Career opportunities in commercial real estate are endless. This is an industry that includes many types of different occupations, from landlords to appraisers, to property managers to paralegals, and more. Commercial real estate attracts experts from a wide variety of professions. Some boast legal backgrounds, others are proficient in sales, while some come from the world of banking and finance.
Investment banking and private equity are part of this vast field of business and, despite the fact that both occupations strive for the same goal, they are quite different in their approach. These two lines of work are often referred to interchangeably, even though they’re two distinct professions, with different methods and techniques. Let’s take a closer look at the differences between investment banking and private equity and showcase their respective roles in commercial real estate.
Essentials of a Career in Investment Banking
One key difference between these two professions is that investment banking is mostly about raising capital and offering professional advice, while private equity focuses on making the investment, rather than on consultation.
Investment banking associates in entry level positions have three major responsibilities: they deal with pitchbook creation, they model various projects, and handle administrative work. The activity of investment banking companies is mainly to create capital for other entities by underwriting new debt, aiding in the sale of securities, counseling mergers and acquisitions, and so on.
Investment companies offer guidance regarding the buying-selling process, as well as the placement of stocks. Initial public offerings also fall into the list of responsibilities an investment banker might deal with. They help source capital for various projects, determine the optimal stack, and secure the funding for projects. Investment bankers don’t necessarily execute mergers, acquisitions, and spin-off transactions, instead they mostly advise and act as a broker between the investors and the companies interested in commercial real estate projects.
Most investment bankers boast degrees in mathematics, accounting, finance or economics. An MBA significantly increases your chances of climbing the ranks in investment banking, as well as your potential earnings as a commercial real estate professional.
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Essentials of a Career in Private Equity
Private equity funds do not generally operate in an advisory capacity, but investment. Private equity sources investment capital from high-income individuals, philanthropists, pension funds, and endowments, and then invests in the development and acquisition of commercial real estate assets, on behalf of clients. Such entities are called private for the simple reason that the fund’s investments are not made public and are not traded in the stock market.
Private equity associates are active in four different fields: fundraising, managing investments and portfolio companies, screening for investments, and finally investing with an exit strategy. Compensation is based on investment performance, so how the investment goes influences the remuneration of a private equity professional. The competition in this industry tends to be tighter than in investment banking. While both professions generally yield higher income, private equity tends to result in better pay, because when investment prices grow, the commission percentage grows too.
If you considering testing both these career options, it is generally considered most efficient to start in investment banking — get to know the ins and outs of the business and build a solid foundation within the commercial real estate industry. Once you’ve mastered these skills and acquainted yourself with the business, you can always move to doing more banking, working in start-ups or maybe even specialize in private equity, especially if you prefer to be active on the buyer side.
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