Wondering what everyone's thoughts are on pursuing a career in RE special situations. Obviously, this has unique appeal given the economic times we are in, but is this something worth doing long-term? What do special sits people do when things aren't actively going to shit?
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OP, what the hell does special situations even mean? Swear this term is always thrown around as if it means one concrete thing.
Please stop
ah yes, special sits. I have worked in RE special sits my whole career and have deep knowledge of the space.
Special situations deals only go down in secret societies underground. There are no virtual data rooms. Only a physical chest that is located in the cellar of an exclusive, members only Tribeca club (no, we're not talking soho house lmao). Each group typically has 2 days in the cellar to review the physical documents, and then they must submit a bid at the end of their two days.
Processes take a bit of time as you can imagine. If your group name doesn't have the words "special situation" in the title, you're not allowed to enter the cellar. Sorry blackstone and Starwood, take a hike.
The winning bidder typically gets complimentary blow jays from hookers, courtesy of the Super exclusive broker (not some REIT banker or Eastdil guy, lmao, you've never heard of them).
instead of closing dinners, special situations deals typically have "closing vacays". Week long trip to Bahamas, Positano, whatever. The week is filled with lavish parties and more complimentary blow jays.
Returns are typically in the 69% range, with a target equity multiple of 4.20x.
Work in the special sits arm of a MF. When times are good we typically invest in equity in heavy value-add / development, when times are bad we go further up the cap stack as we can hit our return threshold without taking equity risk. Looking at a lot of mezzanine / rescue financing opportunities right now. Basically taking the lowest risk we can to hit our return threshold (15%+ IRR).
Do you like the work you do?
It's very interesting being able to transact across all asset types (residential, industrial, office, retail, hospitality etc) and across the cap structure (senior, mezz, pref, common etc). It has definitely made me a much more well-rounded investor with a good understanding of how to price risk.
The shit side of it is we can do just about anything when it hits our return hurdle so we spend a lot of time screening shit deals which in reality we should kill early, but we don't because MDs / partners like them or have a relationship with the introducers. Some funds with similar mandates are much more methodical in their approach and go hard after themes they like. This would really address a lot of the issues I have now, right now I'm pretty burnt out from looking at just about anything that comes into us. King Street are a good example of this, they seem to identify 2-3 themes they like and chase them hard rather than wasting time analysing whatever comes in the door to see if they can make it work.
Can you share a bit about the team? Are most people from RX backgrounds or more traditional real estate routes?
Really appreciate your insights!
Mixture of backgrounds, development, REPE, lending, IB. Nobody from an RX background. RX is relevant in large corporate transactions where you have several different loans / notes with different claims / rankings etc.
Most of our transactions are asset level, capital structures are simple and there's only 2-3 parties involved rather than multiple groups of creditors etc. Asset level real estate knowledge is far more beneficial than RX knowledge.
Taking the example above of a troubled 200-acre site with an expiring permit, lack of services and other issues, someone from a development background is far more beneficial to us than RX as they'll be able to grasp the key risks far better.
really interesting. what’s your typical check size?
€50M+, ideally bigger. If it's an investment where we've already done a lot of the heavy lifting before (i.e. know the location, asset class, and legal considerations, don't need to take views etc) we can go as low as €20-30M given it should be a lower effort transaction. If we have educate ourselves on these points at that ticket size we'll typically pass unless the returns are particularly compelling.
PM me. Have a deal that might interest you. Looking for 75% LTC pref, $180mm total project cost. Multifamily. It has a story.
With all due respect dude, if you're finding financing on WSO you're fucked. Just hand over the keys now and cut a deal.
Hey I came across your comment in hopes of finding someone who works in special sits. I have a case study for a role in special sits and was wondering if you have some time this week to chat about this case study and get some tips.
Thanks!
Jokes aside. Special situations is a real term in RE, although the use of it can be argued. Most firms call these special assets, some call them special situations. The term is not common but I've seen it. While the word sounds cool, the work is extremely painful. Its similar to special assets where your dealing with piles of crapp. A buddy of mine works at a firm where its called special situations, his activity would be like:
1. Working on some 200 acre site in West PA thats have entitled with no source of water, EPA violations, and entitlements expiring.
2. A half built luxury office skyscraper. No interests from tenants during pre-leasing. How do you dispose of this with the least amount of loss?
Some of these are fun because you're not an excel monkey anymore, but you have to get creative. This term is like Special Assets, it sounds cool, but your assets are generally shit, so how do you make "shit" sound cool, just say "special" and call it a day.
This is a great description of it and far better than mine above where I oversimplified it. We spend a lot of time looking at opportunities others have passed. If it's on our desk, it's usually because all the other more mainstream market participants which come to mind have passed on it.
By the time it makes to us, it must be a pretty shitty asset or pretty funky opportunity, requires a lot of DD to get comfortable with it, a lot of thought put into the structure to protect our downside where possible, and there could be a short time window which doesn't allow us to DD everything we want so we need to take a view (this obviously comes with an increased return for liquidity).
All of the best special sits deals I've seen at my fund and others are where people liquidity on pretty highly levered or unique assets in the space of 2-4 weeks. Given most funds have a 5 BD call period, you're looking at 1-3 weeks to get through IC and document the transaction. These weeks are obviously incredibly intense.
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