Careers in Real Estate I-Banking

Many investment banks on Wall Street and elsewhere have groups dedicated to real estate, which are good places for someone who has an interest in both real estate and investment banking. It shouldn't surprise you that these are very finance-oriented groups and look at this field as one more asset class to make money for themselves and their partners. Products involve the repackaging of mortgages into residential mortgage-backed securities (MBS), collateralized mortgage obligations (CMOs) and commercial mortgage-backed securities (CMBS). Other popular areas include the REIT stock, bond and preferred stock origination business, lodging investment banking, principal investing in real estate and synthetic lease origination.

Some of the big players include Deutsche Bank, Goldman Sachs, Morgan Stanley, and Lehman Brothers. These groups look to place money with operators (real estate developers and owners) all over the world that need it for real estate related projects. Operators, in turn, seek these groups out for funding. It's important to note that these groups look for high return deals. Higher returns mean riskier deals. They base their decision on the expected return, or what is commonly referred to as the internal rate of return (IRR). You should know this term and be comfortable explaining it in an interview. Many people are intimidated by IRRs, but they're easy to understand. For example, if you're discussing a potential investment you will want to know the associated returns, which are expected but not guaranteed. This is what an IRR is, an expected return on the investment if everything goes according to plan.

On the Job

Note: The following section is based on the structure of Goldman Sachs' real estate group so it may differ somewhat other companies.

Entry-level employees are usually referred to as analysts and spend the bulk of their time doing acquisition/valuation work. They'll also do financial modeling for proposed deals. As part of the modeling, analysts account for the IRRs to the contributed debt and equity. Additionally, they help write deal memos that are presented to the investment committee, which ultimately makes the decision on whether or not the group will invest in the deal. The memo contains the pros and cons associated with the deal as well as market risk and fundamentals. In the course of preparing the memo the analyst will have most likely visited with the parties involved with the deal and inspected the physical asset. Since these groups invest money all over the world, there is a good deal of travel. At some companies analysts have a lot of contact with the deal partners and will interact with the operators, attorneys and investors that are involved in the deal. They will seek any information that affects the risk and return of the project.

The next level is the associate, whose main duty is to oversee the work of the analyst. He or she generally handles more of the contact with the deal partners and communicates any concerns or issues to the VP. There is a degree of work redundancy between associate and an analyst.

Associates report to vice presidents (VPs) who have a supervisory role. Their main purpose is to bring in deals and make sure that those run smoothly. Managing directors (MDs) are the tops dogs in this hierarchy. They are more so the dealmakers than the VPs and have the final call on things. MDs are charged with business development and securing relationships with operators