@Daniel Reyes
Being a professional underwriter myself, I have worked for both a family office and private equity groups. Although I was technically "employed" by the family office, I did offer consulting services to smaller independent investors as well as Tier 2 private equity groups. The bulk of my work was underwriting potential investment targets following the criteria that were specific to each target based off of the requirements of the partnerships. As a consultant it was much of the same thing as far as tailoring the projections based off of the clients needs. No matter how you look at it the numbers are the same, the specifics of each analysis are what mattered most, moreover which numbers meant the most to the clients.
Per your questions:
1) For the family office I was paid as any other W2 albeit very well. As a consultant I charged based off of the complexity of the investment, essentially scaling my fees accordingly. For smaller investment projects it was typically a flat fee, simply because I already knew how complex the analysis would be. For larger more dynamic projects that would require multiple analysis from varying strategies I would charge by the hour. A typical 5,7,10 analysis doesn't require an overwhelming amount of data in order to accurately project the overall asset performance. However, for more dynamic assets (i.e. mixed-use and hospitality) a very different approach must be taken simply because the amount of variables that determine asset performance. For those types of analysis you are essentially analyzing property performance along with BPM (business performance management). BPM's require a much deeper dive in order to produce accurate projections. Overall strategic and operational objectives have to be clearly defined to ensure that asset performance aligns with the calculated projections. In order to accurately analyze potential performance of business assets, contingency analysis must also be performed utilizing qualitative assumptions in order to predict appropriate responses to extrinsic variables. Very time consuming and a lot of data points, which is why I charged $125/hr for those types of assets, I was going to need it to pay for the truck load of tylenol from the mental exhaustion. that ensued.
2) I've never had a client second guess me and I always received smiley faces on my progress charts.
3)Cons: probably cost, if they know what they are doing it won't be cheap. Another potential con would be the risk of inaccurate projections due to amateur hour. Pros: If you have a great analyst then the major advantage is having a third party perspective of the project. Being emotionally unattached from a project allows a truly objective approach to the analysis hedging the possibility of bias. Numbers can lie, underestimating potential costs and losses are detrimental to true asset performance, quickly evaporating returns; this also applies to being overly optimistic.
4) As a sponsor, yes I do believe that it is imperative that everyone is playing for the same team. However, as I outlined in #3, a proper analysis should be completely objective. In some cases not knowing the investors objective produces a better overall analysis; case in point mulitfamily projects. Knowing the expectations can sometimes create pitfalls and inconsistencies in your numbers. A mulitfamily project will perform according to the market. An investor is relatively limited in their ability to drastically improve asset performance; there is a ceiling. Opportunistic and value add projects were the only assets that required significant input. However, for those projects it was a matter of optimizing the value add strategy in order to achieve the highest yielding ROI; this required knowing and understanding the objectives and how they planned to achieve them.
Sorry for the long winded response, it just so happens this is my favorite part of CRE investments. I tried to limit my response to 3000 characters otherwise I could've written you a book.
