We periodically hold Ask Me Anything calls with university real estate clubs or with our community, where we answer any questions related to real estate. The discussion typically focuses on early career, interviews, networking, and real estate industry themes. For those that haven’t joined our calls, we put together a helpful summary of frequently asked questions and our answers.
I. GENERAL CAREER
Going into my internship this summer, how do I make myself stand out?
First, make sure that you check the box on the basics – be friendly, have a positive attitude, ask good questions, and always take notes. Don’t be ultra competitive with other interns. Demonstrate that you have an interest in the firm and in real estate. Form relationships with both junior and senior people, creating a lot of advocates for you within the company when it’s time for end-of-summer hiring decisions. If you make a mistake, show that you learned from it and that you are continually looking to improve and grow. Your job as an intern isn’t to show that you know everything about real estate, but rather to show that you are enjoyable to work with and are positioned for rapid growth down the road.
Are there certain roles or firms that have a higher return offer rate following a junior year summer internship?
Return offer rates at investment banks are generally pretty high, since the industry needs a lot of analyst support and turnover is very high. On the other hand, real estate private equity firms don’t need to hire as many people, so they can afford to be more picky with hiring. More important than optimizing for offer rates is finding a firm and a team that is a good fit for you. Hopefully you can get a good sense of this during the interview process, but if not, that’s ok. You’ll get a much better sense over the course of a summer internship. If the role is a good fit and you show promise during the internship, your odds of receiving a return offer will be pretty high.
What are your thoughts on equity vs debt roles? What is the best place to start off your career?
Debt roles are much more market-facing and plugged into the capital markets. They can also be very cyclical and tied to the short-term movement of interest rates. With real estate debt, the focus is very much on your cost basis and protecting your downside. This is because with debt investing there’s less upside since you can’t earn much more than the interest rate on the debt. In a portfolio context, your “winners” do not offset your “losers”, like they can do in equity. Lastly, with debt investing you have loan maturities/repayments each year and you need to originate new loans to replace that invested capital. In contrast, equity investing is much more long-term in nature. Typically, you develop an investment thesis around a particular deal type or sector and screen a lot of deals in order to find one to do. Then you spend a lot of time on that deal to get it to closing, before moving to the next one.
As far as career selection, we wouldn’t advise choosing your career based on which area is more favorable at a given time. The capital markets are constantly changing, whereas your career is meant to last for a while. Thus, you should choose something that energizes and interests you, because that’s what’s going to contribute the most to your outperformance over the long run.
How feasible is it to enter real estate private equity out of undergrad?
Most people enter REPE after a feeder career like investment banking or brokerage, though a small, but growing percentage go directly from college. Some larger private equity firms have shifted the focus from recruiting through 2-year banking programs to creating in-house training programs of their own. Though if you don’t go directly from
college or are not at a school that has on-campus recruiting from those firms, don’t sweat it. It’s very common (and sometimes wiser) to start in another role and build some basic professional skills first, before making the jump to the principal side where the stakes are higher.
Do you think it’s more useful to start at a large firm or small firm? What are the pros and cons of each?
Real estate underwriting skills are highly transferable between large and small firms, so both are great experiences. That said, most people start at large firms because they have more robust training and mentorship programs. It’s also easier to land a role at a large firm simply because they hire more people and have a recruiting process. Also, if you’re thinking ahead to your next role, it’s easier to move from a large, brand-name firm to a small firm than to do the opposite. So you’ll probably have more options when you start out at a larger firm. With smaller firms, you’ll probably get a little closer to the action and you may have more responsibility. Generally, there will be fewer layers between you and the principal decision maker. Smaller firms are also less structured, so you’ll need to bring a higher degree of self-initiative and situational awareness in order to thrive in that environment.
Beyond the junior level when you have your modeling skills down cold, which factors dictate promotion schedule the most?
Some key factors that influence promotions include generating deal flow, expertly managing people beneath you, anticipating small issues before they become problems, seeing the big picture, and communicating well. Also, the sooner that you are able to behave like the owner of the business rather than someone who executes on work given to them, the better. That’s where having strong self-initiative and the tendency to take ownership of things can help a lot. Finally, a strong interest in or passion for whatever you are doing will help a lot too, since it will drive you to put in the extra effort.
Will I be limited in terms of deal exposure in a development role?
In development roles, it’s more depth over breadth. You’ll spend a lot more time going deep on each deal vs. cycling through acquisitions more quickly. So your reps and general market exposure will be more limited in a development role. Though on the other hand, in development you’ll gain valuable insight into the detailed steps required to construct, finance, and lease up a project. This is valuable, since it’s hard to find that anywhere outside of going through the process yourself. Many acquisitions professionals don’t have this knowledge, so it will set you apart. Lastly, if you work for a larger development firm, you’ll be exposed to more deal flow, which would be ideal earlier in your career.
What area in the industry do you recommend for people taking their first job? (acquisitions, lending, brokerage, etc.)?
If you want to be a real estate investor longer-term, we’d recommend anything that gets you close to understanding the brick-and-mortar operations of real estate. Good examples include leasing, development, and asset management. The other areas mentioned in the question are also good, but sometimes they can be too high-level and not close enough to the real estate. We acknowledge that it may be harder to transition from leasing into acquisitions, so if you really know you want to do acquisitions maybe go for that initially. But early on your primary goal is to understand how real estate works at a fundamental level. If you know this, then you’ll be able to better spot how you can acquire and improve real estate.
If your end goal was to exit from a corporate real estate finance role and start your own firm, what is the general timeline for that?
Approximately in the range of 10 to 15 years, but it could be longer or shorter depending on your situation. At that point, you might be in a VP or Director level role at a firm. Generally speaking, a few factors need to align in order for you to start your own firm. You’ll need an attractive investment opportunity, a capital source, a partner, and an opportunity cost that isn’t too high. For example, if you’re already earning a big comp package in a mid-level role at a larger firm, it might be hard to leave and go back to earning a much smaller salary for several years when you’re starting out. Though the upside is high, and you will ultimately have more control over your schedule, so if these factors line up then it could make sense to make the jump.
What is the value of a Masters in Real Estate if you are already working at a great shop? Is this regionally focused?
If you’re already working at a great shop then a MSRE is probably not very additive, since your incremental upside isn’t huge and your opportunity cost is high. A MSRE is more useful if you’re looking to make a transition into or within the real estate industry, and you don’t feel like you can do it through networking. Real estate programs are definitely regionally focused, both across countries but also across U.S. coasts and metros. Despite the increased prevalence of remote work, real estate is still very regionally focused.
What do you look for in interns/people you are interviewing for you to hire them? What do you look for whenever they start working that makes you want to promote them?
Our experience is that firms generally look for people that are smart, adaptable, willing to learn and grow, and have a general enthusiasm for the industry. Coming out of college, they also look for the basic stuff – solid performance in coursework, internship experience, some industry knowledge, good technical skills, and good communication skills. But beyond that, you can differentiate yourself by demonstrating that you care about the industry and the sector group that you are interviewing for, and that you have taken steps to determine if it’s a right fit for you.
For career advancement, it’s about first mastering the role that you’re currently in, and then taking steps toward the role that’s more senior to you. Once you’re already performing some duties for the role that’s more senior to you, it will become more apparent that you should be promoted to that level.
What are your top 10 tips for excelling in an internship / first job?
Instead of rehashing it here, we have a great content piece that answers this question exactly. Please take a look – below is the link to download it!
We would advise practicing a lot and also getting comfortable with narrating your steps out loud, so that the interviewer can clearly see your thought process. In general, it’s less about getting the exact right answer, and more about your thought process for tackling the question. Usually, the interviewer is checking to see that you have a good thought process and can also stay composed under pressure. If you have practiced a lot, you’ll be more likely to stay composed. We highly recommend practicing with a friend or family member who asks you the questions verbally, and you respond verbally with no cheat sheet. If you are alone, only look at the question then answer out loud to a blank wall without looking at any answers. Take notes on where you stumble, and then refine your responses from there.
Also, please note that we have created a mental math guide with 20 real estate mental math questions that will quickly get you up to speed and test your knowledge! Please check it out at the link below!
For the “How would you invest $100M” question, is it better to pick a single asset in one location or diversify across assets or locations?
If you have a compelling single investment idea or thesis, go for it. You can always say something at the end like, “in a portfolio context, I would take a more diversified or a barbell approach, in order to reduce risk and maximize risk-adjusted return”. From the interviewer’s perspective, the goal with this question is to see if you have built up enough real estate knowledge to have thought through an investment idea. It also is a check on your interest in the industry, since if you’re not genuinely interested then you likely will not have spent the time to get into the weeds on investment ideas. The question also touches on risk-adjusted return, which is an important idea in the investment space. When speaking about the potential return of your investment idea, it’s always a good idea to highlight a couple key risks and then make the case for why the investment is a good risk-adjusted return.
How in-depth should we research the history of a firm?
Most interviews are around 30 minutes and focus more on your relevant skills and experience. We would classify research on the firm as a check-the-box element, which probably won’t take you more than 20-30 minutes in your interview prep. You can proactively bring up things about the firm during your interview to show that you’ve done some research, but just don’t go overboard. At the end, when you have a chance to ask questions, be sure to ask a couple good questions that show you’ve done some research. Finally, as you progress through the interview process and meet more people, you may want to follow up with some additional research.
I have heard that many real estate private equity internships and jobs are secured through networking. What is the best way to go about networking?
To address the first part of the question, some larger private equity firms are now recruiting at certain schools alongside investment banks in the on-campus recruiting process. That said, many smaller private equity firms don’t have the time or resources to do that, so they generally hire candidates after a few years of industry experience. Even if you’re going through the on-campus recruiting process, it’s still helpful to network in order to increase your odds of getting an interview and advancing through the process.
As for networking, we’d advise using both LinkedIn and your school’s alumni directory to locate people in the industry or at firms that you’d like to work at. Then, message these people with a concise note that introduces yourself, tells them what you’re looking for, and requests a 20-minute informational call. Don’t get discouraged if many don’t respond right away, since it’s just a numbers game (i.e. you might message 10 people to get 2-3 calls set up). Once you get a call scheduled, be sure to research the person and ask good questions on the call. Assuming the call goes well, ask them at the end if there’s anyone else in their network that you should reach out to. That way, you can identify your next lead and also potentially get a warm intro. Be sure to keep these folks updated on how your job search ends up, as they generally like to know the end result. Finally, although it is less efficient, be sure to attend in-person networking events at your school or elsewhere in order to supplement the targeted networking approach described above. This will allow you to cover more ground and also develop your in-person networking chops at the same time.
How would you properly structure/pilot a meaningful coffee chat or networking call?
We advise starting with a concise, 60-second introduction reviewing your background and what you’re looking to achieve. Then move to a few questions that you have prepared in advance and let the conversation flow from there. You should prepare roughly 4 to 5 questions in total, though you may only get to 2 to 3 of them or think of a new question during the conversation. The questions should indicate to the person that you have done your homework on their background. During the conversation, aim to talk less and listen more. Keep an eye on the time and be sure to wrap things up when you get to the end of your scheduled time. Finally, be sure to follow up with the person in a couple weeks/months with updates to your job search.
As students, how often are we supposed to network? Are in-person events better than cold emails and hopping on the phone?
We advise doing a combination of targeted emails or calls, in-person networking events, and building a presence on LinkedIn or other professional social networks. There’s no perfect recipe, but it’s generally good to diversify across a few different channels in order to cover more ground. In terms of frequency, during your job search you should reach out to a few people each week, with the hope of connecting with at least 1 person per week. This can include people that you are reconnecting with in order to stay top of mind. If you’re busy with school work and other activities this may be challenging, but it’s an important part of your job search. It’s also good to get into the habit of networking in order to build a foundation for networking throughout the rest of your career.
One final thought – over time, you’ll develop your own networking best practices, but our preferred philosophy is to “play the long game”. Treat networking not as a zero-sum exchange of value, but more as an opportunity to help others and build long-term relationships. If you feel like you don’t have much to offer, get creative with ways that you can help (i.e. send relevant articles or case studies from your classes, or give alumni updates on things happening on campus). Then, be sure to stay in touch as your career evolves. For more detailed action steps on this topic, we have written a blog post with some additional recommendations. Please take a look at the link below!
What are some key industry trends you see and how will that affect investment portfolios?
Investment themes change over time, so this list may not be evergreen, but below are some current notable themes (as of May 2023):
- Post-COVID proliferation of hybrid / remote work, impacting the following sectors:
- Office – de-rating of the office sector generally, particularly in Class B/C commodity office space that has low occupancy and needs significant capex to attract tenants.
- Hotel – increased demand from longer-term stay or combined business/leisure travel, and increased demand for meeting/group space for companies to have off-sites or in-person collaborative sessions.
- Shopping centers – increase in traffic and leasing demand at neighborhood shopping centers that serve the “work from home” professionals.
- Office – de-rating of the office sector generally, particularly in Class B/C commodity office space that has low occupancy and needs significant capex to attract tenants.
- Single-family rental – positive demographic trends (millennials in the family formation stage) and reduced home affordability given high interest rates, resulting in strong demand tailwind / high occupancy / landlord pricing power.
- Bridge/rescue financing – need for bridge or rescue financing for development or redevelopment deals that were done in 2019 – 2022 and will not be able to refinance out the transitional debt in the higher interest rate environment.
How is REIT valuation different from asset-level valuation? How did you learn to model REITs?
REITs are typically valued as multiple of cash flow, or adjusted funds from operations (AFFO). AFFO is net income plus depreciation, net of one time gains/losses and stock-based comp, less maintenance capex. So just like stocks are valued on a price-to-earnings or P/E multiple, REITs are valued on a P/AFFO multiple. You can then look at historical ranges for P/AFFO (from Bloomberg or Factset) and get a sense of whether the REIT is cheap or rich relative to its recent trading history (last 3 years). Typically, when a AFFO/share for a REIT accelerates, the P/AFFO multiple expands, and when AFFO/share decelerates, the multiple contracts. Generally, the second derivative of AFFO growth (acceleration/deceleration) is much more important for stock prices than the year-over-year percentage on an absolute basis.
A secondary approach to REIT valuation is price-to-net asset value, or P/NAV. NAV is calculated as the total asset value of the REIT using market cap rates for the real estate portfolio, less any debt, plus any cash. NAV also approximates the private market acquisition value for the REIT on a per share basis. Depending on stock market sentiment at a given time, REITs may trade at a premium or a discount to NAV, sometimes for long periods of time. When you have a quality REIT that trades at discount to NAV for an extended period of time, you’ll typically see activist investors or private equity firms come with a bid to acquire the company. Sometimes a deal happens and sometimes it doesn’t, but either way it usually brings the stock price closer to inline with its NAV.
As far as REIT financial modeling, it’s more inline with traditional corporate finance modeling, where you build out the income statement and other non-GAAP items like AFFO/share on a pro forma basis. The model is mostly just a framework to identify the key drivers of AFFO, in order to determine if you have a different view from the market. The best way to learn REIT modeling is to get an example REIT model from a sell-side analyst (or elsewhere) and go through it cell by cell in order to understand how everything links up together. Then, you can take it a step further by building a model on your own for another REIT. The good news is that all the numbers are public and REITs tend to have fairly detailed quarterly supplemental reports, so it’s fairly easy to get inputs for your model.
What are the most important technical skills for a career in real estate private equity? How do you recommend going about learning / improving those technical skills?
Mental math is an underrated skill. The ability to calculate approximate real estate returns without having Excel in front of you will get you noticed by senior professionals. It will also enable you to more quickly screen potential deals and also more easily review/check models. Excel modeling skills are crucial for your first five years or so, but after that you’ll likely get some help with that work from junior analysts. Another underrated skill is market research. Not just surface-level review of research, but the ability to do primary research that involves talking to a lot of people or visiting a market and really kicking the tires. If you do this enough, you’ll not only raise your conviction on a particular deal or market, but you will start to notice opportunities to add value to an asset that others might miss. This will also help you to uncover key risks and improve your ability to sort out the good deals from bad ones.
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