Sometimes, the first step is the hardest.
That’s true for a number of industries, from entertainment to real estate; after all, getting in with little experience is a daunting, difficult task. With that being said, however, it can be done. A few years ago, I had the privilege of sitting down to a talk with the folks at Privcap, as well as Jennifer Novack of Sousou Partners and Susan Swanezy from Hodes Weill & Associates.
Together we agreed on some important mindsets and strategies, and I’ve distilled our thoughts and advice into an actionable, practical guide.
Understand the bedrock competencies of the real estate industry
Real estate blends a number of elements: building and maintaining relationships, knowledge and expertise in specific subsets of real estate, marketing, and asset skills, to name a few. For this reason, the industry is such an interesting line of work. For instance, a day can consist of sitting down for a meal with a key investor to raise capital, meeting with architects and planners to learn more about their vision to revitalize a crumbling waterfront, and scouting a location for profitable, underdeveloped investment opportunities.
Granted, this complexity also makes the real estate industry difficult for newcomers, simply because it’s so diverse and wide-ranging; it takes time to get your bearings, and more importantly, a beginner may have difficulty figuring out which areas to focus on. But while real estate requires a large number of different tasks and duties, there are three underlying competencies:
- Raising capital. Needless to say, real estate investing is an extremely capital-intensive industry, more so than other sectors of finance. For instance, New York, one of the top real estate markets in the world, is incredibly expensive to build in, thanks to saturation and high entry barriers, such as strict regulations. As such, capital is of the utmost importance, particularly if your firm is involved in new construction.
- Managing money. All the capital in the world won’t be useful if you squander it on ill-advised renovations and additions, or on penalties and violations that could have been easily avoided. Towards that end, it’s incredibly important to do your due diligence in order to come in on (or under) budget, and on time. On a renovation or construction project, more time dragged out means more money used (and less profit).
- Adding value. This is arguably the most important metric, as adding value (and making a profit) is the crux of all investing, and not just in real estate. In order to be able to add value, you’ll need to understand how to calculate it in the first place. Such indicators include the cap rate, which measures the rate of return on investment; equally important is the net operating income (NOI), which equates to the profit gained from a development after all the operating expenses have been deducted.
Be realistic in planning your career
What is realism?
It’s simply a matter of setting achievable goals, building a strong plan, and creating a reasonable timeline. For instance, I’ve taught at Columbia University previously as an adjunct professor specializing in business and real estate. In this role, I’ve often had students, many of whom hailed from architectural backgrounds, asking me about working at Blackstone immediately after they finish their postgraduate degrees.
To be honest, this is unlikely to happen--not because the student isn’t skilled, talented, or driven, but because of experience and barriers to entry. Think about it: Blackstone is the largest manager of private equity and real estate, posting record returns this year, and is constantly involved in massive, multi-million dollar deals. In other words, entry-level jobs at a firm like Blackstone aren’t necessarily like entry-level jobs anywhere else; even those roles are likely to be staffed with people who have at least 3-5 years experience.
All this is to say that, should you wish to enter Blackstone (or a similar company), you’ll have to chart out a course of action first. It’s as if a recent grad, fresh from their computer science degree, tried to enter Google: it can be done, but don’t bank on it as your only option. More importantly, build the necessary experience and then apply. Your chances are much higher if you do so.
What do I need?
This raises another question: what exactly do prospective real estate investors need?
First off, I would say that an MBA is not necessary to break into the field. I certainly don’t have one, and I’ve known plenty of fellow real estate investors who don’t have one either. More important than an MBA, in my opinion, are skills and practical experience. This includes quantitative and math skills, modeling, and relevant coursework--essentially any abilities you’ll have to rely on when you enter the real estate investment industry.
Also, note that asset skills are much more important than financial engineering. Starting off, you’re likely to work in one of three areas: acquisitions, asset management, or portfolio management. Spend as much time as possible with an asset, and take the time to really know the specific ins and outs. The more ground-level knowledge you can accumulate, the better; this foundational experience will be invaluable to you as you make your way through the career ladder.
My Career Path and Mindset
With that being said, there aren’t necessarily clear-cut paths to enter real estate anymore. I graduated from university during the 1990s; at the time, the playing field was dominated by a handful of big investment banks, all of which would hire recent graduates and put them through extensive training programs. I entered one such program, working in M&A for a year, before transferring into real estate. I haven’t look back since.
Yet I was lucky; I benefited from structured, formal training with clear career paths and progressions, at a large corporation that had a large hierarchy and plenty of room to grow. Today, that is increasingly uncommon; the market is more fragmented, and more importantly, fewer companies have the time, space, or funding to train new grads from scratch.
From my point of view, as a managing partner of a smaller real estate firm, I’m much more likely to poach experienced hires, rather than take on a new or recent graduate. Certainly all of my staff right now (even juniors) came from other operations. Part of the reason for this is due to our mindset; at GreenOak, we offer a more entrepreneurial, dynamic environment, and as such, we prefer those who have the knowledge and abilities to seize these opportunities as they come.
Whatever the case may be, real estate is a rewarding, interesting career with a variety of fascinating career tracks and opportunities. Good luck to you!