Real estate investment banking is considered a fantastic career choice for many undergraduates or graduates who desire to work in the finance business.
Although they do have an insight into the day-to-day life of a real estate investment banker, few know for a fact what it is and all its details, such as job opportunities, salary, and which are the top investment banks in real estate.
Therefore, we have created this comprehensive guide to real estate investment banking to help you on your way to becoming the best banker in the business!
What Is Real Estate Investment Banking?
Most financial analysts and experts have a simple way of explaining what real estate investment banking truly is. They define it as a way or a process to connect capital seekers and capital providers.
It’s an investment banker’s job to analyze the preferred equity, which is capital stock, and the JW equity, and assess whether or not there are any capital sources as far as a possibility of investing goes, perform risk management, and categorize the types of assets.
What Line of Work Can You Choose as an Investment Banker?
If you’re interested in this type of job, you should be aware that you will be playing a crucial role in raising capital for projects that need to develop on a massive scale. That being said, there are several distinct ways in which you can get involved in real estate as a banker.
REIT stands for Real Estate Investment Trusts. REITs are equity companies that buy and sell and which also operate on properties and improve them. Typically, these forms are organized according to geographical location or categorized by the type of property they are handling.
For example, they can specialize in residential or retail. Apart from that, REITs can activate in larger areas of expertise.
Apart from this, REITs are structured the same way a corporation is, like trust or an association. Some of them can even be publicly listed. They issue significant portions of their income in the shape of dividends. They have very little cash at hand, but with large amounts of money flowing in and out at any one time.
Building on these characteristics, one can understand how their ability to raise capital and their cash flows are among their primary concerns. This is because there are numerous regulations as per sourcing capital and the dividend payouts level.
#2. Internal divisions
Companies that build houses in the residential sector focusing on a particular area, geographically speaking, often have internal divisions strictly for financing.
This aspect is paramount because, when it comes to healthy real estate markets, buyers finance their home purchasing. However, it can and will become a feebleness if the market itself is not doing so well.
Some of the investment bankers involved in the trade refuse to deal with buildings or properties. They prefer to handle the materials which are used and which are called aggregates.
#3. Larger Individual Properties
The common properties that require a significant investment are residential, commercial, industrial, and retail ones. However, there are other types as well, such as properties related to gaming and lodging.
An example is casinos and hotels, which are more often than not linked to making things as easy to comprehend as possible. They need a substantial investment to get the projects off the ground, particularly if you consider that their revenues and profits are highly seasonal.
In this case, property value relies on getting people to stay in the hotel during its allotted season and spending as much money as possible in the casino. If the owner and his team manage to pull this off, it’s considered to drive amenity investment.
It’s a good thing to know that real estate groups that are to be found within an investment bank do not characteristically do business with individual properties.
They prefer large REITs, internal financing divisions, and even chains of properties. The simple reason is that they prefer and need large financing deals.
Another piece of information you need to be aware of is that they don’t treat real estate and everything concerning it from a traditional perspective. This means that they are not very interested in the development perspective as they are in the financing and accounting one.
What Does an Investment Banker Do?
The most common position you will get to work in within real estate investment banking is ‘associate’ or ‘analyst.’ Both these jobs will give you the fantastic opportunity of activating in an entrepreneurial environment and displaying your analytical skills.
It would help if you also were a very skilled cross-border negotiator, be proactive, motivated, a good team player, be as disciplined as you can, and commit to your job as much as possible.
Here are the responsibilities that come with a job in real estate investment banking:
- Perform the analysis of the real estate portfolio.
- Perform different kinds of valuations, like the Debt Yield analysis and the DSCR.
- Prepare all sorts of financial models that can apply to various scenarios within the operations process.
- Prepare the market report.
- Prepare the presentations.
- Do all the necessary research.
- Actively manage the individual interactions.
- If there are any dialogues between your company’s clients and senior members of your teams, you need to get involved as actively as possible.
- Take note of the advisory board, transaction counterparties, securitization needs, and client management.
- Assess the situation and, if need be, hire third-party elements, such as engineers, appraisal specialists, people to handle title, legal deeds, and everything else in between a transaction might need.
- You will need to manage the due diligence process independently, as this is one of your primary responsibilities when working in the real estate investment banking sector. The due diligence process includes coordinating the information flow, company analysis, preparing the virtual data room, tracking the information flow, monitor all the intelligence that comes from the market, and review all the sponsors.
Education, Skills, and Experience in Real Estate Investment Banking
Evidently, since this is the finance realm we’re talking about, you need a particular type of qualification, education, and background to be successful.
From an educational point of view, you need to have a Bachelors's or Masters's degree in Economics, Business, Law, Finance, or any other related topics. As you might have already imagined, it would be a good idea to undertake courses in real estate, but they can be quite difficult to come across. Universities don’t regularly offer specific courses to the real estate business or for real estate investment banking.
As far as experience and skills go, if you have worked in real estate or even investment banking before applying for a particular job, it is an obvious plus and will be considered as added value.
However, the job market in real estate investment banking has entry-level openings as well. Either way, you will need a firm understanding of the domain and in-depth knowledge of it. Try to stay on top of the investment banking industry and know the ins and outs of financial modeling and valuation.
When it comes to personal skills, you need to show your employer that your judgment has integrity and can be trusted. It would help if you also had strong work ethics, commitment to the job, and a huge deal of professionalism.
Investment banking is one of the most challenging domains on the job market today. You need to understand that the banks you will be working for have huge deals and essential clients. Apart from that, their accounts are usually large and involve trading significant amounts of money. These are all reasons you need to show your employer that you can be trusted from every single point of view.
You must also be able to perform well under pressure and in a very fast-paced environment. Be self-motivated and show them you truly want the job and love it. It would help if you were not in it solely for the money. The financial advantages are significant, indeed. However, to succeed in the field of real estate investment banking, you must see beyond that.
One crucial aspect which you must not overlook is your people skills. Keep in mind that, with this job, you will have to interact with people daily. Not only that, but you will also be dealing with wealthy, influential people. Being able to handle these individuals should become a personal goal for you.
A trick of the trade in this regard when it comes to investment banking is to develop a series of hobbies. A few examples include participating in wine tastings, boating, acting classes, playing in a band, Civil War lectures, and anything else in between.
This is a trick of the trade because, most likely, your company’s clients share these passions and hobbies. Therefore, instead of meeting them in an office, you could easily take them out sailing or to a wine tasting and close the deal in a serene and peaceful environment. Apart from that, it is a known psychological fact that people tend to bring their business to individuals they already know, like, and with whom they have things in common.
A few other requirements include being proactive, organized, showing intellectual curiosity, engaging in independent research, and having perfect written and verbal communication skills.
At the bottom of the requirements list, although not the most unimportant in the least, is technological skills. One should be able to operate such pieces of software as Word, Excel, and PowerPoint.
Salaries in the Real Estate Investment Banking Business
Salary-wise, there is some good news in the real estate investment banking sector. The Bureau of Labor Statistics announced to the public that the industry would grow some 15 percent between 2010 and 2020. Evidently, this growth will affect every employees’ wages. Here are some examples to give you an idea of what the average salary is in this industry.
In 2015, according to Indeed.com, an associate in real estate capital raising had a salary of $63 000 plus per annum. Location matters a lot in this industry. For example, an analyst in New York City can make up to $140 000 every year. A senior associate typically earns an average of $122 000.
The Top Banks in the Real Estate Investment Banking
Thomson Reuters reports that the top five investment banks have not changed a lot in the past few years, as far as the real estate sector is concerned. Apart from that, none of them has captured more than 10 percent of the market share. Four of these five banks entered this top in the past two years. Here is the top itself.
- Bank of America Merrill Lynch
- Morgan Stanley
- Goldman Sachs
- JP Morgan
JP Morgan and Bank of America Merrill Lynch have been in these top five for the past four years. Wells Fargo was in it as well in the years 2011, 2013, and 2014. However, it fell out of it in 2012 and 2015, only to be replaced by Citigroup.
Goldman Sachs switched places with Morgan Stanley back in 2012. There was another contender, Deutsche Bank, which was strong top five-wise for two subsequent years, in 2011 and 2012.
The reason these large banks currently dominate the industry has to do with the number of underwriting deals required by REITs and the capital needed to make these REITs continue investing. Here are some other names present on the list of the top banks in real estate investment banking.
- The Carlton Group
- Hinduja Group
- CBRE Capital Advisors
- ABN AMRO
- Cushman and Wakefield
- Key Bank
- Moss Adams Capital
- Carval Investors
- Scotia Bank
- Bank of America
- Aries Capital
- Cowen Group
The real estate industry has individual needs for capital, especially REITs, making it a fantastic field for investment banks, thus creating real estate investment banking.
As far as jobs are considered, the industry is a niche one.
Therefore, you need to train hard and, most importantly, understand how you desire to be placed in this segment of the financing world.