Transition from REPE (LP) to REPE (GP / Operator) Single Asset Type Focus
I currently work for a REPE LP shop (Carlyle, PCCP, etc, but smaller) with ~$7B AUM. I currently work on one of the deal teams in acquisitions for the high yield fund, primarily all JV equity, preferred equity / mezz debt focused. We partner with local, regional, national operators and developers. Primarily all of the deals in the last 36 months have been development. Deal sizes are typically $50M+ in total cap, equity $10-20M. I'm currently considering transitioning to a boutique operator / GP side to focus on industrial value-add acquisitions and development in the Northeast, Mid Atlantic, and potentially Florida. Deal size will be in the $10-50M total cap range. Firm appears to be well capitalized with institutional investors.
I spent my first three years in investment sales brokerage (national group), and have been in the current position for two years. The pay is solid (hit close to $200K after bonus this year) but in my opinion there is more upside in working with a GP/Operator based on the returns i see our partners hitting and there is way more upside in getting carry/promoted interest in the fund, invest in one off deals, etc. The new firm is smaller and in full growth mode.
One other reason for my motivation to depart is the high concentration of development deals. As an LP in a development deal, after spending countless hours due diligencing assumptions, presenting to IC, negotiating term sheets and various JV documents, there isn't alot of doing going on besides staying on top of your partner and making sure your AM team isnt asleep at the wheel. Obviously, participating in the lease up execution and disposition is critical but youre in the backseat for the most part. Lastly, promoted interest in an LP REPE fund of $500M+ seems to come around much later in your career, MD level, and the funds take 6-7 years to harvest, so in my opinion there is a long, slow, slog to really get to exponential earnings.
Obviously, there are multiple risks in making this move primarily asset concentration and liquidity concentration in the sector and being able to find and win deals in the middle market / competing against larger institutional shops.
Assuming the base pay and target bonus are the same, and carry within 2 years, ability to invest in deals, what are your thoughts and what would be the top 3 questions you ask at an interview? Interested in hearing your thoughts as this is a tough decision for me. Thanks.
I would ask for the current pipeline you would be working on, how decisions are made, and how much sourcing you would do. Given your background, seems like you have a strong sense of underwriting capabilities which would make you and asset to underwrite and close deals. This is huge jn helping beef up the pipeline and then we’ll of course executing it. You want a good balance, don’t always want to be known as the sole acquisition guy or the sole executed guy - be the well rounded short stop that everyone relies on if they need something done. If the pipeline and track record of the firm is not good then you may want to stay away since that is your life line. Also you want to make sure you are reporting to someone somewhat senior in the sense that they have been doing this shit for a while. Someone just a few years older who has done this but you have just as much real estate experience you on the lp and him/her on the gp level won’t work. You need someone you can learn from and won’t be intimidated by equivalent years experience. Also how much responsibility does the firm come to making decisions. Having worked at a mega developer I’ve seen the dumbest stuff like the senior management choosing the color of wood vs a merchant builder where you have full reigns of the whole project. Having strong decision power and great deal flow will make you a fine tuned gp developer/owner operator with some real force to crush it. The money will come soon after
I doubt comp will be that commensurate with LP comps. Also, what level are you coming in at, and are you sourcing deals? Just not sure if you can for sure get carry within 2 years unless the company specifically said so. Operators make most of their money in the promote, which come every few years through exits vs LPs who make money on the fees they charge to their investors.
That aside, you should ask the same questions you'd ask an LP: what's deal approval process? how much time will you spend underwriting vs sourcing vs asset managing? how involved will you be in the development and lease-up process?
Appreciate both viewpoints.
I would be working directly with the head of acquisitions which has 7+ years more experience than me and directly with the principals with analysts below me. Another reason for potentially leaving the current role is the MD I work for is on back end of his career with a weak pipeline. Not sure what others experience is at LPs, but at my shop you're compensated for production whether your an associate or MD, so heavily reliant on your team's pipeline and just another added risk to stay on board in my opinion.
I would be coming in at a senior associate level (there's not a wide hierarchy of titles) and there would be potential to source deals with direct economic incentives for how those perform. The firm has a separate core fund that they AM for a separate account, which drives steady fee revenue.
You think the investment sales teams are making even more these days?
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