If you've wanted to learn about real estate private equity, here is a complete guide prepared by FinanceWalk.
What is Real Estate Private Equity?
An asset class of investment finance, real estate private equity investments deal with both equity and debt. Real estate investments are made through private equity real estate funds which are often a collective investment scheme where capital is pulled from multiple investors. These investments usually have a ten-year life span.
In the early 20th century, the real estate investments were either done through direct property ownership or through investment funding (explained above). By the beginning of 21st century, the real estate private equity underwent various core changes and continues to experience immense growth.
Primarily, there are four real estate private equity strategies:
- Core: It is the low-risk investment strategy with regular cash flow because the fund is invested in stable properties like multi-tenancy or properties in metropolitan areas because they have assured returns.
- Core Plus: It is the medium-risk investment strategy where the funds are invested in core properties that come with value-added enhancements.
- Value Added: It is the medium to high risk investment strategy where properties are bought, modified and sold at a later date.
- Opportunistic: It is the high risk investment strategy because the funded properties require higher degree of enhancements such as development of niche property sectors or raw land development. The opportunistic strategy yields higher returns.
The real estate private equity industry is worth billions of dollars in the international market.
Further in the guide, we will tell you how to become a real estate private equity analyst, share a list of real estate private equity firms and talk about real estate private equity salary, jobs and interviews.
Real Estate Private Equity Analyst
The basic responsibility of a real estate private equity analyst is to analyse investments right from the acquisition date to its disposition through financial modeling and other strategies. The overall functioning of the real estate private equity organisation depends on the conduct of the analysts because they are involved in strategic decision making, ranging from individual investments to portfolio development.
Some of the duties and responsibilities of a real estate private equity analyst are as follows:
- Undertake key strategic initiatives.
- Develop sensitivity models.
- Prepare investment models on Excel to understand and explain capital structures.
- Calculate developmental and operational investments.
- Fluency with Excel and all operations like financial modeling.
- Offer analytical support for transactions during major leases, dispositions, recapitalization and more.
- Analyse and research the market.
- Keep track of ownership documentations and venture agreements.
- Manage investor communications.
- Perform quarterly valuations.
To work as a real estate private equity analyst, you need to have a degree in Accounting, Economics or Finance. You need to have thorough knowledge of quantitative analytics and modeling skills, be detail oriented, work in a dynamic environment, be assertive and a self-motivated person. You can know more about becoming a private equity analyst here.
If you want to read some books, we recommend:
- Active Private Equity Real Estate Strategy, by David J. Lynn
- Maverick Real Estate Financing: The Art of Raising Capital and Owning Properties like Ross, Sanders and Carey, by Steve Bergman
- King of Capital: The Remarkable Rise, Fall and Rise Again of Steve Schwarzman and Blackstone, by David Carey and John E. Morris
- Investing in REITs: Real Estate Investment Trusts, by Ralph L. Block
- Commercial Real Estate Analysis and Investments, by David M. Geltner, Norman G. Miller, Jim Clayton and Piet Eichholtz
- The New Tycoons: Inside The Trillion Dollar Private Equity Industry that Owns Everything, by Jason Kelly
Real Estate Private Equity Firms/ Companies
Every year, PERE (Private Equity Real Estate) portal releases a list of top 50 firms in real estate private equity. PERE is the world’s top global news service website dedicate to private real estate markets. Here’s the current list for the year 2019. We will update this list every year.
- The Blackstone Group
- Lone Star Funds
- Starwood Capital Group
- Colony Capital
- Brookfield Asset Management
- Tishman Speyer
- Angelo Gordon
- Westbrook Partners
- Oaktree Capital Management
- Global Logistic Properties
- Walton Street Capital
- GI Partners
- Orion Capital Managers
- The Carlyle Group
- Fortress Investment Group
- TA Associates Realty
- Cerberus Capital Management
- LaSalle Investment Management
- Beacon Capital Partners
- Northwood Investors
- Rockpoint Group
- Prudential Real Estate Investors
- GTIS Partners
- Ares Management
- KSL Capital Partners
- Secured Capital
- Rialto Capital Management
- DRA Advisors LLC
- Merlone Geier Partners
- Paramount Group
- CBRE Group
- Perella Weinberg Partners
- Hemisferio Sul Investimentos
- Alpha Investment Partners
- Gaw Capital Partners
- Harrison Street Real Estate Capital
- Kayne Anderson Capital Advisors
- Phoenix Property Investors
- Kildare Partners
- Patron Capital
- Mapletree Investments
- GreenOak Real Estate
- GE Capital Real Estate
- The JBG Companies
- Related Companies
- Tristan Capital Partners
Real Estate Private Equity Salary and Jobs
The real estate private equity salary varies with each country. For this guide, we will consider the various real estate private equity salary packages from USA, UK and India.
The average salary of an analyst is 70,000 USD. The salary varies on the basis of experience, industry, location, company and benefits.
Here’s the data from SimplyHired.com.
On the other hand, we see Indeed.com sharing statistics which place the salary way above the average shared by SimplyHired.com. Here’s data from Indeed.com.
Even though the data is centered on New York specifically, we can surely see a huge difference between the location-based average and the national average.
Here is a data showing the national salary trends for a real estate private equity associate.
We couldn’t find any specific salary trends but we did check out some UK-based real estate private equity firms to see what kinds of salaries they offer. For the Analyst position, we share the data from two firms:
Evidently, the real estate equity analyst salary ranges between £ 50,000 and £ 100,000.
Again, the real estate private equity industry is relative new in India so we couldn't get specific data but we do have data on private equity in general.
The national average is as such:
Having financial modeling and financial analysis skills impacts the salary. Here is a representation from PayScale.com.
To wrap this section, the real estate private equity salaries vary on a lot of factors, mainly skills and geographical location.
Real Estate Private Equity Jobs
It’s quite easy to find real estate private equity jobs through vacancy search engines. You can check out these links on SimplyHired.com and Indeed.com. The links will directly take you to the current jobs listings in this sector.
Alternatively, you can visit the websites of all the above listed 50 real estate private equity firms and check their careers section.
20 Real Estate Private Equity Interview Questions
You know the importance of cracking interviews at the opportune time. Breaking into real estate private equity is a tough job. If you have a real estate private equity interview lined up, prepare really well in advance.
We list 20 often-asked interview questions here with brief tips to answer them.
- Tell us about yourself in brief.
Let your personality shine through. Avoid rambling. Give an introduction as to who you are and what you do and then talk about real estate.
- Talk about your resume.
A very common question but most interviewees fail to answer it satisfactorily. Take 2-3 minutes to walk the interviewer through the resume. Highlight your achievements, your interest in real estate, previous work experiences and your skills.
- Why do you want to come into real estate?
Prove that you are “made” for real estate business. Don’t say something vague like “I think I can work in real estate” – you will be shown the door! You have to come across as passionate.
- Talk about DCF.
Be clear about concepts. DCF projects future cash flows and discounts. If you say a property is going to generate income in future, back up the claim with data.
- How will you choose to invest money in real estate?
This is to test your mettle. Be aware of the firm interviewing you. If you are in Maharashtra, talk about its real estate than any other state. Be clear and succinct about explaining how to invest money. Prove that you have a sound business and finance knowledge.
- Explain IRR.
Again, be clear about concepts. NPV becomes zero with IRR discount.
- Explain equity multiple.
Same advice as above! Equity multiple metric is used to analyse investor returns.
- Talk about company statements and its importance.
A typical debt-side query wherein you have to look at the company’s cash flow statement and make the interviewer understand how will the company generate cash flow. You have to analyse market share and growth prospects. Talk about balance sheets and income statements, key ratios and debt structures.
- How will you value the Empire State Building, for example?
A hypothetical question, of course! You have to talk about running DCF, cash flows and other approaches.
- Will two Class A buildings on the same street sell at same price or a different price? Explain.
Surely not because you have to evaluate its factors like building age, tenancy age, occupancy, management, amenities, construction, environmental factors and more. You have to explain this to the interviewer.
- What do you think is the future of real estate investing?
Use real estate market knowledge to answer this. Talk about past and current real estate market scenario and how prospects look for in future. Quote data and statistics.
- How comfortable are you with value drivers like MF, Office, Industrial, Retail, Medical Office, Hotel and Senior Housing?
These value drivers are all about:
- MF – Housing Affordability, Population, Employment
- Office – Employment, GDP, Transportation
- Industrial – Employment, Manufacturing, GDP
- Retail – GDP, Income, Employment
- Medical Office – Healthcare Employment, Transportation, Elderly Population
- Hotel – GDP, Employment, Tourism
- Senior Housing - Employment
- How is a building valued?
You need to talk about the building features, tenancy, credibility and other factors.
- Why property type do you value and why?
This is another opportunity to convince the interviewer of your passion and dedication towards real estate. Talk about the kind of buildings you like and why.
- How is a joint venture structured?
A Joint Venture (JV) is a co-investment model wherein multiple parties are involved through an LLC, limited partnership or general partnership. A JV adjusts average real estate risk and gives benefits to each party. Talk about this in detail.
- Explain a waterfall structure.
Know the basics.
- Define cap rate.
Know the basics.
- Define closed-end and open-end fund.
- Define ‘promote’.
Same as above.
Never make mistake while explaining the basics. It will leave a really bad impression on the interviewer.
- What Excel formulas do you know?
A tricky question – the interviewer is trying to judge whether you really know Excel or not. Therefore, talk about relevant Excel formulas like VLOOKUP, SUMIF, MATCH and others.
Note that you shouldn't depend only on these questions. Expect more detailed and concept-based questions. Do a lot of mock interviews and be very well prepared. Most importantly, learn about the real estate private equity firm as well.
The interviews will be conducted in several rounds, ideally 4…be prepared.
FinanceWalk hopes the real estate private equity guide proves to be useful for you. If you have any questions and queries, share below.