You’ve been recruiting for months and months…
And nothing has worked out so far.
But then 1 month before graduation, an investment banking job opens up…
You go through several rounds of interviews…
And you win the offer right as you’re graduating.
Then, 4 days before you start working, you fail your background check, the offer gets rescinded, and you’re back to square one.
Our reader today overcame that “background check failure” and not only won another offer, but eventually made his way into private equity.
And he has (more than) a few words of wisdom on background checks, rescinded offers, and how to break into the real estate industry – from real estate investment banking to commercial real estate to real estate private equity:
The Last-Minute Save – or Disaster?
Q: Let’s start with how you won this last-minute investment banking offer in the first place.
A: Sure. I grew up in a family of doctors, so there was always pressure to go into medicine.
But it never interested me, so I leaned in the business direction instead.
I went to a well-known, but not exactly “target,” university – some banks recruited there, but mostly for regional offices.
My major was unrelated to finance, so most of my knowledge came from joining IB and other finance / investment groups on campus.
It was a capital markets role in a real estate investment banking group, and I got the interview because a friend referred me to them.
I went through multiple rounds of interviews and won the offer right as I was graduating – the interviews consisted of many “fit” questions, along with questions testing my knowledge of real estate lingo (cap rates, NOI, etc.).
Q: Yeah, networking can produce good results even when it’s 1-2 months before graduation.
What happened next?
A: Four days before my start date, my offer was rescinded.
It happened because of a misdemeanor I had been charged with 4 years ago; it was minor and it had been expunged from my record, but that didn’t matter.
Q: Wow. And you didn’t know about this at all before accepting the offer?
A: I was caught off-guard because I assumed that an expunged misdemeanor would not matter.
But at large banks, they are very stringent and they can reject you or rescind an offer for almost anything.
It doesn’t matter whether the charge has been expunged from your records or dismissed from the courts – even something like writing a bounced check could be a red flag in their eyes.
My advice is to seek legal counsel and avoid asking anonymous people online what to do. No one except a qualified legal professional can advise you on the specifics.
After you win an offer from a group, you should let them know about any “red flags” in your background and any previous charges, even if they’ve been expunged or dismissed.
You don’t want to tell them late in the on-boarding process after you’ve already filled out all the forms, but you also don’t want to tell them when you first start interviewing because it could kill your chances.
Bulge bracket banks tend to be very strict about background checks due to compliance and HR policies, but smaller firms and non-banks will not care as much about these issues.
Q: Is there anything else you can do to win offers in the face of strict background checks?
A: In the US, you can get a section 19 waiver from the FDIC. I didn’t know about this option at the time, but I wish I had.
This is a “can’t say no” waiver that you can present to large banks if you have expunged items on your record that still show up in a background check.
If you contact the person in your regional office and then send proof of expungement and the other information they request, they may be able to issue this waiver to you.
There are a few caveats:
- The waiver can be issued very quickly… or it can turn into a long, drawn-out 6-month process.
- There are requirements on the number of years that must have passed since the offense, and what your original penalty was.
- It does not help with all offenses – for example, the waiver covers breach of trust, misdemeanor, and theft, but it does NOT cover perjury.
- I’m not sure if this is valid for the series licenses (Series 7, 79, etc.) or for FINRA requirements.
Bottom-Line: The Section 19 waiver won’t always “work,” but it is worth looking into. Banks can rescind your offer for any reason, but this waiver may help you in some cases.
NOTE: To be clear, this site does NOT give “legal advice.”
Please consult an attorney or other legal professional before you apply for this waiver, and ask them about specific requirements and the waiver’s applicability to your own situation.
Into Commercial Real Estate
Q: So what was your next move after this rescinded offer?
A: I tried to get some people in the group to fight for me, but they had no power to override global HR/compliance policies.
I was still interested in real estate, so I decided to go for commercial real estate / brokerage roles.
It was a “hot” area in the city I lived in at the time, and I figured that I could network my way in since it’s a local industry and everyone knows each other.
I worked a few part-time jobs to pay the bills, and on the side I did a lot of real estate-related self-education: I took classes to get my broker’s license, I learned ARGUS and received a certification for that, and I joined groups like the Young Real Estate Professionals.
I focused on firms that did land assemblage (securing land and getting it under contract) and tenant representation because I thought it would be easier to win offers there.
Through the industry groups I joined, I met someone who had been in CRE for over 20 years and had started his own boutique firm a few years ago.
So I reached out to him and he introduced me to other people at his firm, which led to interviews there.
Q: I’m assuming they cared less about expunged charges on your record.
A: Yes! The interview process was almost 100% “fit,” and they assessed whether or not I could get up to speed quickly on tools like GIS for finding tax and parcel information.
Much of the role was “business development,” so they also assessed how well I could generate and prioritize leads, follow-up with them, and so on.
This firm still did a background check, but my legal issue did not come up this time.
Larger brokerage firms might care about those issues, so your mileage may vary.
Q: Right. So what was this new role like?
A: In some ways, it was similar to an IB analyst role: the senior broker at the firm drove most of the business, and I stayed in the office creating the equivalent of pitch books, writing proposals and memos, working with clients, and responding to inquiries on listings.
At a tiny firm like this, the job was even more of a “jack of all trades” role.
Small teams in CRE typically focus on one property type (multi-family, office, industrial, etc.), and this team also focused on one specific sector.
Q: But you ended up leaving.
Was that because you still wanted to do IB/PE?
Or because of the compensation?
Or the industry itself?
A: A bit of all of those. I’ll talk about compensation first:
As a first-year CRE analyst at a small firm like this, your base salary might be 50% of what you make in a 1st year investment banking analyst role.
If you’re a broker, you’ll often get a “draw” (sometimes $30-40K) and you’ll have to earn at least that much in commissions before you can earn above that amount.
Once you earn your draw in commissions, the firm may split additional commissions with you 50/50 up to a certain amount (sometimes in the low hundreds of thousands USD), and you may get increased percentages after that.
So it’s highly variable and comes down to your performance.
If you’re really good you could make more than a 1st year IB analyst, though most people do not do that well initially; seasoned brokers can definitely earn in the mid-to-high six-figures range (or even higher), though.
Although CRE brokerage is known for the commissioned roles, the trend is actually toward salaried positions. At my firm, only the senior broker’s pay was commission-based.
At larger firms (CBRE, Jones Lang LaSalle, Colliers International, etc.), there is more hierarchy and you’ll see Senior Brokers (similar to SVPs), Junior Brokers (similar to VPs), and then Analysts and administrative staff – so there may be more structure to the compensation as well.
Bottom-line: in most cases you will earn less in CRE brokerage until you’re established, you’re in a broker position, and you have a lot of new business coming in.
Q: So the pay was lower, but what about the industry itself?
Do you think it will still exist in the future, or will the Internet displace it?
A: I think there will definitely be consolidation.
Brokers used to hold all the information on properties and potential buyers/sellers, but start-ups like 42Floors are now making this information publicly available.
And then beyond tech start-ups, there’s also more competition from other brokerage firms.
I don’t think CRE brokerage will disappear completely because some deals always require more of a human touch, but it won’t be a growth industry going forward.
Into Real Estate Private Equity
Q: So you wanted to move into IB/PE roles, you wanted better compensation, and you weren’t confident of the long-term prospects for the brokerage industry.
What did you do next?
A: Back when I was networking for my first CRE role, I met A LOT of different people in all the industry groups and events I joined.
I ran into a recruiter at one of those events, we touched base every so often, and he passed my name onto a contact at a firm that did real estate loan underwriting and real estate private equity.
They liked my resume, and they figured I could pick up the RE PE investing process quickly since I already had real estate experience.
It appealed to me because of the “cradle to grave” mentality: you own the property for years, and you do everything possible to improve it and get a better selling price in the future.
In brokerage, you do the transaction once and then you’re done – so it was harder for me to get enthusiastic about deals there.
Q: So what was the interview process like?
A: The first round was mostly “fit” questions – my story, why real estate, and the strengths/weaknesses, teamwork, and leadership questions in your interview guide.
Your Real Estate & REIT Modeling course also helped a lot with learning the ropes.
I spoke with the Director of Acquisitions, three other Directors, the CEO, and their Legal Counsel…
…And then they caught my completely off-guard with an ARGUS case study.
If you’re not familiar with it, ARGUS is a program commonly used in real estate that lets you value properties with a DCF-like analysis.
I had taken a class on it and passed the exam back when I was doing my real estate self-study; I later found out that this firm interviewed me partially because I listed ARGUS on my resume.
But I hadn’t use the program in over a year, so I had to give myself a refresher crash course on it when they told me about the case study.
Q: So what was this case study like?
A: A few days after the first round of interviews, they invited me back in and set up a laptop and a stack of papers for me in a conference room.
They gave me 3 years of operating statements for an office complex, along with a “rent roll” (which shows all the tenants, their lease types, renewal dates, and so on), and asked me to create financial projections for the property and make them look as similar as possible to the historical statements.
The goal was to estimate the Cap Rate for Class A office properties in a certain region, based on the operating statements and data on recent sales in the area.
I only had 90 minutes for the exercise, so knowing the ARGUS keyboard shortcuts was essential.
Q: So you finished on-time, and then won the offer?
I finished on-time, but I didn’t know how to enter quite a few line items into ARGUS.
The standard ARGUS classes don’t teach you how to model everything that you see in real life for properties.
So when I finished I told them, “I wasn’t sure about items A, B, and C – if it’s possible, I would like to take this case study home over the weekend and figure out the correct treatment, and then show you the final version once I have it.”
I did that, took it home, and started working on it over the weekend…
And then they called me on Saturday and gave me the offer instead!
They were confident that I knew enough to figure out the rest, and they liked how I had taken the initiative to get all the answers.
Oh, and being reachable on the weekend helped.
Q: Sounds like it!
Just to be clear on ARGUS: do all real estate investment firms actually use it?
I’ve heard mixed reports.
A: It is more common for office developments; you don’t use it as frequently for multi-family properties.
Different people also use it differently.
For example, many firms use it to generate cash flow figures, but then use their own Excel models for other tasks such as modeling IRR, debt repayments, and distributions to different investor classes.
So the usefulness of ARGUS varies by the firm you’re interviewing at.
If you’re determined to be in real estate, it’s good to learn but it won’t always be a “make-or-break” factor.
And what has the job been like so far? I realize you started relatively recently.
A: I haven’t been there very long yet, but a few early impressions:
I go in around 9 AM and the average day is about 12 hours; we own a lot of assets in the western part of the US but are based in the east, so we aim to be there early in the day Pacific Time.
We only have 5-6 people total, but we might hire someone else in the next few months. The workplace is fairly laid-back, but fire drills definitely happen when a deal heats up.
The work itself is varied: I might do everything from updating ARGUS model assumptions to crunching the numbers on new tenants and tenant renewals to helping the firm sell its older properties (“the legacy portfolio”). Cross-checking broker “opinions of value” also takes up time.
The compensation structure is interesting because eventually I’ll be able to invest my own equity in deals.
So it’s like traditional “carry” at PE and VC firms, but even junior-level employees at the firm can participate (after they’ve worked here long enough).
I’m pleased so far, and I plan to stay here for at least another 3-4 years.
As long as the role keeps evolving, I’ll stay interested in it – they’ve already mentioned that I may do more deal sourcing or more equity/debt financing work as the firm grows.
Q: Awesome. Thanks for your time!
A: My pleasure.