The Skinny:
Acquisitions and Asset Management teams are often separated within investment firms, this is a bad paradigm because every strong real estate investor needs to be an expert at both, not one or the other.
Acquisitions: Role and Responsibilities
Acquisitions is definitely the snazzier and more sought after role out of the two. The acquisitions team pursues and underwrites potential opportunities, oversees the due diligence, negotiates the PSA and financing terms, and finally “executes” the deal when it closes. However, that is when their role typically ends. At the closing. The baton is passed on to the asset management (“AM”) team.
A career in acquisitions comprises a mix of three things: analysis, execution, and sourcing. The mix shifts over time. Entry-level Analysts are probably 90% analysis, 5% execution, and 5% sourcing. Associates and Directors are probably 40%-40%-20% and Senior Rainmakers are 5%-5%-90% if not 0%-0%-100%. This is just the natural progression of the career path. Honestly, it is a very fun and rewarding life. You are mostly either crushing various models to analyze opportunities or you are schmoozing your peers and brokers to try and source deals better than your competitors. Making lots of phone calls and attending endless social events are par for the course. So if you like math and manhattan’s there are few better jobs out there.
Does this sound hard to do? Well, not to knock myself or my cohorts, but no it really is not. Sure, some deals can get very complex, but the only two things you really need to succeed are some good technical skills and a social disposition. I note this because there is definitely a pervasive perception that acquisitions folks are in a more rarefied atmosphere than AM, which I think is unfair.
Asset Management: Role and Responsibilities
Asset management is definitely the more unsung of the two roles. The team is chiefly responsible for executing the business plan laid out by the acquisitions team (who often dip and focus on something else once the property closes). They take the baton at closing and then it is on them to bring all the goals to fruition. While I can outline the acquisitions team’s responsibilities pretty easily, those of the asset management team are not easy to summarize because they do a ton of different things.
While the goal is simple and constant (meet or exceed the pro forma projections) it is much easier said than done. The team has to deal with a wide range of responsibilities and endless fire drills. They are dealing with property managers, troublesome tenants, vendors, leasing issues, capital projects, unexpected maintenance needs, and the occasional lawsuit among many other things. If you ask what an AM team member’s day-to-day looks like, it will be a lot less consistent than someone in acquisitions. I have worked in both worlds and can attest to this firsthand.
It is also a lot more stressful. It is no secret that pro forma projections often need to be aggressive to win deals. When the baton is passed, the AM team must try to make what is likely a lofty dream into reality. Maybe it is just my work experience, but I do not remember meeting or exceeding the underwriting more than twice out of five times. Models are called models because they do not perfectly reflect reality, and as mentioned, they often lean optimistic. AM teams need to constantly find ways to add more value to make up for the inevitable shortfalls that result. If they are unable to do so, they are the ones who have to take the heat and write up the quarterly reports explaining why there is another miss. If the deal goes well, the AM team gets all the credit right? Wrong. The acquisitions team will take credit and will likely think they handed you a slam dunk. AM is inherently and unfairly a lose-tie position.
Outside of the office, it is definitely not as social and schmoozy. Transactions based roles are where a lot of that sort of thing happens, and that is simply not AM’s bread and butter. The only time they are usually involved in transactions is on lease signings or dispositions. Invites to posh events will not be as frequent when compared to acquisitions roles, because the “ROI” for an AM team member is much lower to the host.
While I may not be doing a great job selling AM as a potential career path, I truly believe that asset management is a much more valuable learning experience than acquisitions. This might be a fairly hot take, but I explain in that post why I believe this is so.
Typical Setup at Companies:
While it is starting to change, most firms have two distinct teams for acquisitions and asset management. Each will have their own roster and hierarchy (e.g. Analyst, Associate, VP, Director, MD) and some form of division head. For larger companies, you may be further stratified by asset type, strategy, or capital source (e.g. different funds).
The teams are usually quite far removed from each other once a deal closes. The historical reason for this is the claim that the skillsets required to excel in acquisitions and AM are different from one another. Therefore, the teams should be different so that they can focus on what they are more skilled at. While I think there is some truth to this, I am firmly against this bifurcation and believe it is a poor way of operating real estate.
Issues with Bifurcation:
Moral Hazard – by far the biggest issue with the bifurcation is the clear moral hazard that exists. The textbook definition of moral hazard is “the lack of incentive to guard against risk where one is protected from its consequences”. I noticed this early on in my career. Acquisitions guys are often “deal junkies” and are inherently incentivized more for volume than for deal performance. Some may adhere to the IBGYBG philosophy in finance. Acquisitions fees and AM fees mean lots of new $$$ coming into a firm and acquisitions team members are valued (and paid) based on their ability to bring in money and therefore deals.
The natural behavior resulting from this setup is that deals may be pursued aggressively with optimistic assumptions that the AM team, not the acquisitions team, has to ultimately answer for. Right after the closing, the acquisitions team is often already off focusing on the next opportunity. To be clear, I am not indicting the entire acquisitions profession and this is not a blanket statement, but anyone who works in the field knows that in competitive markets, if you want to do deals, you are rarely able to underwrite as realistically as you would like to. This becomes especially easy to do when you need to spend your investors’ money quickly (e.g. funds often need to deploy $ within a specific time window).
Now imagine that an acquisitions person also has to be the asset manager on their deals and will therefore be responsible for effectuating the business plan. Do you think they would be using the same operating assumptions? Absolutely not. They will not want to set themselves up to fall short and would instead seek to give as much cushion as possible in their pro forma. This would likely decrease the amount of deals that are won, but it would also ensure that only the best opportunities are pursued. This irrefutable dynamic reflects the inherent issues in the separation.
While I understand it is not always practical to take on both roles, I implore acquisitions team members to think about everything as if they are the ones funding and managing it to mitigate against the built-in moral hazard.
Negative Specialization – having the two roles separate also limits the ability for acquisitions and AM folks to develop into truly talented and well-rounded real estate investors. Real estate investing should not be about picking one skill or the other. It is only separate in the “corporate” world. You should be able to carefully review and value a property, negotiate and execute the transaction, and lead the business plan all by yourself. A team cannot win a championship if they are only good at offense or defense, you need to have both.
If you are an asset manager who has not had any exposure to the transactions side, you are an incomplete real estate professional. You may be fluent in leases and have outstanding emotional intelligence for dealing with tenants, but if you are lost negotiating a PSA, then you are pigeon-holed.
Similarly, an acquisitions professional might be a modeling guru and a great doc negotiator, but if they do not know how a property actually operates on a day-to-day basis, how can they call themselves a true real estate professional?
It baffles me that someone would build an entire career in real estate by just focusing on one of these two key disciplines, yet I see it all the time. Excellent pay and complacency are mainly to blame. Senior asset managers get paid very well, and that is enough for them to stay in their lane and not explore the other side. Acquisitions teams rake in even more income from their transactions, suppressing the need and desire to understand exactly how a property is built or run.
Why You Need to Master Both:
A true professional in real estate knows how to do every single thing throughout the real estate investment lifecycle. From sourcing to closing, they are truly fluent in everything. Even if they have employees to take care of all the various responsibilities for them, a true pro does not need to rely on anyone else.
The best way to think about this is to imagine yourself purchasing an investment property for yourself. You are using your own money and must rely on your own expertise. There are no acquisitions or AM teams, no separation of duties, it is all on you. If you only understand one or the other, you may be putting your hard-earned cash at significant risk, which should certainly be enough motivation to go and master both sides of the business. Real estate is an incredibly entrepreneurial field, it is what makes it so special. There is a reason it is so inextricably linked with creativity and financial freedom. If I may be so bold, I would argue that anyone in real estate who does not have an interest in owning property themselves one day, either on the side or as a full-time job, is not truly in love with the field and will never reach a level of holistic mastery.
It is also important to hammer home just how symbiotic AM and acquisitions are to one another. An acquisitions professional who has experience in asset management will be much more effective at identifying risks and also understanding where the value is or where it can be found in each potential purchase. Asset managers with experience on the transactions side will be more adept at identifying and using negotiating leverage, protecting investments through strong due diligence processes, and understanding the actual procedure of how real estate is legally transferred in a sale. In short, it makes both teams way better at their jobs, which is great for the firm, its employees, and its investors.
How to Learn Both:
If your firm does not have some level of integration of the two teams, then you will need to take the initiative and learn the skills yourself. For AM team members, as long as it does not rustle anyone’s feathers, you should offer to review the acquisitions model and see if you can spot any assumptions that do not line up with your operational experience. You should also offer some creative ideas on how to add value during the holding period. This may allow the max bid to increase just enough to beat out the competition.
In my opinion, a good firm with fiduciary responsibilities and good risk management will always bring in the AM team to review and provide input to the business plan. However, if they do not and they decline your offer to help, then you must go “fill your well” yourself with supplemental studying. The best teacher is of course direct experience but there a lot of resources out there that you can learn from if direct experience is not an option.
For an AM person trying to learn acquisitions, I think it is a little easier. Underwriting is straightforward and intuitive once you get the hang of it. You can read all sorts of books to understand how to properly value an asset, or you can surf some helpful websites like my post here. There are a lot of great modeling tutorials out there as well. The challenge is in understanding the execution part. How to write LOI’s that have a chance at winning, running DD, negotiating the PSA and loan docs, those are all less easily self studyable, but you still should familiarize yourself as much as possible so that the real thing won’t be foreign to you when it arrives for real.
For an acquisitions person trying to learn AM, it is tougher. AM responsibilities are just unpredictable and there is a lot more heterogeneity in the day-to-day. The best way to learn, if you are comfortable, is to buy a property yourself and serve as the asset manager. Learn all about vendor management, leasing, and capex. Ask your property manager to walk you through any issues. Constantly ask yourself, how can I increase revenue and/or reduce expenses while keeping my tenants happy? That is the crux of the AM role and the only way to really learn is to get in the weeds and embrace it.
Summary:
While bifurcating acquisitions and AM roles has been the norm, I highly encourage you to master both, as this is the only way to be a true full real estate professional. If your firm allows you to do both, that is excellent and you should be thrilled. If they are separate, make it a priority to not become a specialist and to find ways to get meaningful experience on the other side. Remember, all of this is working towards the day when you start buying and managing your own investments, and you do want any gaps in your skillset when that day comes.
