The Reality of Working in Real Estate Private Equity

When I was first starting my career in commercial real estate, anything labeled “Private Equity” was very foreign to me, and it took a lot of conversations with people who were already in the industry to really get a good sense of what this actually meant.

So in this post, we’ll talk through what real estate private equity really is, the different career options available within this part of the business, and some things you might want to consider before going this route.

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What Is Real Estate Private Equity?

To start by defining what real estate private equity is, this typically just refers to a real estate investment firm that isn’t structured as a REIT, and doesn’t only use in-house equity to fund their deals.

This means that to qualify as a “Real Estate Private Equity” firm, a company really just needs to raise third-party equity from the private markets. These could be real estate investment firms that acquire and operate existing properties, real estate development firms that acquire land and build new product, or major capital allocators that invest alongside these active investment and development firms as passive limited partners.

GP vs. LP: Understanding the Two Sides

In the real estate private equity world, active investment and development firms are typically referred to as GPs (or general partners), and these firms run the day-to-day operations of a real estate investment.

These companies also tend to make up the majority of commercial real estate firms on the ownership (or principal) side of the industry, and most of these firms are small to midsized shops that either raise capital on a deal-by-deal basis or raise capital in discretionary funds.

On the other side of the spectrum, companies that raise third-party equity from private sources and invest alongside these GPs are typically referred to as LPs (or limited partners). These firms acquire non-controlling interests in individual deals or funds.

These tend to be huge capital allocators that often invest in multiple asset classes outside of just real estate, meaning that there are significantly fewer firms investing in real estate in this way. In many cases, these shops also have tens of billions of dollars in assets under management, partnering with a variety of different investment and development firms across multiple geographic markets.

What to Know Before Getting Into Real Estate Private Equity

#1: The Pressure to Deploy Capital

Regardless of whether you choose to go the GP or the LP route, one of the first things to know when getting into real estate private equity is that in this part of the business, the main priorities of your firm are generally going to center around getting capital in the door and then deploying that capital as quickly as possible.

In most cases, at the analyst level, you won’t be on the front lines of raising capital. However, if you’re working in acquisitions or a similar transaction-focused role, you will be on a team that’s very likely going to be under a lot of pressure to acquire or develop as many properties as they can.

Why Fees Drive Deal Volume

A big revenue generator for the vast majority of real estate private equity firms is fee income, and the more properties that are added to a company’s portfolio, the more fee income that company is going to generate.

These fees typically include:

• Acquisition fees
• Asset management fees
• Construction management fees
• Disposition fees

All of these are ultimately reliant on how many deals a company can acquire, which puts a lot of pressure internally on these firms to buy as many deals as possible (and the biggest deals they can).

#2: Big Firms Work on Big Deals (That You Might Never Do on Your Own)

While working at a big, brand-name shop can be great for your resume and can help you build relationships with potential capital partners, if you plan to buy your own commercial properties on a smaller scale in the future, the bigger the company you work for, the less relatable the deals you work on are usually going to be.

One of the things I’ve learned over the years of running Break Into CRE is that the vast majority of people who get into this business, especially those who are drawn to the private equity world, want to own their own real estate at some point. But when you work for some of the biggest companies in the industry and the biggest brand-name shops, you often end up working on deals that you personally would never end up buying.

The Reality of Large-Scale Deals

Because these firms need to deploy so much capital, this means that a lot of your time might be spent doing things like:

• Underwriting the acquisition of entire property portfolios, where you’re analyzing an investment in 20 to 40 properties at once
• Analyzing investments in real estate secondaries, where you’d be buying the interests of another LP in a discretionary fund
• Underwriting the acquisition of entire real estate operating companies and analyzing things like management compensation, office expenses, and many other things outside of just the real estate the company owns

I’ve also found that the ability to co-invest in deals or participate in fees or promoted interest the company generates often tends to be inversely related to how big a company is. While small to midsized firms will often allow junior-level team members to invest in deals the company does, getting any sort of ownership interest in a fund at a bigger firm tends to be extremely difficult to do unless you’re in a very senior-level position.

If you plan to be a real estate entrepreneur, there are obviously a lot of benefits of working at a big-name shop, primarily the brand name on your resume and the relationships that you’ll build. However, if you’re looking to gain as much experience as you can working on the types of deals that you would ultimately do on your own, working at a huge private equity firm probably isn’t going to get you that experience.

#3: Extremely High Expectations for Work Product Quality

Regardless of whether you work for a GP or an LP, the expectations for work product quality in real estate private equity are extremely high.

Because real estate is such a capital-intensive business and competition is so high for capital in the market, anything that could make its way into the hands of a potential investor needs to be accurate and extremely precise.

This means that if you’re working for a GP, you’re constantly trying to raise capital from either individual limited partners or major institutions, and email correspondence, investor memos, and model projections all need to be tightened up.

And if you’re working for an LP, because you’re usually going to be raising even higher dollar amounts from even bigger capital allocators (like family offices, pension funds, and sovereign wealth funds), the stakes here are even higher. So when you’re taking a deal to investment committee or pitching a proposed fund structure, the work product you produce will be even more heavily scrutinized.

#4: Work Hours Can Vary Significantly

Although I’d love to be able to give you a concrete answer that’s applicable in every scenario, from what I’ve seen over the years, work hours in real estate private equity can vary a lot.

With that said, the general rule of thumb I’ve seen is that the bigger the market you’re in and the bigger the capital allocator you work for, the longer your work weeks are typically going to be (and vice versa).

In my experience, workweeks in real estate private equity typically range anywhere from about 45-50 hours on the low end to about 70-80 hours on the high end. This means that if you’re working at a top 5 PE firm in New York, you can probably expect to be working late into the night on most weekdays, and you might also be coming into the office on weekends. However, if you’re working for a local developer in Kansas City, for example, you’re probably going to have much closer to an 8-5 or 9-6 schedule.

Is Real Estate Private Equity Right for You?

Ultimately, working in real estate private equity can be really exciting and really lucrative, especially as you move up the ranks. And if you want to make sure you’ll have the skills you’ll need to break into real estate private equity and pass an Excel modeling exam that might be given to you during the interview 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.