How to Structure an REPE Investment Pitch

Introduction

The work cycle of a real estate private equity investment team is to screen as many investment opportunities as possible. Most investments aren’t worth the time it takes to analyze them, but occasionally a few of them will catch your eye. For those opportunities, you will need to create a real estate private equity model and investment memo. This post will teach you how a real REPE investor would structure the executive summary of such a first-round investment memo.

Structure

An investment memo typically has three levels to its structure. First, the executive summary. The executive summary should explain the entire investment. It’s like the table of contents for the whole idea, but with sentences instead of page titles. The executive summary should present the investment’s conclusions, not necessarily the entire rationale. The pages after the executive summary will answer the “why” in greater detail, whereas the executive summary should just quickly explain the “what.”

Main Body

Second, you will have ten to twenty slides explaining the main rationale and assumptions behind the investment. You will almost always include slides detailing the following: 

• Overview of your inputs and relevant comps or market studies that justify your growth rates and exit valuation assumptions 
• A high-level transaction summary that explains your financing assumptions, sources and uses, and high-level valuation statistics 
• Annual cash flow outputs that shows an LBO cash-flow output driving down to net levered IRR and MoC 
• Sales comps showing recent market transactions and their respective total price, price per SF or unit, and cap rate. At the bottom you’ll have a weighted average. Then right below it, you’ll have the same metrics summarized for your transaction.
• Rent and/or leasing comps justifying your model’s assumptions

You should think of the main body as the full detail behind the executive summary. In other words, you tell me the facts in the executive summary, but then you convince me in the main body. But sometimes you need to include information that’s a bit nuanced. Or maybe there’s some good data that takes a bit of hand-holding to explain and you’d prefer it doesn’t interrupt the flow of your main presentation. Well, that’s what our third (and most magical) section is for: the appendix.

The Appendix

You tell your entire story in the first two sections: the executive summary and the main body. The appendix follows the main body as a sort of backend for extra data. Maybe your real estate tax calculation is incredibly nuanced and you need to explain how you arrived at your forecast operating expenses. Or perhaps there’s just some good information that doesn’t quite fit in your storyline but you really want to show it. The appendix is just a place for non-urgent,  catch-all information.

Conclusion

This is the structure I’d use for a single-page pitch for an investment that you have modeled. If you were to dictate the elements in the below during a verbal interview, it should take about three minutes to run through everything. That might seem like a considerably long pitch for an interview, but time moves fast when speaking. If your pitch needs to be shorter for any reason, just boil this down a bit and make sure you cover at least one or two things that seem most relevant from each section below.

 

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