How Would You Invest $100 Million in Real Estate? [Interview Prep]

One of the most common commercial real estate interview questions that analyst and associate candidates are asked is:

“If you had $100 million, where would you invest it, and why?”

To answer this question, you need to have a baseline knowledge of both what’s going on in different parts of the industry, and also what drives value within commercial real estate.

So to make sure you’re ready for this question in case this comes up, this post walks through how to develop a real estate investment thesis, the most important types of research you’ll want to dig into to prepare, and how to answer this question successfully in an interview.

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Step 1: Choose a Product Type and Back It Up with Data

Finding the Right Research Sources

The first thing you’ll need to do when answering this question is to determine the product type you want to invest in, and there are a variety of free resources out there that can help you understand how different product types are performing. These include publications like:

• CBRE’s Quarterly Figures
• Cushman and Wakefield’s Marketbeats
• Newmark’s Capital Markets Reports

Even just running a general search for the product type you’re looking for, followed by the words “real estate report,” and then the quarter number and the year number you’re looking for will usually bring up a handful of helpful links that are worth looking into further.

What to Look For

Within your research, what you’re looking for here are things like:

• Strong rent growth
• Low vacancy levels
• Positive leasing trends
• Rising demand levels and stable or falling new supply levels

Getting an understanding of projected supply requires not only looking at current market trends, but also studying current construction pipelines and net absorption (total leased space – total vacated space – minus new supply that’s been delivered).

Understanding Demand Drivers

On the demand side of things, this comes down to how you believe different sectors will change over time and how you believe human behavior will drive leasing decisions.

For example:

• If you think demand for e-commerce will grow more quickly than developers can build new warehouse space, you might be bullish on the industrial sector
• If you think housing prices will continue to rise and stay out of reach for renters for the foreseeable future, you might be bullish on the multifamily sector
• If you think the work-from-home trend will reverse itself over the next few years, you might be bullish on buying distressed office product below replacement cost

Once you’ve clarified what you believe, the next step is to do some research to test if those beliefs are true. For example, looking for historical or projected online sales data, researching single-family home construction starts, or digging through polls or surveys answered by senior company leadership that could indicate if workers will be headed back to the office.

As is the case with essentially everything we’ll talk through in this post, there isn’t necessarily a right or wrong answer here. But whatever your thesis is, you need to be able to back that up with research (rather than just an opinion).

Step 2: Choose One or More Geographic Markets

Once you have clarity on a product type target, the next thing you’ll want to do is choose one or more geographic markets to focus on.

From a real estate perspective, the strength of a geographic location often comes down to job growth and net migration patterns, and these are the main things you’ll want to zoom in on within your research.

Two of the best places to find this information are:

• The US Census Bureau website
• The Bureau of Labor Statistics website

Most articles you’ll find online that are related to these topics will cite one of these two sources, but even just running a simple Google search for the fastest-growing cities in the country or the cities with the highest levels of job growth can also help you understand current trends.

Combining Product Type and Geography Research

If you already have a product type picked out, most major brokerage firms will also release free quarterly research reports on specific product types within specific geographic regions, which can help you zoom in on real estate fundamentals in the fastest-growing cities.

For example, if you were bullish on the industrial asset class and you noticed the Atlanta metro saw significant year-over-year job growth, you might use a search term like “Atlanta Industrial Real Estate Report Q4 2023.” From there, you can comb through reports from a variety of different companies that can help you get more insight into local industrial performance.

From a geographic perspective, you ultimately want to be able to point to a clear trend of both businesses and people moving to an area (along with reasons as to why that growth might continue), and then you need to be able to articulate how those trends are going to positively impact the commercial real estate product type that you’re looking to invest in.

Step 3: Choose an Investment Strategy Based on Goals and Market Conditions

Once you have a geographic market and a product type picked out, the last step in this process is to choose a strategy that you want to pursue based on investment goals and current market conditions.

This part of the process goes a layer deeper and gets into the “why” behind a commercial real estate investment. In an interview setting, since you’re looking to join an established company with an existing investor base, this part of your strategy should take into consideration both the risk appetite of the company’s equity partners and the biggest opportunities you’re seeing right now.

Tailoring Strategies to Investor Profiles

For example, if the company you’re interviewing with partners with pension funds and insurance companies that want to preserve their capital and generate predictable long-term cash flow, you might build a thesis around acquiring newly built office buildings in the center of cities like New York, Los Angeles, San Francisco, or Boston, targeting deals with existing long-term leases and a distressed developer with an upcoming loan maturity.

Alternatively, if the company you’re interviewing with has an investor base that’s made up of high-net-worth individuals looking for opportunistic deals with home run potential, you might develop a strategy to target build-to-suit retail development, taking advantage of low levels of supply and existing tenant relationships.

Investors put their money to work in real estate to generate a return on that investmen, and to attract capital and build long-term relationships with equity partners, companies need to act as fiduciaries to their investor base. By developing your strategy with this in mind, this shows that you’re both aware of what’s required to serve that investor base and aligned with the strategy of the company overall.

Prepare for Your Commercial Real Estate Interviews

If you want to make sure you’re ready for commercial real estate interviews and have the technical skills you’ll need to pass an Excel modeling exam that might be given to you during the process, make sure to check out our all-in-one membership training platform, Break Into CRE Academy.

A membership to the Academy will give you instant access to over 120 hours of video training on real estate financial modeling and analysis, you’ll get access to hundreds of practice Excel interview exam questions, sample acquisition case studies, and you’ll also get access to the Break Into CRE Analyst Certification Exam, which covers topics like real estate pro forma and development modeling, commercial real estate lease modeling, equity waterfall modeling, and many other real estate financial analysis concepts that will help you prove to employers that you have what it takes to tackle the responsibilities of an analyst or associate at a top real estate firm.