Real Estate at an Institutional Investor

hi fellow analysts,

I’ve come across this job offer which initially seems to be really interesting and I was wondering whether anyone could provide some insight on how this job would look like on a daily basis, as well as future growth, etc.

I’m a senior analyst at the valuations&modelling team at a B4, just earned the CFA charter, and my experience mostly covers RE and infra.

The job is for a the RE arm of a huge european insurer.

Copy paste of the offer:

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  • Job Purpose/Role

Support the commercial growth of the region business through the analysis and modeling of debt and equity opportunities, as well as the drafting of investment memorandums.

  • Your new duties and responsibilities

Asset valuation Cash flow modeling of debt and equity opportunities Analysis and underwriting of debt and equity opportunities Initial drafting of internal approval documents Close cooperation and coordination with internal debt and equity underwriting functions Local market research Support of commercial activities, including participation in client meetings

  • Required qualifications and experience

3 - 5 years of related work experience in real estate equity investment (direct debt and/or JV) Strong analytical and modeling skills Proficiency with relevant IT systems, especially MS Excel, Argus and MS Word Strong organizational and prioritization skills Good written and verbal communication skills Team player with readiness to learn Ability to coordinate cross-functionally Independent thinker Ability to work both independently and as a team

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Any comments would be much appreciated.

Cheers!

It sounds like a lot of modeling and analysis. It’s probably a great learning opportunity if you don’t mind sitting in front of a computer all day long.

hey thanks for your reply.

the thing i was trying to figure out is how the debt-side of it would look like, given the risk-averse profile of an insurer.

would it be a boring role? i mean, if you provide a senior secured loan 50%LTV for the acquisition of a prime RE asset… it shouldn’t be rocket science, should it?

i’m sure for the equity part would be different, but as far as i know the firm is reluctant to invest directly in RE for the time being, only debt-financing. The market is spain&portugal BTW.

There is a lot of interest in Spain, as well as Portugal (less so) given they both are in recovery mode. I did some underwriting of large RE portfolios in both countries while I was in London. I also got to tour some assets in 22@ (tech district) of Barcelona so there is definitely a lot going on there.

The debt piece is going to be (should be) less involved than the equity side, but you still need to do a lot of the same DD. The skills are transferable over to the equity side. I think it’d be great if you had knowledge of the entire capital stack and it sounds like you will get that here eventually.

They’ll definitely want to see you have good modeling skills and can make an investment case. If you don’t know Argus, you can take bootcamp classes. You won’t become an instant expert, but it should be enough to get you through an interview, especially if you’re already good at modeling private deals in excel (Argus just has better functionality for things like multi-tenant office vs. excel; though if you know VBA well then you may not even need Argus).

Can you give more info on your background and why you want to get more involved on the investment side? (This role seems like it’s on the investment side, but also sounds like there might be some support-ish functions to it so I’d be careful it’s not largely the latter).

Hey buddy, thanks a lot for your reply, quite useful.

So I’m a senior analyst at the valuations&modeling team at a B4, and have 4 years of experience in total (first three gained at the transfer pricing department, mostly doing intercompany debt pricing, ranging from senior loans to hybrid securities).

Most of my experience has been within RE and honestly its the sector where i see i can grow most, since the others are not something i have a passion for.

I might not be the ideal candidate given the lack of direct investment experience, but who knows, i think i will apply just to see what happens.

Indeed in this location not many people have 3-5 years of investment experience in RE cause the market has been almost off til now…

Btw, what do u mean u did underwriting for RE portfolios? U mean debt underwriting? Could u give an example?

Thanks!

I underwrote portfolios consisting of office, hotel and other real estate assets for the equity side. Meaning I did a leveraged CF model based on the data they gave me and data gathered via 3rd party reports, contacts with local people, etc… to assess whether a deal makes sense (invest in the portfolio or not). The primary metrics we used were levered/unlevered IRRs and cash-on-cash multiple.

Since this role is for Spanish and Portuguese real estate, I imagine it is based in London or Spain (possibly NYC). In any of those cases, I imagine you’d need to know Spanish.

Good to know buddy, thanks again for your input.

The position is based in Spain and I’m from here so that should not be a problem. In addition, local knowledge and familiarity w/ local RE market should be an advantage, which is my case (again, from an industry/assets perspective, but have not worked in a direct investment role). Don’t know much about Portuguese market, though.

You mentioned an Argus bootcamp, is there any particular one you could suggest? I wanna make the best use of my money haha, it’d be much appreciated.

Cheers!

Just out of curiosity what kind of unlevered IRRs were you seeing in those markets?

Why don’t you apply first, the role sounds like a good one for someone who want to get to the investment side of the business and will be extremely competitive if it’s a reputable firm.

We were looking at mostly core stuff so it was ~10-12%.

If your interest is in the actual Real Estate, you’ll see a lot of it but not get into the details at the lending arm of an Insurer. Whether you’re on the debt or equity side, it doesn’t change how you evaluate the actual real estate, so I wouldn’t get hung up on that. Since you’re just starting out, a huge plus is that you’ll be able to juice your numbers on the resume ($ amount of deals closed, underwritten, etc.) at a larger Insurer since I’m assuming you’ll see more consistent deal flow. A negative is that you won’t learn what actually goes into producing the cash flow (Leasing, Operations, etc.) and returns (the partnership structures detailing the waterfall) - so you’ll still be pretty green despite having underwritten $5 billion of real estate.

CFABLACKBELT - How long ago was this? Drop dead core retail in the US is, and has been pricing around a 6% Unlevered IRR for the past 2 years or so - so I’m a bit shocked to see that large of a disconnect between markets.

Sorry man, I totally mispoke. Looking at my prior models and emails to the IC, it was more like 7-10%.

thanks for your answer buddy.

couple questions:

" A negative is that you won’t learn what actually goes into producing the cash flow (Leasing, Operations, etc.) and returns (the partnership structures detailing the waterfall)" why do u say this? aren’t u supposed to know all the underlying drivers for an equity investment, no matter the type of investor u are?

it’d be interesting to know the potential growth within the firm or alternative exit ops. is it feasible to get into a REPE or the like with this kind of experience?

I say that you won’t understand the Leasing/Operations because you won’t be involved in it - at all. You only see the end product. For example, suppose Starbucks signed a lease paying $40psf, receiving a $30psf allowance for Tenant Improvements(basically you cut them a check to fit out their space). What you won’t see is that the developer also agreed to $40psf of Landlord Work (new HVAC, relocating utilities, etc.) which is buried in the Building costs on the budget. Why this matters is if there is vacant space and you’re making rent and capital assumptions for vacant spaces, based off the Starbucks comp you’ll be budgeting $30psf in Tenant Improvements and $40psf in rent. As an equity partner, this lowers your returns and as a lender you’re over valuing the project.

In regards to the returns, if you’re an Equity Partner you’ll see it from the LP side and your role is largely approving/disapproving decisions, not proposing them. A simple example is if there are IRR hurdles on the waterfall (assume the Pref accrues and distributions aren’t Pari Passu). As the LP, you want to get as much equity as possible into the deal to bury the GP before they start hitting their promotes. As the GP, you know this and want to maximize loan proceeds(to keep LP equity out) and your Interest Only period to juice the IRR and hit the promote. There’s a clear conflict of interests here, but the GP is the one applying for the loan and has the relationships, so you’re going to approve the best loan that is presented - and you can bet the lenders that were exercised were told not to bother quoting unless they can get to a certain point on leverage and IO. Now - let me caveat I’m not implying there’s any malicious intent or breach of Fiduciary Duty, both parties are aligned in that they want to project to succeed - just that there’s a balance of making the project profitable for all parties.

I think the job is a good opportunity to gain experience on the lending side. There’s many many facets to Real Estate, and projects will involve experts in many different fields - it’s impossible to be the expert in all of them so you will need help. Some of the fields are more important than others, and lending is certainly one of them. In my experience, the PE guys are more concerned with the Financial Engineering aspect and a lot of times don’t know much about the Real Estate - so if you just see this as an avenue into PE, then I don’t think Lending is the best prior experience.

Thanks much for your response buddy, much appreciated! This should be more than lending since the job offer explicitly says “analysis and modeling of debt and equity opportunities”

Will ask % dedicated to each of the sides, but couldn’t it be a good opp to get to know the whole capital stack? (of course from an insurer perspective which should be limited to senior debt but anyway…)

Thanks again