The great Excel illusion: are institutional standards falling?
You may have seen the common job ad: “Seeking enthusiastic graduate with 3 years of experience in real estate investment that is a self-starter and can lead due diligence across all assets mixing commercial and living assets…. and oh… can build and design institutional-calibre financial models from the ground-up for investment committee, which will also serve as user-friendly templates for the whole team to use”. OK. This is facetious. But you get the point:
With lower costs, lower budgets, smaller bonus pools, firms are trying to have their cake and eat it. To paraphrase Dire Straits, they want money for nothing and analysts for free. Unfortunately recruiters may also not know what a candidate requires for expert Excel financial modelling.
StripMallGuy’s list
This post by StripMallGuy puts a lot into perspective. Many of the Commercial Real Estate skills are not taught at college or even by a first employer. Look at this long list about real estate management – let alone possessing an advanced ‘excel’ modelling skill:
Where are the mini-mes?
In any other walk of life, you see a hierarchy that broadly respects a degree of correlation between age and expertise. In a typical institution, there tends to be a Head of Fund Management (i.e. not in nappies during the ’08 global financial crisis) and an Assistant Manager in tow. Or a Head of Finance and his deputy treasurer. You get the drift… Top person and a mini me. Holmes and an admiring Watson.
But when it comes to financial modelling, there is less care and attention (and salary compensation) dedicated to organising financial modelling resourcing for commercial real estate. How often do you see a Senior Modeller alongside a Junior Modeller? In an industry noted for commonly strong egos (note the Church of England current search for a “low-ego team player” as real estate Chief Investment Officer) and highly-opinionated environments, it simply does not fly to call a high-achieving graduate a “junior modeller” these days. Especially if they’ve been hired on the presumption that they are already “experts”.
Excel users are mostly junior coders.
In the field of software, the tech industry appears to be far more cognisant about appropriate skillsets. It takes many years to become a “Master Developer” and move up from a junior amateurish level. They even seem to embrace the journey, and recruiter job postings are designed appropriately.
Even if you are tremendously smart, the fact remains that there are many time-tested conventions and tricks of the trade that take time to practice and incorporate into different Excel model template designs. This necessary groundwork is akin to training at length on a musical instrument before having the freedom and expertise to play jazz alongside the best at Ronnie Scotts.
What most Excel modellers do not realise is that they are already ‘coders’. Every Real Estate Associate or Analyst out there already is responsible for programming for international pension funds. Excel is the most common programming language in the world. Due to generational training differences, senior managers are often one-step removed from Excel to appreciate the complexity of work that now sits on the shoulders of relatively young professionals still learning the ropes. And then they get puzzled when simple answers are delayed, templates are butchered and people whisper about legacy file issues…
There is a simple word that may help clarify the situation. While a newly-trained recruit may certainly be highly-proficient, advanced or even “expert” at Excel compared to traditional line managers – the real question is: are they seasoned financial modellers? Have they built from the ground-up models that stand the test of time, and have a track record of colleagues using them for deals?
New real estate demands new models
We have noticed a number of requirements emerging for new recruits to help teams develop new models for Living Capital Markets purposes. The new normal of real estate is not only moving under Fund Managers’ feet but also Analysts: funds are experiencing the monumental shift of capital away from the traditional 1990s offices, retail and shed themes. Global money wants modern distribution centres, power-hungry data centres and living capital assets that offer an array of uses such as co-living, resi unit sales, BTR, PBSA, hotelification, healthcare, etc.
From a modelling perspective this is the equivalent of watching the tide move out and spotting who are proper modellers with swimming trunks on. As investment opportunities increasingly involve multiple uses of real estate, this in turn demands more complex models from analysts.
Solution: proper Analyst training + AI support
For slightly different reasons, the Royal Institution of Chartered Surveyors (RICS) has already sounded the alarm in its recent Investment Valuation Report review, calling for an upskilling revolution. Training analysts to handle today’s growth of mixed-used opportunities and respective financial modelling needs is a start, but it would take too long. It’s time to accept the fantastic opportunities AI offers to help Analysts sift through 10,000 or even 20,000+ Excel formulae in minutes.
The above list of tasks provided by StripMallGuy isn’t a to-do list – it’s a syllabus for a lifetime of learning in the field of real estate. Expecting a graduate of a few years to *also* design a model with the elegance of a Swiss watch and the complexity of a space shuttle’s control panel is akin to handing a scalpel to a first-year med student and wishing them luck in open-heart surgery.
Get in touch if you’d like a chat about DCF + AI.
