New Real Estate Analyst Interview Preparation Guide

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This is your opportunity to show your personality. Do not ramble, but rather provide a succinct explanation of who you are as a person, what you like to do, and THEN transition that into real estate. For example you might be a very outgoing person who enjoys staying busy and doing a lot outside of school. Talk about this and how it relates to involvement with the program. Maybe you have done multiple case competitions, traveled, taken the REIT course (shameless plug), or have a position in Real Estate Club.

A waterfall is a structure that provides incentive to the GP or developer. The GP will get some percentage of cash flows up to a certain IRR hurdle rate, and then will get an increasing percentage of cash flows once the IRR hits additional hurdle rates.

Here is your opportunity to discuss your passion. Maybe you love hotels because of the complex structure with the operating partner and the cyclical nature of the asset class, which might present opportunities that other food groups do not. Or maybe you love multi-family because you are most familiar with it and you like the growth prospects with more people renting and the shift to urban areas.

An equity multiple is another metric used to analyze investor returns. It is calculated as the sum of total cash distributed to the investor including appreciation from sale over the holding period divided by the initial investment.

Shortly, just mention a few approaches. Run a DCF to take into account future cash flows, use comps in the market, and look at what it would cost to replace the building.

The IRR is the discount that makes your NPV zero. It is metric used to analyze investor returns and is often associated with IRR hurdle rates and promotes.

No impact. Project IRR is calculated on the basis of cash flow and depreciation is a non-cash flow item.

Have a succinct answer for this. Know who you are interviewing with. If the company invests in value-add deals in Oklahoma do not say that you would put your money in a REIT like Vornado. Try to be clear which part of the capital stack you are investing in. Are you putting money into Public debt, private equity, public equity, or private debt? This structured response will be clear to the interviewer and show a sound thought process. Try to mention diversification!

Basically what a JV does is provide a co-investment by multiple parties to fund a real estate deal. This could be a general partnership, limited partnership, or an LLC. Ultimately it is simply a way to link money (capital) providers and people who specialize in real estate services. What a JV tries to accomplish is utilize this link to provide all parties with above average risk adjusted returns and also assess structuring details with regards to a if the deal goes bad.

This is more of a debt side question you would get when looking at tenant quality. You want to look at the cash flow statement to understand how the company makes money and generates cash flow. It will also allow you to analyze growth prospects and market share. Of course the Income Statement (Revenue and Expenses) and the Balance Sheet are very important also. When it comes to analyzing key ratios and debt structure look at the balance sheet. But the real estate industry is about Cash and having the ability to generate cash is king.

This is a short answer, but basically a DCF is a way to project out future cash flows and discount those CF’s back to present value. You are saying that this property is something that is going generate income (while having operating expenses) over some period of time fluctuating with market conditions, and that this potential needs to be taken into consideration when valuing the building.

Infra cost and land cost can be allocated on the basis of gross floor area (GFA), net sellable area (NSA) or in proportion to the projected revenue.

Service Charges can also be allocated on similar basis.

I personally prefer the allocation based on GFA as it makes life easier (accounting reasons).

Cap rate = NOI/ Value

A high cap rate is associated with a riskier property or market, and a lower cap rate is a more stable property or market. Cap rate is also the discount rate minus growth rate. Another way to look at this would be from an investor POV. An investor will require some rate of return on their investment, called the discount rate. They will expect to receive the cap rate + some growth in the property. This is just a rearranged version of the previous formula. {Cap Rate = Discount Rate – Growth} or {Discount Rate = Cap Rate + Growth}

You need to mention two things. One is the ease of financing. A deal might not be deal without the ability to lock in artificially low rates. Two, discuss investor sentiment. By that I mean that investors are searching for yield with rates so low, and will be looking to real estate to provide that consistent cash flow and above average risk adjusted return.

Practice this one over and over. Try to make it roughly 2-4 minutes. Go in order of most important. The key is to highlight not only what you did, but how it has shaped your skill set for the position. For example if you worked in brokerage but are applying for an analyst role at a private equity shop, discuss your knowledge of the markets and ability to understand tenant demands and lease structure. These are valuable skills that analysts need to have.

There can be various reasons, but we should go with the industry practice in our area of operation.

The IRR is the discount rate that makes the NPV zero. Boom!

3 approaches again. Talk about credit quality of tenant’s also.

In any given market, one asset will be better performing than others. Assume in my area, hotel is the worst performer and residential is the best performer.

But a developer cannot just keep building residential assets, as soon oversupply will make it the worst performing asset.

Also, a large development cannot be successful without having a proper mix of various assets.

RICS and BOMA are the two most commonly used area measurement standard in the industry. RICS is the area measurement standards from Royal Institution of Chartered Surveyors, whereas BOMA is the area measurement standards from Building Owners and Managers Association, USA.

Closed- end means that the fund is limited in life. The investment managers must make acquisitions, manage, and enhance their assets, within a given time period.

Open-end means that the investment period is infinite and the fund will achieve success through cash flow, sales, and equity offerings.

☛ Office- GDP, Employment, and access to transportation.

☛ MF- Population (20-35), housing affordability, and employment.

☛ Hotel- Tourism, GDP, Employment

☛ Industrial- GDP, Employment, and Manufacturing

☛ Retail-Employment, GDP, Income

☛ Self-Storage- GDP, Employment, Single Family Housing

☛ Medical Office- Elderly population, transportation, health care employment

☛ Senior Housing- Same as medical office but just look at employment

Discuss building construction, amenities, management, credit quality of tenant’s, age, environmental factors, occupancy, etc.

IRR!
Why? Because it is easiest to calculate and least prone to subjective judgment error.

Hope you enjoyed this post on the real estate analyst interview. Use the comment section below to add any more questions to the list.

No, project IRR doesn’t take into consideration the financing cash flows. Equity IRR does.