Thoughts on acquisitions vs. development
I always thought I wanted to do development. I work in acquisitions now. Below are my random thoughts I welcome any input. Curious to hear from others who have considered both.
- Development is more entrepreneurial and higher risk. Requires a certain skill set which seems like it would take longer to build (very “apprenticeship”-like space IMO).
- Acquisitions - seems more feasible to go buy a smaller deal on your own vs. run a development.
- Development can produce a bigger carry check but how much is survivorship bias? Curious on average who makes more…acquisitions or development guys. Probably not a clear answer here
- Development seems like a nightmare sometimes - cost escalations, labor shortages, whiny GC’s, etc. Many moving parts which can be tough to manage
- Lower initial comp in development from what I’ve seen. So unless you want to stick around to MD or go do your own deals ASAP and get rewarded on carry, maybe comp is better in acq (seen some crazy numbers thrown around for REPE assoc. roles lately)
- I like how with acquisitions, you don’t need to live in the geography that you cover. I value flexibility and optionality and while broker contacts, etc. may be local I like the idea of owning/acquiring real estate across the country from anywhere. Like I could live in NYC or Miami and effectively do the same thing if I am covering Midwest/eastern markets.
- I think design is cool. I think I could get that fix from a heavy rehab of a townhome or something vs. having to go do development. Not sure I would need to go build an entire development skill set to eventually have a fun time redeveloping / renovating small-scale townhomes/condo projects/etc
Chiming in on your thoughts... Long and short of it is these are pretty different career paths that appeal to different personality types and people with different goals. This will come across as though I prefer development (I do work in it) but I actually have no preference either way, these paths suit different people.
REPE/acquisitions is a far more finance-oriented, corporate job. It's fast-paced and you're always on the hunt for the next deal, but the scope of your role is much more limited (thus it prepares you less to be an entrepreneur). You will focus more on the macro environment and economic/industry trends to guide your decision making, and you won't learn nearly as much about the nuts and bolts of real estate (again, less prepared to be an entrepreneur if that's what you want).
Development is real estate, through and through. To succeed at high levels you need to understand how to source deals and identify a good deal, but you also have to have an intimate understanding of everything real estate, from leasing to operations to strategy, as well as have very strong project management skills and ability to navigate politics. It's a broader, more well-rounded skillset, but you could also argue that it requires less rigorous intellectual analysis from a finance/investing perspective. REPE is much more specialized and thus generally teaches you to be better at what they do - investing.
To your points...
1. I would agree entirely with this point.
2. 100% yes again, but I'd ask the question of which is easier to make real money on in the long run. It takes much longer and many more deals to build substantial income/net worth by buying your own smaller deals.
3. Assuming we're talking corporate and not entrepreneurship, then acquisitions guys. At the junior levels base pay is substantially better. There's also just more deal flow so potentially even from an entrepreneurship perspective. It takes more luck and fewer people have the stomach for it to make it in development.
4. Yes. Right now is a great example of it being a headache to be in development. But acquisitions can also be a headache when there's no deal flow and your firm is breathing down your neck to bring in new deals.
5. See above.
6. Lots of development shops have guys running deals in markets outside where they live, they just travel frequently and/or hire someone to run the day to day in that market.
This is the main decision point right here, imo. Development is a nightmare always, not sometimes. Everything that can go wrong will and you have to lead and backstop a team of consultants who know more about what they're doing than you do but will still mess up once a month at least.
Does that sound like a challenge to tackle or something to avoid? Are you up to learning how to anticipate pain points to minimalize cost and schedule problems? Are you able to make multi-million dollar decisions at a moment's notice? Are you capable of maintaining the vision while everyone else is lost in the weeds?
I’ve thought about this a lot. redever breaks it down really well that acquisitions is a function within the business of real estate while development is the business of real estate. So here’s my perspective having done institutional acquisitions and lending as well as now doing development.
Acquisitions is a really good job. You’ll learn a ton and see lots of deal flow. However - what will you miss - it’s hard to identify the bumps on the road the deal may experience if you’ve never actually brought a deal to fruition and sale. One of the things I always felt missing in acquisitions is understanding the little risks that come up along the way, but delay you and can add issues and losses. Because you don’t deal with operations in a auditions, you miss these nuances.
Development - you can see all the nuances as you fight the clock to get the asset built. You’re going to learn project management skills, deal with budgets, leasing, operations, partners, lenders, the government. Not only will you see the bumps, you’ll experience them and smooth them out to derisk the project. You may not look at 100 deals per year anymore (acquisitions) but you’ll be in the weeds in one (or a few). I believe (and I received this advice from a developer and why I went into development), that development will actually teach you the business and give you a better entrepreneurial skill set to do your own thing. This is because development is problem solving and management. Once you’ve underwritten deals for 1-2 years, you have enough experience to figure out what levers to pull to determine if a deal has potential. It’s not rocket science (neither is development). But development will teach you management and problem solving which are key skills to running your own firm. I believe that you can take a development skill set and either become a developer, or become an “acquisitions GP shop” (LP if you can raise the capital). The reason I believe development allows you to do both (acquisitions and development) is because you are learning the business of real estate. Seeing the risks. Operating. De risking. Dealing with the BS. Problem solving. Managing. And moving a project forward.