Family Office Exit Ops

I'm currently an "associate" at a small investment/development shop ($75MM AUM) funded by multiple family offices. I joined 2.5 years ago, was in construction for 4 years prior so the only thing I knew about real estate was what I had learned from taking financial modeling courses. The company began operating as a GP 3 years ago, before that they were a commercial construction company. When I began working here, I was literally having to teach the partners real estate 101 terms and metrics... Don't get me wrong, I have learned A LOT since working here, but it has all been through osmosis because there isn't anyone above me to learn from. FYI I put quotes around "associate" because the only person above me is the CEO lol. As of this month I've experienced crib to coffin on two deals (Medical office BTS developments) and I'm at a point where I'm extremely comfortable with underwriting. 

Basically, I want to know how feasible it is for me to move from a family office shop to institutional private equity. I'm not as worried about my underwriting abilities, as I am about the potential for REPE's to discount a candidate from the relaxed environment of a family office shop... as well as my government degree, which is from U of Texas at Austin if that even helps.

 

Why wouldn't you stay there and build off of what you're doing? Seems they're active, you're an actual person there vs. in institutional RE and can build carry/real wealth long term.

If it's backed by a few family offices then they're already very successful families and you are very close to that and can grow in responsibilities. Why wouldn't you stay?

I would also maybe take off the specific major at your school or school in general so you aren't as easily identifiable. 

 

I agree with you 100% especially since I already have carry, but I know if I ever asked for more responsibility he would ask me what I had in mind... I don’t know what I don’t know so I wouldn’t be able to tell him. Sourcing deals is the only thing that comes to mind, however, he doesn’t directly seek deals, people usually just present him with deals that are already teed up. Also, we don’t have a minimum IRR or risk protocols, so if I ever wandered into my own deal I’d have no clue if a good deal is too risky or not.

The other caveat is that the responsibilities I have asked for and he agreed to give me, he has now given to his neighbors kid who’s been with us for a year now. He just took him on a 4 day trip to Florida to just “look” at the parcel of our next development… they just golfed everyday. He doesn’t understand underwriting so I’m not worried about him taking my job, but again, that’s just less responsibility/knowledge I’ll be able to learn.

 
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Then you'll have to take over, tell him you want to go out more into the community to become more well known in the area and be his head of acquisitions and grow the firm. Go find deals in your area or other markets and ask to go visit the sites with him. If he likes to golf maybe suggest to do that one day or let him be the one to bring it up.

Have to be more proactive, just because he doesn't know the UW side doesn't mean your job is safe. On IRR whats an example deal you've looked at - just give overview and business plan not market. For ground up I've heard targeting 20%+ IRRs minimum and 1.5% spread between exit cap and yield on cost (7% YOC, 5.5% exit cap rate). Value add have also heard targeting 20%+ IRRs, and yield on cost lower like .75% to 1%.

Bottom line go tell him you want to be more active for him, get out there and meet people, build more institutional relationships with equity partners, lenders, brokers etc outside of his current contacts to bring value to him. See if you can also join calls on contacts with his current relationships and see if he needs any additional help. Your job is actively being taken from in front of you by getting your responsibilities taken away, it should have been you and this newer person under you learning from you with you delegating some tasks but keeping your power and position.

Any issues you've had with your boss in terms of work product or effort?

Edit: order/read Peter Linnemans Real Estate Finance textbook this week. "Real Estate Finance and Investments: Risks and Opportunities"

 

Why? I think that's decent. It's not a huge fund but it's more than 99% of the people in the industry ever accumulate. You can go work for a huge firm with billions where you won't get much traction or build something from scratch and create real wealth. That can also be grown to $100mm, $200mm, $500mm+ over time that you are apart of.

 

UT Austin is a very solid school, just don't include your major on your resume. I started doing this once I had 2-3 YOE on my CV (liberal arts major) and nobody has ever asked me about my major only my work experience. I don't think an economics degree really helps with a CRE career any more than mine or yours only real world experience and people skills.

Array
 

I've said this a few times on this forum, but not all FO's are the same. I made the jump from a FO to a MF REPE firm. I know others who have done the same, so it's definitely possible. That said, when I was at the FO we invested as LPs with a number of PERE Top 100 managers, so my coverage universe is quite similar across both roles. The bigger the difference between the roles the more challenging a transition might be. 

I think the scale of your current position will be the biggest thing you need to be able to speak to. How does your experience align with the firms you would like to move to? Being able to speak to transactions that you've worked on that would also be a fit for these REPE firms will be really important. It may be more difficult than if you were coming from a peer firm, but it's definitely doable. 

 

It is indeed possible to move from FO to RE or PE, and some SFO will even have an affiliated RE or PE firm.

I know of a few cases (perhaps unique cases) where someone moved from a FO to an unrelated PE Associate role. I also know of cases where someone at a SFO was put in charge of a PE portfolio company, or moved to the PE firm, or was offered a role overseeing some aspect of RE operations.

A lot of it is fluid and will vary on a case by case basis, so there isn't really a single right answer to your question.

However, here is my suggestion:

Focus on firms that utilize heavy lobbying as part of their strategy.

There are at least several firms that have a dedicated lobbying firm. They usually (also) have at least a few in-house staff with a dual Associate + Government Relations role. (In that way, you'll be able to leverage both aspects of your background).

There are also a few PE firms that are affiliated with former politicians/government leaders, and they leverage that experience, and seek staff who understand both areas. For example, I know of a few former Governors, and former Speakers of the State House that launched PE firms. Further, many former U.S. (Federal) politicians/government leaders get involved later on as well.

You'll find that there is a slightly hidden niche for Finance + Government Relations type roles. I've seen SFO, RE, PE, and especially RE developers and Infrastructure PE, all seek to hire those who understand government, and who they can utilize for Government Relations (as secondary role), in addition to a normal Associate role.

(Remember, that's how PE and RE firms tend to get things approved, e.g. through a lobbying strategy, of seeking to influence the desired outcome).

Even if you don't have lobbying experience, a government degree would potentially get you in the door at those firms.

(I could be wrong, but doesn't Carlyle tend to hire people with government degrees?)

I see that as the best way to harness both elements of your resume.

Also focus on the standard Associate roles, but I think you might get some traction if you target that niche as well.

Good luck.

Investor (30+ years); IB/RE/PE/Corp. Exp (MD level); currently, head of boutique private equity firm; principal of family office.
 
Controversial

I don't know if the anti-UT comments are jokes or serious, but UT definitely not a problem.  Not even close to a problem.

The humanities degree combined with the small AUM will be an initial problem because it will make people believe like "OK so a guy didn't have proper finance training, probably knew someone who helped him get into a role at a not-serious place".

Answer is to network with a longer time horizon in mind.  Italics for emphasis because people always forget that part.  Most people network way too transactionally like "yeah coffee sure, how can I get a job?"  Instead get to know people for real, especially as a guy who has the skills but doesn't have a resume that people will instantly trust.  Go to conferences, figure out who could actually become a real friend or mutually-beneficial business acquaintance, and go get a beer with that person.  Not a networking beer under pretense of something else, but like just two guys actually hanging out because a beer is good after work and the conversation will be beneficial.  This will help people learn over time that you're competent and they'll help you.

 

My FO would definitely be the exit opp for someone wanting to be a partner. For someone less than 5 years in, it's not an exit opp if you are wanting to learn from your higher ups, which in this case is the CEO who's background is in construction.

 

Honestly I don't get why so many people want to help you jump from a FO where you are a principal investor towards a REPE, institutionalized, set-up.

You are going to have exposure to the two sides which are critically important to setting out on your own in the future: deep-pockets investors (the family offices) and people who can source you transactions. You've jumped to the ultimate exit opp it really does not matter what someone with a brand name college or REPE says: if you can make a positive impression and do your own deals then over a period of time your cumulative promote will be multi-generational defining wealth. 

 

I absolutely agree with a lot of the other comments! FO is the final exit opp especially if you're getting carry. You really just need to change your mindset from thinking that everything will be fed to you to being more proactive in thinking like an owner.

At REPE you don't get this experience since the platform basically provides you everything. If you are an acq person, you only know acq. but you do not know how to raise a fund or the debt side of things. If you are a debt broker, you only know debt and would not know how to invest in buildings. Caveat --- you are extremely specialized/funneled into a single job. In long term real estate investing this isn't very ideal; and you could be golden handcuffed into your role.

If I were you, I wouldn't treat it like "work" anymore but more like "if I am the owner of this FO, what can I do to expand my business. What connections do I need to make? What are some skills I need to learn to become an investor? Why does the owner make a decision this way as opposed to another". This will help you with your current responsibilities at this FO as well as dealing with the new hire and the CEO.

 

Agree that FO is often the final destination, but a $75 million multi-family office is hardly a "family office". When I consider family offices worth building a career at, the equity at work needs to be at least $500 million to get interesting. As an example, running a scenario to determine carried interest at $75 million of equity would be as follows:

  • Unlevered Assumptions - 7.0% Initial Yield-on-Cost, 3.0% rent growth, 5-Year Hold, 6.0% Exit Cap
  • Leverage Assumptions - 50% LTV, 6.50% Interest Rate, No Amortization
  • Carried Interest Assumptions - 10% above a 8%

Based on the above, you end up generating $2.7 million in carry. Split evenly between 5 employees, you generate $540K of carry over a five year period (or $108,000 per year without even accounting for time value of money). While certainly a good amount of money for the average real estate professional, it isn't the holy grail. That isn't even to take into consideration that if all $75 million is deployed, there won't be much to do other than asset manage the assets that the $75 million were deployed for. 

 

Fair point — and excellent constructive criticism with scenario. Looks like OP either needs to aggressively expand his office to 500 million equity or have some job searching to do.

 

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