Denver is among markets in the “Cadre 15.”
Pixabay
Using technology and on-the-ground commercial real-estate expertise, Cadre—a 6-year-old tech-driven commercial real estate investment platform—has completed its first close of a US$400 million diversified property fund.
While Cadre’s Direct Access Fund may produce private-equity-like returns (the firm’s current real estate portfolio has delivered a net internal rate-of-return of more than 18% across its fully realized assets to date), investors can get in with a minimum investment of US$50,000, says Ryan Williams, the New York firm’s co-founder and CEO. That’s far less than private-equity firms typically require.
And the fees are scaled back, too. Unlike a traditional private-equity real estate fund, which charges two levels of fees—at the fund company level and the real-estate operating company level—Cadre is able to cut out the fund-level fees because it has automated many of the firm’s processes, Williams says.
Investors pay an annual management fee of 1.5%, an administration fee of 0.5% a year for those with up to US$1 million in assets invested (those with assets between US$1 million and US$10 million invested pay 0.25%), and a one-time commitment fee of 3.5% that is reduced for higher levels of assets invested.
“We wanted to build a model that would allow more individuals to invest in institutional quality commercial real estate, and to do so in a more frictionless way, transparent way,” Williams says.
Unlike many institutional real estate models, Cadre provides investors with liquidity by making available a secondary market to buy and sell holdings directly to other investors. Investors in the Direct Access Fund, for example, can sell their interest in the fund quarterly after being invested for two years.
While it doesn’t call itself an impact investment fund, Cadre seeks to create social impact in several ways, including investing alongside minority depository institutions (MDIs), moving cash holdings to MDIs, and by partnering with minority and women 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.
Cadre’s History and Approach
Cadre’s executives, including Williams and Rosenbloom, came to the firm with years of experience at traditional investment firms or real-estate companies. Williams worked at the Blackstone Group and Goldman Sachs, while Rosenbloom ran the acquisitions team at Gem Realty Capital in Chicago.
Since the platform was launched in 2014, Cadre has closed more than US$3.3 billion in real-estate transactions in more than 16 markets across the U.S. It has attracted several big-name investors, including the Ford Foundation and Andreesen Horowitz.
At the outset, Cadre’s strategy was to find single multi-family properties that would generate a good cash yield and an internal-rate-of-return in the low- to mid-teens. It would then syndicate the investments to a network of investors deal-by-deal (for a US$50,000 minimum).
But Cadre discovered that larger institutional investors and family offices sought broader, more diversified exposure to commercial real estate, so in 2017 they created a managed account program for a minimum investment of US$250,000. Goldman Sachs Private Wealth ended up committing US$250 million, Williams says.
The Direct Access Fund follows a similar principle in that it provides investors with a diverse pool of assets (15 to 20 properties), with a focus on what Cadre describes as “defensive value-add investments”—those that can deliver double-digit net returns. The new fund structure allows Cadre to reach significantly more investors, Williams says.
Supporting the Underserved
A big component of the fund is responsible investing. One of the most impactful ways it does this is through capital and investment, Williams says.
“Leveraging our [operating] partner ecosystem and network 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 don’t tend to have a lot of gender or ethnic diversity, says Williams, who as a Black founder and CEO knows he is “far too rare of a leader in real estate investment and in the alternative space more broadly.”
In addition to partnering with minority and women operators, and bringing MDIs into its financing syndicates, Cadre is focused on investing in properties that have a “clear positive impact on communities we invest in,” he says.
That may mean partnering with nonprofits to provide financial literacy or afterschool programs in multi-family housing structures, to “making sure from an affordability perspective and attainable housing perspective, we’re being responsible and prudent,” Williams says.
Using Tech and Relationships to Find Deals
Cadre accomplishes its goals with technology, which it employs to provide investors with a transparent platform that they can log into to learn of new investment opportunities, to get data on properties and markets, and to get practical information about individual portfolios.
The firm also relies on technology to automate workflows and processes, including asset management, a strategy that allows the firm to support investors without relying on big sales, operations, and finance teams, Williams says.
The heart of Cadre’s investing process relies on technology, too, specifically data science to uncover markets that are positioned for outsize growth. Using proprietary models and machine learning, Cadre has sifted through more than 40,000 variables and three million data points “to track which market will be the next Austin, Texas, for example,” he says.
This data analysis has led to the creation of the “Cadre 15,” which are specific markets identified for growth. In these areas, which include Seattle, Los Angeles, Las Vegas, Phoenix, Denver, Atlanta, and Washington, D.C., Cadre proactively seeks deals 80% of the time, Rosebloom says.
The other 20% of the time, the firm is reactive in markets that maybe weren’t surfaced by data, or are smaller. Cadre uncovers them with help from their “secret sauce”—on-the-ground relationships.
“We’ll spend time digging with smart [real-estate] operators,” Rosenbloom says. “We have a deep bench of relationships across the country on all asset classes.”
What’s in the Fund?
While the pandemic didn’t provide a great environment for commercial real estate investing, Rosenbloom says there have been asset classes that have thrived, and “markets that were getting a disproportionate share of the workforce—trends we were seeing prior to pandemic accelerated.”
Cadre has closed on a handful of opportunities for the fund so far, half of which are in the residential sector. Multi-family housing has “tailwinds,” Rosenbloom says, because of the lack of housing—particularly in growth markets.
The other half of the funding will be largely in industrial development with potentially select hotel investments, depending on the pace of return to travel. “We will be opportunistic in terms of how we look at those deals,” he says.
Investments in office space are likely to be limited, except in growth niches such as life sciences. “But the bread-and-butter focus of the fund is defensive, resilient assets and multi-family residential,” Williams says.
