Using technology and on-the-ground commercial real estate expertise, Cadre, a 6-year technology-driven commercial real estate investment platform, completed the first close of a US $ 400 million diversified real estate fund.
Although Cadre’s Direct Access Fund can produce returns comparable to private equity (the company’s current real estate portfolio has generated a net internal rate of return of over 18% on all of its fully-funded assets. to date), investors can get a minimum investment of US $ 50,000, says Ryan Williams, co-founder and CEO of the New York-based company. That’s a lot less than what private equity firms typically need.
And the costs are also reduced. Unlike a traditional private equity real estate fund, which charges two levels of fees — at the fund company level and at the real estate operating company level — Executive is able to reduce fees at the fund level because he automated many processes, Williams says.
Investors pay an annual management fee of 1.5%, an administration fee of 0.5% per year for those who have invested up to US $ 1 million in assets (those with assets between US $ 1 million and US $ 10 million pay 0.25%) and an on-time commitment fee of 3.5% which is reduced for higher asset levels.
“We wanted to build a model that would allow more individuals to invest in institutional grade commercial real estate, and do so in a more fluid and transparent manner,” said Williams.
Unlike many institutional real estate models, Cadre provides investors with liquidity by providing a secondary market for buying and selling holdings directly to other investors. Investors in the Direct Access Fund, for example, can sell their stake in the fund on a quarterly basis after investing for two years.
Although it does not qualify as an impact investment fund, Cadre seeks to create social impact in a number of ways, including investing alongside minority deposit-taking institutions (MDIs), transferring cash to MDIs. and partnering with minority and female real estate operators, Williams says.
Penta recently spoke with Williams and Dan Rosenbloom, Managing Director of Investments at Cadre, about the fund’s approach to commercial real estate, how it uses technology and data science, and its new fund .
The story and approach of Cadre
Executive executives, including Williams and Rosenbloom, came to the firm with years of experience in traditional investment firms or real estate companies. Williams worked for Blackstone Group and Goldman Sachs, while Rosenbloom led the acquisitions team at Gem Realty Capital in Chicago.
Since the platform’s launch in 2014, Cadre has completed more than $ 3.3 billion in real estate transactions in more than 16 markets in the United States. It has attracted several large investors, including the Ford Foundation and Andreesen Horowitz.
Initially, Cadre’s strategy was to find single-family, multi-family properties that would generate a good cash return and internal rate of return in the 15-year age group. It would then syndicate the investments to a network of transaction-by-transaction investors (for a minimum of US $ 50,000).
But Cadre found that large institutional investors and family offices were looking for broader and more diverse exposure to commercial real estate. So in 2017, they created a managed account program for a minimum investment of $ 250,000. Goldman Sachs Private Wealth ended up committing $ 250 million, Williams says.
The Direct Access Fund follows a similar principle in that it offers investors a diversified asset pool (15-20 properties), with an emphasis on what Cadre describes as “defensive, value-added investments. ”, Those who can generate a net in double digits. Return. The fund’s new structure allows Cadre to reach many more investors, says Williams.
Support the under-served
Responsible investing is an important component of the fund. One of the most effective ways to do this is with capital and investment, Williams says.
“By taking advantage of our [operating] the ecosystem and network of partners is one of the best ways to invest in those who are underserved and marginalized, ”he says.
Real estate operators and developers can create wealth through their operations, but these companies typically don’t have much gender or ethnicity diversity, says Williams, who, as a black founder and CEO, knows that it is “far too rare for a leader in real estate investment and in the alternative space more broadly.
In addition to partnering with minority and female operators and integrating MDIs into its financing syndicates, Cadre focuses on investing in properties that have “a clear positive impact on the communities in which we invest”, he said.
This may mean partnering with non-profit organizations to provide financial literacy programs or after-school programs in multi-family housing structures, to “ensure that from an affordability and accessible housing perspective , we are responsible and careful, ”says Williams.
Use technology and relationships to find deals
Cadre achieves his goals through technology, which he uses to provide investors with a seamless platform to which they can connect to learn about new investment opportunities, obtain property and market data, and gain insight. practices on individual portfolios.
The company also relies on technology to automate workflows and processes, including asset management, a strategy that allows the company to support investors without relying on large sales, operations and finance teams. Williams said.
The core of Cadre’s investment process also relies on technology, particularly data science, to uncover markets positioned for disproportionate growth. Using proprietary models and machine learning, Cadre sifted through more than 40,000 variables and three million data points “to track which market will be next in Austin, Texas, for example,” he says. .
This data analysis led to the creation of “Frame 15”, which are specific markets identified for growth. In those regions, which include Seattle, Los Angeles, Las Vegas, Phoenix, Denver, Atlanta, and Washington, DC, Executive proactively seeks deals 80 percent of the time, says Rosebloom.
The remaining 20%, the company is responsive in markets that may not have been highlighted by the data, or that are smaller. Cadre discovers them with the help of their “secret sauce” – relationships on the ground.
“We’re going to spend some time digging with smart [real-estate] operators, ”says Rosenbloom. “We have a strong network of relationships across the country across all asset classes. “
What is in the fund?
While the pandemic did not provide an ideal environment for investing in commercial real estate, Rosenbloom says there have been asset classes that have thrived and that “markets that received a disproportionate share of the workforce – the trends we were seeing before the pandemic have accelerated ”.
Cadre has closed on a handful of opportunities for the fund so far, half of which are in the residential sector. Multi-family dwellings have “tailwinds,” Rosenbloom says, due to the housing shortage, especially in growing markets.
The other half of the funding will be largely devoted to industrial development with potentially selected hotel investments, depending on the rate of return from travel. “We will be opportunistic as to how we view these deals,” he said.
Investment in office space is likely to be limited, except in growth niches such as life sciences. “But the primary focus of the fund is defensive and resilient assets and multi-family housing,” Williams said.