your Dad's shop or he gave you cheap capital to get you started on your own.
  • Start small - focus on smaller deals you can do with only your money/equity that can be raised via friends and family means. Keep doing these small deals to build your portfolio until deal size increases.
  • "The Gift" - the incredibly fortunate either through their job or other networking get connected with a wealthy mentor who buys into you individually and wants to "teach the next generation". They help you raise money through their friends, use their big balance sheet to help you obtain debt, generally just support your growth and bet on you as a person.
  • Hybrid of "the Gift" and "start small" - probably the quickest/most probable way for most to start doing sizable deals early is to start and stay at the right shop and professionally grow until you are independently running deals internally. Once you have built enough trust and proof of individual execution with senior leadership you split off as your own company but partner up with your old firm on certain deals. This can take many forms with the most common being a "fee builder" relationship but essentially it would be a hybrid with divided responsibilities while you get to build your resume and experience as a company.

Now all of the above is important because if you aren't wealthy to begin with you'll want to figure out which strategy is viable for you individually based on your background, network and career opportunities. For example if you're already in a wealthy area or have someone in mind who has means and may be open to mentorship then start building those relationships now so when you go to make the jump you've got their support.

Other tips, suggestions and strategies I've implemented to set myself up to run my own shop in the future:

  • Work at a smaller shop that encourages autonomy - Although the prestige of a bigger brand name has value, working at a smaller shop allows you to wear many hats, learn all elements of the business and grow into responsibilities quicker than a big shop. Picking the right company that will give you a long leash while supporting you is key to progressing early enough and not completely floundering when you make the jump on your own.
  • Fight, scratch and claw for responsibility - development (like a lot of things in life) is learned infinitely better by doing, not from afar. You need to do everything in your power to prove yourself to decision makers so that you get full control of running a project as quickly as responsibly possible. The faster you can actually run a deal will give you invaluable insights into how all stages/areas of real estate and how they fit together.
  • Make a genuine effort to understand each element of real estate - too often I see members of this forum scoff at activities they don't view as "flashy" such as accounting, asset management, pulling comps, cold calling, etc. The reality is when you start your own shop that it will likely be just you, maybe a partner and an admin that all of these activities will fall upon. Yes you can outsource but if you don't understand how all the parts fit together you will not be able to intelligently guide third parties or employees resulting in big mistakes/miscommunication or even potentially getting taken advantage of. An example is accounting, a lot of people hate it and don't want to be involved with it. The reality is it is on you as the Developer to know your budget and financials for partners and you must intelligently set up your job in your accounting system so it is organized when you inevitably have to explain it to your lender, partner or tax man.
  • Treat each activity as a learning lesson - Drafting off my last point, shift your mindset of "unpleasant" activities and view them as a personal learning lesson towards your future. The reality of development is that even the small things if left unchecked or not understood can compound to big things which can sink a project. In particular if there are processes at your firm that have limited to no standardization, instead of getting frustrated that you work at a company that doesn't have it all figured out take the opportunity to design one and think through the steps. By spending this time and extra effort to work through it for yourself on someone else's dime, you'll be in a much better position once you have to go do this independently because you'll already have thought through the pitfalls, pros/cons and have field tested/refined it to know what works.
  • Think and act like an owner - start thinking and acting like an owner in your role now, no matter how junior you are. This has double the benefit in that it will help move you up the chain as well as you'll enhance your own skills/knowledge at the same time. If you think like an owner with every exercise, analysis and process you approach you'll really care about if it's organized and done right because others will have to rely on your work and you have the ultimate responsibility for outcomes. You'll exert that extra 10% to really learn it for yourself and will make a concerted effort to understand how it fits within the broader scheme of things. Even if you don't make the final call, by forcing yourself to think through what decision you would make in a scenario and observing the results you train/test your decision making ability, learn more about your strengths and get better in those situations until eventually you are the decision maker. 

These to me are the key ones but there are plenty of other things you can do to set yourself up mentally and professionally to run your your own shop. That being said I'm interested to hear other suggestions as you can always improve.

 
Sep 26, 2020 - 11:18am

Amazing answer, exactly what I was looking for. Thanks.

You mention working at a smaller shop can be beneficial, I agree with that and would actually prefer to work at smaller shop with good deal flow. I feel that it's the best way to really learn all the aspects that go into a deal and it's easier to stand out/move up earlier on. A lot of people are fixated on landing at a MF, that has its own benefits but don't think it's the best course for a person who wants to do their own deals down the line. 
On a related note how do you feel about B-School? An mba has its benefits in terms of developing a strong network and some shops prefer one, but what do you think? If given the opportunity should I go for one or instead do some of my own deals? 

The main thing about money, Bud, is that it makes you do things you don't want to do.

 
Sep 26, 2020 - 12:08pm

One big distinction I want to point out is that the above are (in my opinion) the best ways to advance towards your own development shop.

If you want to open your own REPE firm then that path is significantly different and although you still ultimately would want to run and control deals as much as possible prior to splitting off on your own there would be much more emphasis on developing your pedigree and personal brand as there is a greater need to sell yourself to institutional/sizable investors and that is something they value. 

The MBA decision relates to this as it would basically be the requirement for someone starting their own REPE firm however I think it has minimal to limited use for someone starting a development company. From what I've read and researched, an MBA's biggest value comes to those who are making a career pivot (i.e. moving from engineering to real estate), moving/changing locations or regions and further building your network.

For development purposes there is some value in having the MBA distinction and the brand name of stronger graduate programs when you are pitching yourself to investors and lenders (essentially they are betting on you when you run a startup) but as I detailed above development is best learned by doing and although shops can be extremely competitive in their recruiting it is still totally feasible to be hired out of undergrad by a development firm. Your best talking points and evidence you can succeed/run developments is pointing to a previous portfolio of success.
 

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