I talk to a lot of aspiring real estate professionals and many of them want to get into real estate private equity. In fact, two of the most highly-trafficked posts on the blog are about navigating the real estate private equity interview process (part I / part II).
Real estate private equity is an appealing career path, yet it’s incredibly competitive and often-times misunderstood. One of my good buddies from Tufts has been working in real estate PE for the past 5 years and I asked him to share his story and shed some light on what it’s really like working in real estate private equity.
Why did you get into real estate and what led you to seek a role in Real Estate PE?
I grew up spending high school summers working as a construction day laborer on a variety of residential and commercial projects. Although I was at the bottom of the labor ‘totem pole’, even to this day I believe there are few feelings more rewarding than taking part in transforming a home, a small shop space or an office floor from tired obsolete space to an aesthetically pleasing modern efficient space. Over my four year stint as a grunt, I developed an appreciation for architecture as well as a satisfaction for tangible change. Fast forward and during my undergraduate studies I quickly found architecture to be far more art history based early on (read I am impatient) and that economics/business was a far more intellectually stimulating field for me. After college, I had stints with a retail developer and a debt financing shop. Both were educational experiences where I began to grow the foundation of my real estate investment education. That said, I eventually yearned for an opportunity to become a real estate investor where I envisioned I could look at an array of real estate investment opportunities and use my finance background coupled with construction and design passion to prudently choose which investments I believed were good risk adjusted bets.
Why is Real Estate PE so sought after?
A lot of Real Estate PE candidates read headlines in the WSJ, NY Times or other publications regarding massive property purchases, recapitalizations of shiny towers and so forth and find it very appealing/sexy industry. Real estate PE really took off post 2000 and clearly was a poster child pre the Great Recession. Everyone wants to be the next Jon Gray.
What are some of the challenges of the business?
There is a good deal of competition in the Real Estate PE space. It is becoming a more and more efficient niche as information becomes further disseminated. That said, it takes more creativity and expertise than ever to find prudent investments.
Another challenge is information is becoming more efficient, real estate remains a relationship driven business. Finding the best business partners is always a challenge no matter what industry one works in.
Lastly, the various capital vehicles (be it core, core plus, value add or opportunistic) set up to invest in Real Estate PE each have their own structural challenges. Examples include some funds have finite investment periods, other funds have a variety of allocation thresholds, some funds can only play in the debt space while others in the equity space, some funds are so large that they can’t “waste time” on smaller attractive investment opportunities etc. There is no perfect fund structure in my mind.
What are some common misconceptions about Real Estate PE?
In my opinion, the concept of working in private equity has been glorified to lead to instant wealth and success. This is still an industry where wealth is built over long term periods of time and a result of a lot of hard work.
Walk me through a typical day.
Typical day isn’t a word I am familiar with. One important key to success in my opinion is being well organized and efficient with my most precious commodity (time). Some days are spent crunching numbers for 8 hours while others are spent on property tours, construction meetings, involved in leasing and capital market decisions for the existing portfolio etc. The more investments one is involved with the more ad-hoc in a sense one’s routine becomes.
What are some of the career paths within Real Estate PE?
There is no set path. Some people climb the ladder and desire to become a partner of a fund. Others take their experience and take an entrepreneurial gamble to set up their own fund or become an operating partner.
What advice would you give to a young person looking to get into Real Estate PE?
Focus on the nuts and bolts of the business. Understanding the underlying math is paramount. Read a fair amount of text books and case studies regarding real estate finance and potentially enroll in a course or two.
Real estate private equity is a great way to learn the business, but there is no linear career path and there are many ways to get involved in real estate. The most important thing is to start somewhere. Feel free to leave any questions in the comment section.