Why commercial real estate?
As I'm graduating Spring of 2019, I'm preparing myself to answer the common "why CRE" interview question (while I'm also trying to answer the question for myself). Currently, I don't have a great answer, I just know this is what I want to do for my career. I like looking at buildings, I like finance, I like that this industry lets you "create your own destiny" and I feel like I'm going to like the culture of this industry. It's something I've been dwelling on, and I'm wondering how you answered the question when asked, or if you have not been asked, now is your chance. Curious to hear yalls input on why you chose this industry. Thanks!
I came to CRE in a unique way. 20 yrs as a Fed, a military healthcare CIO+, I was one of 5 hired by DoD in response to two then-new Title 10 (military law) statutes (2222 & 186). The other four covered the other services: one for Navy, one for Army, one for Air Force, one for Personnel and Readiness, and myself for military healthcare. My title was to become Chief for Defense Business Transformation for the Military Healthcare System (MHS). My mission was to change investment decision-making behavior in the Military Healthcare System for the modernization, development, and enhancement portfolio. That's a long way to say: they hired me and gave me the civilian rank equivalent of an Army Colonel or a Navy Captain to improve the way DoD makes investment decisions. They gave me $2.5M/yr and my SES boss said "keep me out of jail." I hired and talked with a scrum of investment bankers, attorneys, analysts++ and set to work deconstructing the current process, mapping military OPTAR to civilian financial statements, and "finding" vs "creating from scratch" the best investment decision-making model we could. After a lot of searching/experimenting, we found CRE. It has all the right elements I believed we needed: a master plan that anyone in the world could access, zoning, due diligence, application process, permitting, post-build inspections, and 100+ years of precedent. We changed the names to protect the innocent and handed them our proposal. I was told it looked great. "Now go break it." My teams and I ran $1B of investment activity through the model. We sent $200M of uncooked, poorly formed investment ideas back to the Treasury. We identified $300M more that we lacked the horsepower to wrench loose. Our model worked.
https://s3-us-west-2.amazonaws.com/realcommunityhelp/DBT+Diagram.jpg" alt="DBT Diagram" />
I was sitting at home one day thinking: if this is the best model the US has to offer (that my team of smart people could find), why am I not using this for my family? I pooled my money with retail money from other HNW individuals (doctors, lawyers, dentists & others with personal dry powder) into Reg D syndications, and started buying apartment buildings in Texas. We'd buy at $8M, take advantage of the formula Value=NOI/Caprate, and sell at $10M three years later.
I later ran into a Goldman ex-banker/friend/mentor/colleague who helped refine my thinking. "Shut that down and focus on institutional money instead of retail money." he said. "Insurance companies, discretionary real estate funds, family offices, etc will be professional, sterile and have a lot deeper pockets than dentists and doctors."
Indeed, he was right. I was once again working with six, seven, and eight zeroes as I was for the government. But this time, I was working for my family's benefit instead of a government ideal that frankly, the government never really wanted to implement (no one truly liked it when we took away their obligation authority. It messed with individual's promotion potential & power structure).
If I were asked this question in an interview today (god forbid I ever need to interview again), I would focus on the strength of the decision-making system, the tax advantages, the support structure, inefficiencies in the market, and the people. The fact that I can syndicate capital, purchase insurance for the asset, depreciate the asset, and leverage so high into the capital stack, gives this asset class some unique value and earns it a place in every portfolio.
Any way you can link the image so I can zoom in?
I think it basically says enhance the community on one side and enhance how much money is in the medical account on the other.
IE real estate investing was a way to do both.
It's a concept diagram. The specific verbiage might be more confusing than helpful if you're not familiar with the Business Enterprise Architecture (BEA), the various Enterprise Architectures (EA's), and the other alphabet soup elements that describe various leadership bodies, etc. We were making a statement here that the system we designed was a mirror image of a time-tested decision-making system (CRE). The permitting process in blue = conceptually our investment certification process. A City plan is = conceptually to the Transition plan we briefed to Congress. Our senior boards (SMAAC/ PMOC / PCA) were = City Planners, etc. We mapped the ecosystem from ideas and standards through final capability, mirrored the CRE ecosystem, changed the names of everything to make it more government-friendly, and gave them back their new decision-making process. Then we went off to try and break it. From a big picture point of view, the government has these middle managers everywhere who are trying to get ahead. Some have real ideas. Others just want a big staff and a big budget so they have a better shot at promotion. All of them spend taxpayer money to build stuff. When a middle manager in Japan manages to either secure a checkbook big enough to underwrite a project - or even better - convince some congressman to "direct" funds to their project through the National Defense Authorization Act (NDAA), the chances that their project is going to 1. succeed 2. not overlap with someone else project in San Diego and end up being scrapped by the political process (San Diego 2-star Admiral beats Japan's 1-star let's say) is slim. We needed s single well of what needs to be done to draw from (a City's master plan with goals), then an application process to ensure the project gets on everyone's radar (the permitting process), financial discipline, due diligence, inspections afterward to ensure the project delivered as promised, etc. CRE has an evolved decision-making system that everyone in the space - from operators and builders to capital providers work within. The parts work together in concert to ensure safe, financially positive projects that satisfy the overall mission that the regional authorities spelled out in zoning and master planning documents. That's more or less the sound byte that goes with the diagram. I apologize that it's not so easy to read, but I don't know how much value reading it would add to this forum. If you still want the link, I don't mind sharing, but I suspect the last paragraph in my response above will satisfy the original question.
That's very interesting, thanks for your response. Some more experienced users on here could probably benefit from an AMA if you'd be up for it sometime.
This is a fantastic story. SB+1
You're hired.
Seriously though, don't make up any nonsense. Say that. People get into real estate to build (or own, or sell, etc.) cool shit that's actually tangible, make a lot of money, and have autonomy. You nailed it.
That gives me a lot more confidence going into this industry. Thanks!
Each individual asset is unique and can never be traded on a centralized exchange with enough scale to produce significant efficiencies. It will always be an inefficient market. ^ that is the main reason for me, being able to work with a lot of different professionals, travel around, visit cities, see architecture, see how people live and work, those are the rest of the benefits.
Interesting reason, I like that, and seeing other cities/travel and meeting and collaborating with a lot of different people also is a big reason for my interest in the industry. Thanks for the insight, and hope that new position is treating you well!
Really very informative and helpful thanks for sharing. Interested to know about this.
Learned a lot from this discussion. This is good to know for the future!
The answer is always "Add value". Just make up the rest if necessary, by make up I mean find a way to wrap your experiences into CRE and adding value.
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