Which Offer to Take? Debt or Development
Which of the following two offers would you accept -- A or B? Both are in hybrid Associate Director/Senior Associate roles in major markets on different sides of the industry. The context is leaving a top debt brokerage shop.
A) The first is originating and underwriting senior and sub-debt (mezz, pref, A/B, note purchases, etc.) with a private debt fund. It's a lean organization doing >$1B in originations per year, mostly on construction and transitional deals across most product types. Comp is about half base and half bonus.
B) The second is specific to one product type/thesis with a newer developer that has institutional capital. Much more entrepreneurial, and comp would be $10-20k/year lower but with carry in deals that could net hundreds of thousands more per year in the long run, but that won't be for 5 or more years and assumes everything goes well.
The ambiguity is intentional to maintain confidentiality. Thanks!
long-term, are you:
a) a salesman/agent/intermediary type of personality who will win tons of business and make a shitload of money off production/volume or
b) a buyside type of guy
One can get rich both ways. question is which way YOU are more likely to get there.
can also depend on the team. one group might look at you as a future leader, the other might look at you as a grunt.
This is a good viewpoint and reminder. I think this point -- big picture personality match -- is one of the most important factors next to the established vs. boutique/start-up (for lack of a better term) differences. Thanks for sharing.
These are completely different roles...
Your cash comp at a debt fund probably has a lot more runway than your cash comp at a developer. As well, your carry in the debt fund could equal carry at a developer due to deal volume and fund size vs. being staffed on 2-4 deals at a developer.
I'm also confused as to how you could be in a Senior Associate/Associate Director position at a development shop. It sounds like your background is in debt brokerage, which is a completely different business and skillset. Any context here? Hopefully, you wouldn't be thrust into being an excel monkey for the next few years, which basically would take you back to analyst. If I'm you, it seems like the path forward/upward is much more clear at the debt fund plus it will likely be more/similar comp even later in your career where carry is a much larger piece of the equation.
Obviously, if you want to be a developer and that's where you want to be eventually, then you basically have your decision right there.
I have seen the jump to those levels especially to smaller developers as it seems OP has an offer from and if the role is more finance/capital markets focused vs development manager focused.
@jpacai Thanks for weighing in. The debt fund is not offering carry and hasn't indicated they will with the first promotion, so the comp comparison comes down to cash versus carry in my mind.
Oversimplifying, would you take $20k less per year in more certain cash comp to *potentially* get a $500k carry check in 5 years? What if it was $1MM in 5 years, so the equivalent of $200k/year instead of $100k/year? The carry check is uncertain and should be discounted for the time value of money, but I'm trying to establish my (and hear your) tipping point where the carry becomes enticing enough to take the increased risk.
My ability to hit the ground running with the developer comes from specializing in that product type on the debt side. While development and debt are different businesses to your point, I've financed enough development in this arena to have transferrable experience and skills.
Most people would say take the carry and hope it balloons to a massive number. I think, as always, the answer is it depends. I don't know enough about debt funds to provide a good answer, but I know where we are trending from the development side. Cost escalation across the product types I work in are outpacing rents by a lot. As costs continue to escalate, yields and IRRs are depressing, making carry a little less attractive. However, since project costs are escalating, our fees are growing, so cash comp may hopefully catch up. There will still be homerun deals with crazy big promotes, but I generally feel like returns are down, which is what happens when markets become more efficient. All of that to say, carry is an awesome thing to have as part of your comp package ( I wish it was a part of mine). But, I wouldn't automatically assign a big per year number to it and if your cash comp at a debt fund can double in 3 years, that may end up being more attractive.
I'm an experienced analyst at an institutional D/E team. Could you expand on your years of experience & comp at each opportunity? City would be helpful too.
Personally, i'm leaning towards the debt fund route because I think development will be too slow. Tough to imagine focusing on only a few assets over a few year period, especially after brokerage life.
Major market, 3-5 years of experience, closed several billion of transaction volume, touched most product types and deal types including construction/bridge/perm and senior/mezz/pref/JV, heavy commission component with base <$100k but total comp comp varying from the high $100k's into the $200k's.
The development opportunity might be "doing" <10 deals a year but still chasing multiples of that, so it wouldn't be like working for a deeply established, regional model developer/REIT where you only have 1-2 assigned projects ongoing at a time and that's it.
Appreciate the response. I do both sales and financing. Worried that the 50% sales side say hinder my ability to transition to a debt fund but I suppose i'll find out.
Is the bolded comp for your current brokerage role or the debt fund?
Debt Fund role, but then again, I am biased as I don’t enjoy Development as much as others here do.
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