Cadre Thinks Its New Offering Will Bring More Money Into Real Estate For Everyone
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Cadre, the online real estate investment platform that was given $250M to invest by Goldman Sachs, is continuing its attempts to shake up traditional real estate with two new investment offerings. Desired end result: a massive increase in liquidity for the entire real estate sector.
Previously, if investors bought a stake in a building through Cadre’s online platform, they had to hold it until the whole building or portfolio was sold. Now, through new offering Cadre Secondary Market, investors can sell their position once they have held it for a year.
Through its second new offering, called Managed Portfolio, investors can allocate $250K or more across a portfolio of 10 buildings, $25K for each building, allowing them to build up a diversified portfolio. Cadre said this makes it easier for investors to spread their risk.
The biggest chunk of money Cadre manages that has been made public came from Goldman Sachs, which in January gave it $250M from its wealth management division to invest. Cadre’s mantra is that it provides better investment opportunities through its use of technology and gives investors lower fees and greater transparency.
It has raised $133M to fund itself from investors including the Kushner family, real estate investor SL Green and venture capital firms Andreessen Horowitz and Peter Thiel’s Founders Fund, with the last investment round in 2017 valuing the company at $800M. Around $1.5B of transactions have been undertaken on its platform.
Cadre co-founder and Chief Executive Ryan Williams, alumnus of Blackstone and Goldman, told Bisnow that the ability to trade stakes in buildings regularly through an online platform could increase the overall amount of money attracted to commercial real estate investment.
“I think this has the potential to dramatically increase the overall size of the commercial property universe,” he said. “If you look at the average allocation of accredited [wealthy individual] investors to real assets it is about 5%, and most of that is their home. For the average institutional investor it is closer to 20%. What is driving that is access and liquidity. People can’t get access to commercial real estate because of the size of deals, and they don’t want to be locked in for five or 10 years.”
“There’s never been a truly liquid market for stakes in buildings before, but we’ve leveraged our platform to create that,” Williams said. “We don’t want people to just be able to buy real estate, we want them to be able to sell.”
Cadre’s platform presents investment opportunities to its users, who are typically wealthy individuals, their advisors or institutions, and they can choose whether or not to buy a stake in the deal. Now, Cadre will collect up sell orders from those who have previously made investments and then offer them up to other investors on the platform. Vendors will choose the price at which they want to market their holdings: the underlying properties are valued on a quarterly basis and then the investors can decide at what level they sell their stakes based on this valuation.Tthe market will decide whether that is a good price, providing an element of price discovery.
Williams said the company had been trialling the system on and off for the last year or so, and about 40 secondary market trades have been completed at an average size of about $300K.
“These secondary offerings have been selling out in hours, and there is real velocity in this market.”
The platform is not just beneficial for buyers of stakes in assets, but for sellers also, Williams said. He said there has been strong interest from a variety of sellers, including REITs and institutional investors looking for an additional source of liquidity.
“REITs might sometimes want to sell non-core assets, but they might not want to sell the whole building or portfolio, just a stake in it, in order to rebalance or focus their capital elsewhere,” he said. “Previously there was no real system to get liquidity for partial stakes in assets. We’ve had very strong interest from potential sellers.”
He said the platform might really come into its own when the next downturn hits.
“If you think back to 2008 and 2009, what everybody wanted was liquidity, but it wasn’t there. We can help provide that.”
You only need to look at its list of backers to see that Cadre positions itself as a tech company rather than a real estate company. It uses technology to create the platform on which investments take place, and also to automate processes, such as contracts and lease data extraction.
But Williams said the most interesting way the company is utilising technology is in the way it selects deals offered up to investors. He said it offers less than 1% of the opportunities that come its way.
He said the company analyses large data sets to get extra information on assets and markets, like using Uber data to see where people are travelling in a particular city, or Yelp data to see how retail or leisure assets are being reviewed.
This is then combined with individual property data, much of which is gathered by aggregating data from the investment opportunities it is offered. He said the company has more than 40 million pieces of data on individual buildings, like lease length and rental levels.
“When you combine the two, that is where the magic happens,” he said. “It becomes predicative analytics, and we can be more forward-looking in how we underwrite assets in terms of where rents and values are going, and in analysing which markets are going to over or under perform.”
And what does the traditional real estate investment and fund management community think of Cadre? Williams said it is an opportunity to some and more of a threat to others.
“For institutions and a lot of different types of organisations there are huge partnership opportunities, as we offer a platform that has never existed before. But, we’re 100% committed to low fees and transparency, and that is where it can cause consternation.”
If the company achieves its aim of achieving more liquidity for the whole market, there probably won’t be too many complaints.