Basic Real Estate Developer Interview Preparation Guide

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The commercial and residential real estate industry generated an estimated $3 trillion in 2014, with some 35% of sector revenue coming from leasing activities. Other revenue was attributed to net gains from property sales, brokerage fees and rental income. Most estimates of total global gross domestic product fall in the $75 trillion to $90 trillion range, meaning the real estate sector makes up between 3.33% and 4% of total world output.

Money, prestige, or a perception of the industry as the “next big thing” will get you shown the door. Of course, those already working in private equity would be lying if they said they didn’t enjoy those things. But ultimately, once the money’s in the bank and the person’s name is in boldface in the newspaper, the challenge is what keeps them coming back. Private equity, to those in the industry, represents the very pinnacle of investing. Turning around whole companies, finding value where there doesn’t appear to be any… these are what keep private equity folks in the game.

Interviewers love to test interviewees' knowledge by pulling out an arcane term that is specific to the industry and testing what you know about it. For example, do you know the difference between a triple net lease and a gross lease? (For reference, a triple net lease requires the tenant to pay taxes, insurance and building maintenance along with his rent, while a tenant with a gross lease pays only rent with the landlord covering the other expenses.)

Policy manuals are generally boring and dry. However, most policy manuals are written to legally protect the company, and you should read and know the policy manual of your firm. It’s a red flag if your potential broker does not have a policy manual.

Social media is a leading way real estate agents in which market themselves and their properties to potential buyers and sellers. Technology has created new ways for consumers to buy properties and for real estate agents to market those properties and themselves. Finding a real estate agent who is able to help you maneuver through financial and legal paperwork is important in order to decrease the stress and mistakes that may come along with trying to buy or sell property. People turn to their computers and the Internet to research every aspect of a sale, from their potential agent to property values and past sales of homes. While traditional avenues of marketing such as direct mailings, newspaper ads and magazine layouts are still utilized, online marketing avenues are necessary to compete in the real estate market.

Marketing is the core of what agents do. The marketing materials provided by brokerages vary from firm to firm, but be aware of the guidelines for use of each marketing medium within the firm.

Often the firm will know what words and images are best for promoting your properties and protecting you from litigation.

A net-net-net lease, also known as a triple net or NNN lease, is a type of real estate lease that requires the tenant to pay, in addition to rent, all of the property's associated costs. The three nets in a triple net lease are real estate taxes, property insurance and maintenance costs. Because the landlord shifts these extra costs to the tenant, the rent he charges for a triple net lease is almost always less than for a comparable lease in which the landlord assumes these costs.

This should be relatively easy. For most positions, it’s someone with an eye for opportunities to create value, developing plans to create value, executing said plans, etc. The whole point of a private equity firm is to wring as much value as one can out of an investment. And that should be the focus of your answer.

If you’re young and going after the equivalent of an analyst or associate position, feel free to talk about other opportunities. Perhaps you want to get an MBA if you don’t have one already, or even a doctorate. Perhaps you want to build on your experience and join a portfolio company. It’s good to have other ideas, but make sure that your position in private equity takes priority. It’s perfectly fine to say, “I don’t know, but I’m eager to find out what kind of opportunities would present themselves if I get the chance to work here.” If you’re older and applying for an experienced associate, VP, or managing director position, the firm isn’t going to want to hear anything other than a commitment to staying and growing with the firm. They’re potentially going to throw a lot of money at you, so reassure them that their return on investment will last a good long while.

You need to be up to speed on the state of major deals out there, financing, future growth, fund raising, the whole thing. Don’t be surprised if an article in The Wall Street Journal from that very morning is mentioned, and be prepared to respond to it. Naturally, a reasonably bullish outlook for the industry is likely an asset—why else are you applying?—but don’t sugarcoat it, either. Talk about the challenges facing the industry in a reasonable way, how the industry might overcome them, and why you ultimately think the industry will continue to grow and prosper.

Real estate agents get listing agreements in a variety of different ways depending on their markets. A real estate agent in an expensive area of a city such as Manhattan, trying to win the listings of New York's elite, must entertain potential clients with dinners and outings. Other agents might make a name for themselves by adopting online strategies for obtaining listings, building up an invaluable personal network of warm leads, and becoming an expert in a particular area or region.

In order to get listings in the top markets such as Los Angeles, San Francisco, Miami and New York, a real estate agent utilizes a strong network, reputation, the promise of massive marketing to the right people and opulent perks. Real estate agents working on amassing listings in smaller areas that are more affected by economic downturn decrease commissions and utilize the Internet to help attract cash-strapped sellers. Agents also use personal contacts and business networks to create new clients and attract listings.

Real estate is as much about who you know as what you know. Unlike corporate law and public accounting, the technical learning curve for real estate is pretty mild. Particularly on the residential side, stay-at-home parents with limited higher education and work experience have been known to build lucrative real estate careers. The ones able to turn a side career into a strong income tend to share a common trait: They know a lot of people. While commercial real estate tends to require more of a full-time focus, networking matters just as much or more as having specific industry knowledge.

Career changers coming from other fields should use this question as an opportunity to highlight the connections they have made and detail a plan to leverage these connections for real estate leads. If you are a recent graduate, a young professional with limited work experience or you have yet to amass a long list of professional contacts, tell your interviewer how you plan to make connections once you are hired, such as joining networking groups or the chamber of commerce.

Although most real estate agents operate as sole proprietors, it is not the best approach for lawsuit protection and tax reduction. The best business formation is an LLC to operate your business as an agent; your LLC will contract with the broker.

As a sole proprietor, the income is paid to you individually, and you will receive a 1099 — the worst way to take income. Many options minimize taxes with payments made to an LLC rather than payments made to you as a sole proprietor.

An LLC also protects your personal assets from lawsuits. G. Kent Mangelson, a certified financial planner at the American Society of Asset Protection, said an agent’s total asset protection plan must consider three methods of protection: lawsuit protection, strategies for tax reduction and strategies for estate planning.

First off, a bit of a trick question here. The company doesn’t do anything wrong, it simply has areas in which it can improve. That said, you should be knowledgeable enough about the company and its recent deals to talk intelligently about how the company operates. Play up its strengths, certainly, but don’t be sycophantic. And don’t pull any punches on ways it can improve, but again, don’t be too negative.

You can expect at least one hypothetical question regarding your area of expertise during the interview, and probably another that has more focus and better elucidation than the one above. Know enough about the industry to mention a previous deal involving a similar situation and how you might handle things now.

This is a very nice way of asking if you’ve learned from your mistakes. Nobody’s going to get it right all the time, and they’re going to want to know how you deal with adversity. Now, if your actions directly resulted in torpedoing a billion-dollar M&A deal … perhaps you may not want to mention that! But be prepared to talk about a project or deal that didn’t go as planned. Don’t blame others too much, either. Take responsibility for your part and explain how you’ve changed your approach since. Send the message that you learned something from the experience.

☛ If a project has zero NPV and the discount rate is 10%; what will be the IRR?
☛ What is the difference between rental yield and cap rate?
☛ What are the prevalent area measurement methodologies? Why should you use RICS and not BOMA?
☛ In mixed-use development how do you allocate the infra cost / land cost / service charge?
☛ In calculating project IRR should we consider financing cash flow?
☛ What is the impact of depreciation on the project IRR?
☛ What are the best / worst performing asset classes in the current market situation? Why one should invest in these assets or why not?
☛ Walk me through how you analyzed last project you worked on. This question may lead to many others. But it also gives you an opportunity to tell your story.
☛ How do you calculate the cost of equity?
☛ If you have to decide a project’s merit on the basis of only one performance indicator, what indicator will you choose?

☛ Is the brokerage part of a franchise system?
☛ If yes, how does being part of a franchise benefit its new professionals?
☛ If yes, do I have to pay franchise fees?
☛ How does the brokerage market its image and brand?
☛ Do the brokerage professionals pay for or contribute towards its marketing?
☛ If yes, what are the fees paid by the brokerage’s real estate professionals?
☛ Does the brokerage practice designated agency or agency according to the common law?

☛ What types of continuous learning opportunities does the brokerage offer?
☛ What level of professional are continuous learning opportunities geared towards?
☛ How often are continuous learning opportunities offered?
☛ How is continuous learning delivered? (i.e. e-learning, video, classroom, webinar)

☛ Does the brokerage enter into employment or independent contractor agreements?
☛ What compensation packages does the brokerage offer to professionals?
☛ What services are included in the brokerage fees or commission splits?
☛ Does the brokerage offer benefit programs?
☛ If yes, what does the brokerage offer?
☛ If yes, who pays the cost?
☛ Are there any fees in additional to the fees packages, compensation packages, or commission splits?
☛ Does the brokerage provide in-house advances on commissions?
☛ If yes what are the terms for in-house advances on commissions?
☛ What are the termination terms for the employment or independent contractor agreements?
☛ What happens with service agreements for clients recruited by the real estate professional?
☛ Does the brokerage have any restrictions regarding employment outside of the brokerage?

☛ Which type of professional does the brokerage cater to?
☛ What percentage of its professionals have been in practice less than 3 years?
☛ What percentage of its professionals have been in practice between 3 and 5 years?
☛ What percentage of its professionals have been in practice more than 5 years?
☛ What is the broker/delegate ratio to its professionals?

☛ How long has the brokerage been in business?
☛ How many professionals does the brokerage have working for it?
☛ How does the brokerage communicate with its professionals (i.e. online, in person)?
☛ How many brokerage offices does the broker manage and where are they located?
☛ Does the broker/delegates also trade in real estate at the brokerage?
☛ Does the brokerage have comprehensive and clear policy and procedures manuals?
☛ Does the brokerage hold brokerage meetings?
☛ If yes, how often are brokerage meetings held?
☛ If yes, what are the usual meeting topics?
☛ If yes, is attendance at the meetings mandatory?
☛ If yes, where and how are meetings held (i.e. virtual, in person)?
☛ How does the brokerage use technology (i.e. websites, online forms, online leads)?
☛ What are the brokerage policies on its professional’s personally trading in real estate (i.e. buying, selling, leasing properties)?
☛ How does the brokerage deal conflicts between its professionals?
☛ How does the brokerage deal with conflicts between professionals and clients?

☛ Does the brokerage have systems to support its new professionals 24/7/365?
☛ Are there any costs associated with brokerage training or support?
☛ Who at the brokerage offers training and support to its new professionals?
☛ What training and support is offered to new real estate professionals? (i.e. review listing presentation, help draft contracts or conditions)?
☛ Does broker/delegate review service agreements and trade documents while the transaction is taking place?
☛ Is there a limit to the number of times or hours available for support?
☛ Does the brokerage have automated oversight processes to prevent errors?
☛ Does the broker/delegate explain incorrect or incomplete documentation?
☛ Does the brokerage provide marketing training opportunities?
☛ Does the brokerage provide an in-brokerage marketing material designer?
☛ Does the brokerage have a mentorship program?
☛ If yes, is there a special program to be followed? (details)
☛ If yes, who are the mentors?
☛ If yes, what is the cost to the professional being mentored?
☛ If yes, how are the mentors compensated?
☛ If yes, when is the mentorship program completed?
☛ If yes, what happens if the professional and the mentor don’t get along?

☛ In which area(s) of real estate does the brokerage usually practice (i.e. residential, commercial, rural, property management)?
☛ What are the brokerage’s preferred practice area(s)?
☛ Does the brokerage prohibit practice in one or more real estate areas?
☛ What expertise does the broker/delegates have in the brokerage’s practice area(s)?
☛ In what geographic location does the brokerage operate?

• What first sparked your interest in real estate?
• Tell my why you are passionate about working in the real estate industry.
• What skills have you learned in your MSREI program at Johns Hopkins that will help you in the field?
• What is your competitive advantage to the field of real estate?
• What trends do see in local real estate? In real estate globally?
• Why do you believe the real estate industry is relationship centric?
• What does the infrastructure part of your degree entail?
• What types of finance courses have you taken in your program?
• Tell me about your experience with working in teams. What made it positive or negative?
• Tell me about a time that you faced adversity in your workplace. How did you overcome?
• Tell me about a time that you had to negotiate with a colleague, manager, or client. What was the result?
• What do you know about “equity” and “debt?”
• Explain the relationship between “IRR”, “NPV” and the “discount rate.” (The right answer is “When IRR is equal to the discount rate, NPV is zero.”)
• Talk to me about the relationship and differences of Property Management and Asset Management.
• How do you use a Cap Rate?
• Tell me what you know about “Real Estate Cycles”.
• Tell me about a construction or development project where you have played a significant role. what was the result?
• How would you describe your style of leadership? How is this influential to the real estate industry?
• How are you involved in the community? How would your involvement add value to this company?
• How do you maintain balance and order under pressure?
• You are told by a supervisor to misrepresent information about a deal you are working on. What do you do? How do you respond?
• What professional real estate associations are you active in and how do you contribute?
• What areas or trends do you see most influencing the future of the real estate industry?