J&s Property Management
J&s Property Management – Real Estate Private Equity (REPE) or Private Equity Real Estate (PERE) are companies that raise capital to acquire, develop, operate, improve and sell buildings to generate returns for their investors. If you’re familiar with traditional private equity, real estate private equity is similar, but with buildings.
As the “private” in “private equity” implies, these companies raise capital from private investors and deploy that capital to invest in real estate. There is little standardization of how real estate private equity firms are structured, but they all generally engage in five major activities:
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Capital is the lifeblood of any investment firm – without capital to invest, there is no firm. Capital raised by real estate private equity firms comes from limited partners (LPs). LPs typically include public pension funds, private pension funds, endowments, insurance companies, funds of funds, and high net worth individuals.
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There are many types of companies that focus on real estate investing. Here we are focusing specifically on REPEs as opposed to REITs or other types of real estate companies and below is a list of the top real estate private equity companies:
Like traditional private equity firms, real estate private equity firms raise money from limited partners (“LPs”) – these are private investors (typically pension funds, university endowments, insurance companies, etc…).
As an important nuance, REPEs raise capital for specific “funds” (think individual investment vehicles all run by the same firm). These funds have their own “mandates” meaning they have specific types of real estate investments that they seek.
Another important thing to understand is that REPE funds are “closed-end funds” which means investors expect to get their money back (with substantial return on investment) within a specified time frame – usually within 5-7 years.
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This is in contrast to open-end funds raised by real estate investment management firms such as JP Morgan Asset Management and TA Realty, which have no end date and therefore offer greater flexibility to the manager.
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In cases where the companies themselves are not organized in this way, their specific investment funds usually will be.
Many REPE firms organize themselves according to risk profiles as their driving investment strategy. They will form part of the risk/return spectrum and focus on transactions – regardless of asset type and geography – that match specified risk profiles and return targets.
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The most high profile types of real estate private equity fund strategies are called “opportunistic” or “value-add” and refer to higher risk/return types than the more conservative “core” or “core-plus” strategies. In the image below you can see the target return profile across these various strategies.
REPE is an effective way for firms to organize themselves because it sets clear expectations for the firm’s investors and allows the manager to diversify risk across geography and asset types.
When you hear terms like “opportunity funds” or “principal investment targeting,” they’re usually referring to risk profiles and return targets.
REPE firms do not limit themselves when it comes to asset type. In cases where they did, the firm would focus on only one asset type, for example hotels, and diversify its investments in other ways within the asset type sector.
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Many REPE firms manage themselves by transaction size which is largely indicated by the amount of assets under management (AUM) but may also be part of the firm’s strategy.
Deal size relative to AUM affects diversification and overhead (how many employees are needed to close a target number of deals).
If a firm has a large amount of AUM, it is likely to focus on larger transactions to have the number of deals necessary to fully deploy their capital at a reasonable size. A firm with a low amount of AUM is likely to focus on smaller transactions to achieve asset diversification.
If a firm has $500 million in AUM and is focused on transactions requiring $25 million in equity, the firm would need to purchase 20 properties to fully deploy its capital. On the other hand, if the same firm with $500 million in AUM focuses on transactions requiring only $10 million in equity, the firm would need to purchase 50 properties to fully deploy its capital.
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Many REPE companies choose to organize themselves by geographic location. A strategic approach has many advantages such as developing a high level of expertise in a field and gaining a deep network. From an operational perspective, this requires fewer offices around the country (or the world) and reduces the time employees need to travel to visit properties. But a limited geographic focus reduces the level of diversity and the number of potential transactions. Many smaller companies are organized this way, and larger companies cover more geographic areas, but they do so from different offices that are geographically concentrated.
Traditionally, REPE companies are considered to be equity investors. But REPE can pursue debt investment strategies where they invest in different parts of the capital structure. Many REPE companies invest in both equity and debt.
Like non-real estate private equity, REPE deals require a team to execute. Below is a breakdown of roles and job types in real estate private equity.
Responsible for sourcing and executing deals. The acquisition role is considered one of the most prestigious roles in real estate private equity. Senior acquisitions professionals focus on sourcing while junior acquisitions professionals provide financial modeling and deal execution horsepower.
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Responsible for raising the money to be invested in the first place and managing communication with existing investors.
Real estate acquisitions involve sourcing (senior deal professionals) and execution (junior deal professionals) of real estate transactions. Includes the day-to-day responsibilities of an acquisitions professional
Onsite property tours are also a major part of real estate investing, and at many firms, junior acquisitions professionals can expect to spend a good deal of time traveling to various properties. During the contract execution phase, acquisition professionals will turn their attention to due diligence and supporting the legal team.
The extent of junior professional involvement varies by due diligence and law firm. There is no such thing as a typical day in the life as the distribution of time between these activities ebbs and flows according to how active the company is in deploying capital.
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At a junior level, more time is spent executing the business plan for the assets you are responsible for as an asset manager – this can vary by asset and risk type.
For example, if you are the property manager of an industrial warehouse, your responsibilities may include speaking with property management to understand how the property operates, working to sign new leases to maintain occupancy, visiting and speaking with the property at various times throughout the year. Brokers need to understand the market and what the property might sell for today.
However, if you are the property manager for a multifamily development opportunity, your responsibilities may include working with your joint venture partner to ensure the property is built on time, hiring a property management team to lease the property, and conducting research. Deciding where to set the rent.
In property management you will also play a role in finding new investment opportunities by helping with due diligence. If new assets are to be acquired, asset management may be involved in reviewing historical financial and competitive portfolios to see what is expected in the future, appointing an asset management team and signing contracts with sellers.
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Another big part of property management is selling properties. Asset management is responsible for determining the most appropriate time to sell the asset, engaging the brokerage team, preparing a disposition memorandum outlining the thesis for selling the asset, and working with portfolio management to successfully execute the sale.
Some companies combine acquisition and asset management roles (called “cradle-to-grave”). This often happens in smaller companies and has its advantages and disadvantages. In a firm with a cradle-to-grave structure, junior professionals gain exposure to both parts of the business and maintain a “reputation” as an acquisitions professional.
Acquisitions is generally seen as a more “prestigious” role, but property management is where the nuts and bolts of owning real estate are learned.
It’s not uncommon for asset management to feature more entry-level positions that can be leveraged into an acquisition role down the road.
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The career path in real estate private equity is similar to traditional PE. As with traditional PE, there is a fairly standard hierarchy and progression up the ladder is linear:
The largest REPE companies – Blackstone, Oaktree, Brookfield and Carlyle – have a standardized and predictable progression path that allows them to hire entire classes at a time. They also have the resources to formally train junior employees.
If your goal is to work in acquisitions at a big name brand REPE firm is your best bet
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