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Real Estate Private Equity Membership11/8/2019 If you’re searching for a private equity course online that will help you crack the code and land your first job in the business, one of the things you should look for is a course that helps you understand the business from an insider’s perspective. Real estate private equity membership is a tightly-knit network of professionals, and working your way in requires that you already think and speak like a member! Leveraged Breakdowns is here to help you do just that.
When you are working as an analyst for a REPE firm, part of the trick to underwriting deals is judging the quality of the tenant(s). When underwriting apartment deals, you look at demographics, receivable agings, and vacancy because of the sheer volume of tenants. When underwriting corporate clients, you may have to look at their financial statements, but often times you can look up their credit ratings. What is a Credit Rating? A credit rating is a score assigned to a company based on their financial position. Rating agencies look at things like their liquidity, leverage, historical profitability and cash flow as well as the outlook for cash flow and profitability. The goal is to determine a likelihood of default. These ratings will affect the company’s borrowing costs, as lenders will assign higher interest rates for borrowing if the company has a lower rating. The ages-old rule of investing applies, even if you are a lender: risk = reward. In the real estate private equity firms, particularly in net lease assets, cap rates tend to follow credit ratings. In other words, higher rated tenants are less of a risk of default, so a lower cap rate is warranted. Intuitively, would you rather pay more for a lease with Chase Bank or Office Depot? Remember, cap rates move opposite of price, so a lower cap rate equals a higher purchase price, just like bonds. Who Assigns These Credit Ratings? There are two primary ratings agencies - Standard & Poor’s (S&P) and Moody’s. You may occasionally run across a rating from Fitch, but most often you’ll see S&P or Moody’s. Moody’s ranks companies from Aaa down to C, with various gradations. Aaa is higher than Aa1, Aa3 is higher than A1, and so on. S&P ratings are similar, with AAA being the highest and D being the lowest. Again, gradations in the letters exist, with AAA rating higher than AA, A is higher than BBB, and so on. The Fitch rating scale is very similar to S&P, but Fitch will throw in a “+” or a “-,” such that the ranking would be AAA, AA+, AA, AA-, and so on. You can download an explanation of the Moody’s ratings here. You can download an explanation of the S&P ratings here. Fitch ratings are explained here. Real estate private equity membership, while not an official “club,” often feels like one. Breaking into the club can be challenging, especially if you didn’t graduate from a target school. But all of us at Leveraged Breakdowns know that quality talent comes from all over the world, not just the top schools. We exist to help REPE beginners breeze through interviews like industry veterans. Our private equity online courses, “REPE Starter Kit” and “Breaking Down Real Estate Private Equity” will help you think, speak, and carry yourself like an insider!
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