Would you move from real estate development to asset management?

d309206's picture
Rank: Monkey | banana points 45

I have been offered a position with a prominent PE firm working on the asset management side. I would be managing / overseeing our development partners and projects where we are the LP.

This firm invests in pretty high profile projects.

I am not sure about this move (because I seem to hear mix bag on 'asset management')... my interest is in real estate and real estate development , but ultimately on making the most money (with the least amount of stress hah..).

What are your thoughts on long term prospects?

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Comments (29)

Mar 16, 2018

Personally, no, I wouldn't. Just depends on what you want. Making the most money and stress are directly related in this business, unfortunately. The reason you (can) get paid so much in development is because you are taking an enormous amount of risk and putting in an enormous amount of effort in locking up a site without (in many cases) having a guarantee of making a deal/making it work. Asset management you are managing an existing portfolio of assets. So you will make good money in AM, but probably not 'retire at 45' money. You might not achieve that in any of the other CRE paths either, but development is much more of a j curve potential track than AM or acquisitions. You could argue that brokerage is on that level, but again a risky proposition for other reasons.

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Jan 1, 2019

I'm actually also looking to crack into asset management and come from a real estate sales background. We basically sell residential properties in US and Brazil.
I'm currently also a CFA level 2 candidate.

Any advice on how should I go about it ?

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Jan 2, 2019

Entry level asset management CAN be easier to break into than acquisitions/development roles assuming that you aren't expected to hit the ground running with any type of portfolio management knowledge. That being said, you want to play up your CFA accreditation and the multi-tasking aspect of your sales gig. As long as you have decent experience to speak to and good UG credentials to match, shouldn't be that tough to get a gig. You might not get an AM gig at a megafund, but you should be able to land at a pretty good firm somewhere.

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Jan 2, 2019

Thanks for the advice.

I've a follow up question - when you say entry level roles, what kind of job positions are we highlighting?

I'm very interested in emerging markets, but since I'm based in Dubai, due to over supply of finance professionals and limited asset management firms the competition is fierce. I was looking to target sell side roles, get an analyst position in an investment bank, at the same time work on my technical skills (excel and financial modeling) and then move to buy side.

The situation here is such that most of the asset management boutiques look for experienced analysts from sell side or buy side to take over research analyst or associate role.

Do you think based on my long terms goals of getting into emerging assets I'm planning and moving forward in the right direction ?

Once again I really appreciate your help.

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Jan 2, 2019

Pump the brakes here for a minute. What you're describing sounds like the asset management arm of a large institution (covering several asset classes). What I'm describing is the asset management function/career path in the commercial real estate world, like handling the leasing, performance, etc. of a portfolio of (or individual) real estate assets ONLY. They are two very different things, so it might make more sense to clarify what you want before going any further down this rabbit hole.

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Jan 4, 2019

Sure, to clarify: I'm talking about covering several asset classes. Sorry for the misunderstanding.

Jan 4, 2019

Got it, this probably isn't the best place for this question then, since on the RE forum most people will have a good understanding of the CRE focused job function/career path and not the one you're aspiring to.

Mar 16, 2018

Would much rather be doing AM at BX/Carlyle making dope money with less stress, than busting my balls at a small development shop to make ~50K less. As long as you've spent long enough in Acq/Dev to get a grip on underwriting and modeling, you'll still have the ability to go back into that side of the business in the future.

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Mar 16, 2018

The money at those places on the AM side is good, would argue it's not fantastic.

As far as going back into dev, the underwriting is probably the easiest part of that job IMO. But if you're out of that world for a while, your contact list can go stale pretty quickly.

Mar 19, 2018

agreed on both counts @MonkeyWrench

if you want to chase fast money, then AM is not the place for you. it's a slow/steady career path. but it will for the most part always be there.

development underwriting is easy, b/c there are no existing financials or relationships to evaluate or forecast. it's all pro forma.

Mar 19, 2018

How do developers go about estimating costs for the development (construction costs ,etc?)

Mar 19, 2018

General contractors will provide you with take-off/comparable project based estimates. They do this so that down the line when you're actually bidding the job you put them in the mix and they have a shot at winning the deal

Mar 19, 2018

Along with the take offs and estimates that @decrebepro talks about, a lot of development companies employ a "head of construction." These guys are pretty invaluable if they're good.

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Mar 19, 2018

And the numbers that they give are accurate enough to be used in a financial model in order to figure out if the project is worth building?

What margin of error do you model into their estimate?

Mar 19, 2018

Yeah I mean it's not like it's drastically different from using rental rate comps or modelling the lease up on say, an office acquisition. Underwriting is always an imperfect science, that's why it's called a pro forma.

As far as migitaging that specific risk:
* Contractors will err on the conservative side when they a very basic set of plans (or even no plans) and whittle away at that "builder's contingeny" as you get more and more detailed on the drawings.
* You get estimates from more than one contractor to help triangulate a budget.
* You carry a hard cost contingency in your pro forma.
* You (hopefully) have someone at your shop who has a ton of construction experience who can catch stuff that doesn't pass the sniff test.

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Mar 19, 2018

Interesting thanks. I assume these estimates are usually free, same business model as a painter giving a free estimate?

Mar 19, 2018

Kind of yes, although it can take a big effort and lots of hours spent by the GC to put it all together. Guys will typically chase $40m + construction contracts with me for a year at least. By the end of it,they have priced it out a million times after I play with the scope and spec/size/type of building etc. If they keep not winning the actual Bid though, they will eventually not talk to you since its not worth it for them. Its a very sensitive relationship to manage.

Mar 19, 2018

Wow, sounds like a rough balancing act, thanks for the info

Mar 20, 2018

We typically budget a 10% contingency for each line item (i.e soft/hard/on-site/off-site/property costs) and factor that into our models.

Apr 6, 2018

You'll use high level figures based on local market construction cost comps for the initial appraisal, and then delve into deeper detail if the development looks feasible.

Contingency at 5% with conservative costs growth is normal for margin of error.

Mar 20, 2018

Actual quotes from consultants are best. Hard cost contingency of 7-10% depending upon project. Legal/civil/architectural fees based off of historical data.

Biggest cost overruns we would usually experience were site/dirt (grading, trenching, etc...) and MEP work. The dirt guys secretly make LOADS of $$$ brokering fill back and forth between sites.

Mar 19, 2018
LReed:

s long as you've spent long enough in Acq/Dev to get a grip on underwriting and modeling, you'll still have the ability to go back into that side of the business in the future.

There's a whole lot more to development than underwriting and modeling. I'm not sure why someone who spends 3-5 years learning how to run a job would make a switch to AM, only to come back later.

Usually you slave through those ADM and DM days, usually at a huge pay discount to AM/Acq, so that you can run your own shop or at least your own division and make real money.

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Mar 19, 2018

+1, while we all know it varies a lot depending where you are, I personally spend about 5% of my time on pro forma / "underwriting" shit with acquisition guys, and 95% of the time closing on the deal, executing, helping with leasing team to lease up. I am personally trying to figure out the next level for me when I am ready. Don't want to get pigeonholed and not sure how to level up without trying to take a VP level type job/head of development somewhere unless I am promoted here, but who knows when that happens right?

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Mar 19, 2018

I think you have to define this as "by choice" or not. If the market tanks and my options are AM or unemployment, then you better believe I'll live in a cube and crank out models all day. If I have my choice though? Absolutely not - it's neither the day to day I want currently (I'm a DM) or aligned with my long-term goals (being a developer).

Best Response
Mar 19, 2018
d309206:

but ultimately on making the most money (with the least amount of stress hah..).

For the first part of your quote, I'd say AM might make you more money in your first 5 years, but then a whole lot less money over the course of your life.

For the second part of your quote, re: stress, I'd recommend you go with AM over development.

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Mar 20, 2018

agreed on these two points but when you add a temporal component to the discussion, a real estate career can last an extremely long time. there is also a ton of value in experience ("grey hair") whereas other industries are kindof the opposite.

i would argue the best possible thing to prepare someone for success as their own development shop is capital. they gotta be able to weather the storm if deals dry up. almost like brokerage.

so for new people, i'd rather see them go into AM first, and build up their balance sheet, then take that experience and nest egg into development where they can absorb some risk and enjoy the returns.

nothing wrong with the opposite route if you time it right and are at a larger, legit developer. but timing the market is tough thing and in downturns there are a million brokers and developers looking for jobs and nobody wants to hire them. the AM job is a lot more stable.

but like i've said elsewhere, when you are young and have no expenses, that may be the best time to take some risk. if there is minimal downside.

it is a lot more about personality and appetite for risk IMHO.

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Mar 21, 2018

Everyone is entitled to their own opinion, but I have to disagree with the guy saying AM is more challenging, etc. It's clear he is in AM and has probably not had any experience in acquisitions and/or development. I am responsible for all three in my current position and AM is by far, and I mean a long, long shot, the easiest portion. In terms of learning the most it goes development>acquisitions>asset management. In terms of challenging, enjoyable work it goes development>acquisitions>asset management. But I do agree, in terms of job stability, it goes in reverse - asset management>acquisitions>development.

To recommend someone starts in AM and uses their nest egg and experience to get into development is a recipe for disaster. Managing a stabilized property will not prepare you for running a development. Don't get me wrong, operating/managing the asset once it's stabilized is important, but not nearly as difficult as development or even acquisitions.

But to OP's question - leaving development to go to AM when your actual goal is development does not really make sense to me. You will learn more in development. Now if it's just a personal choice of wanting the type of work and job security, then that's a whole different discussion.

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Jan 1, 2019
Jan 1, 2019
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