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Institutional Real Estate Investing

Institutional Real Estate Investing

Real estate is an industry that is both broad and niche, qualitative and quantitative, amorphous and concrete (no pun intended).

With a career in real estate, you will undoubtedly receive comments along the lines of “oh good for you the housing market is on fire right now” or be hit up by your friends weighing the decision to rent or buy a home no matter if you’re a commercial developer, tenant leasing rep, mezzanine lender, REIT investor, or a localized broker. Saying you work in “real estate” is akin to saying you work in “finance”– there’s a whole underlying world to discover. In today’s piece, I will shed some insights on a career in institutional real estate investing– most specifically at a REIT through public equity and private equity have very similar frameworks aside from capital markets access, fund cycles, utilization of secured debt, investment mandates, and…okay never mind they’re pretty different. But the keyword is on institutional investing. Here goes.

As an institutional investor at a large platform, your expertise is often not related to a specific geography or even asset class. As an institutional investor in real estate, your job is less concerned with microtrends such as the costs PSF to install linoleum tiles in your lobby (though you should have a good sense of this depending on your asset class) and more so on macro trends: market cap rates, financing options, market lease structures, potential exit pool, etc. What I love about my job of institutional real estate investing is that it’s a good mix of analytical and relationship-based work. About half of my time is spent on the phone with brokers, developers, owner/operators, etc. drumming up new business, staying current on the market, negotiating purchase agreements, or hearing about their son’s baseball career and the other half is spent on analytical work: underwriting properties, cap rate comp analysis, return modeling, debt amortization, etc. Obviously, and very similar to typical finance jobs, as you become more senior in your career, the shift progresses from less excel to more cell phones.

Overall, institutional real estate investing is very similar to most finance roles as you are, at the core, a capital allocator. There’s a big emphasis on sourcing quality pipeline, deals can range from brokered processes to off-market relationship-driven opportunities, you’re negotiating term sheets and purchase agreements, you’re maintaining relationships with lenders, and you’re doing heavy research in markets and businesses. The main difference is that real estate will typically trade at more aggressive multiples given their stability and, as a result, leverage can typically be applied much more aggressively. Operationally, the high-level sentiment of maximizing revenue (sales vs. rent) and minimizing operating expenses to improve the bottom-line of profit remains the same but the ways to achieve these can vary drastically both strategically and practically

Happy to chat if you’re evaluating a role at RE fund or REIT.

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