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Cadre is partnering with Jefferson Apartment Group (“Sponsor”) to develop Optimist Park Multifamily Development, a Class A multifamily asset located in NoDa (short for North Davidson) - Charlotte’s arts and entertainment district. We were attracted by the potential to execute on a shovel-ready development alongside a best-in-class sponsor in a burgeoning location within one of the fastest growing markets in the country.
As a principal transaction, Cadre has completed full underwriting and diligence, including approval from Cadre's experienced Investment Committee, and will be placing the Project into the Cadre Direct Access Fund. Cadre is investing alongside Cadre investors and participating in deal promote to align interests, and has structured a majority, controlling interest in the Project, which allows Cadre to actively asset manage the Project and control major decisions in conjunction with other structural protections to protect Cadre’s investor capital.
Dynamic Market with Strong Growth Drivers
Continued Urban Densification
Compelling Transaction Dynamics
Cadre closed on the land in May 2022, simultaneously with the execution of the GMP construction contract and closing of the construction loan. Optimist Park Multifamily Development will be wood frame construction over a one-story podium, with brick and Hardi siding that will allow the Asset to aesthetically blend into the historically industrial submarket (and adjacent Optimist Hall). Upon delivery in 2024, the Class A multifamily community will consist of 350 units with high-end finishes, multiple outdoor amenity areas including a pool and a courtyard area with BBQ and gaming overlooking Uptown Charlotte, and indoor amenities totaling ~11k sf including a fitness center, resident lounge, coworking area, and clubroom. The Asset’s underwritten rents are relatively affordable for the median Charlotte household, are in-line with comparable product nearby, a ~20% discount to existing product in the urban core, and an expected ~30%+ discount to product currently under construction given it is primarily high-rise construction that will demand premium rents.
We acquired the land for the development in May 2022 (“Asset Close”). We anticipate holding an initial investor close in Q2 2022 (“Initial Close”).
Jefferson Apartment Group (JAG) is a full-service real estate firm specializing in acquisitions, development, construction, and property management services with a primary focus on multifamily and mixed-use projects in major east coast markets. JAG’s senior partners have been investing together since 2000 and have been responsible for the acquisition and development of over 21k units with a value in excess of $4bn across 12 states. They have long-standing relationships with many equity partners and lenders including Starwood Capital, AIG, AEW, LaSalle, MAA, Northwestern Mutual, KKR and Wells Fargo.
Since 2010, JAG has managed the investment of $1.7bn of capital with a total value of $2.2bn. They have developed 23 projects with over 134k sf of integrated retail at a $1.6bn cost basis, and achieved a gross profit margin of >30% on average. JAG has also acquired 6 existing assets, representing $490mm in gross value.
Please see the Sponsor Overview section of the Investment Memo for additional detail.
The Sponsor is committing approximately $2.2mm (5%) of total equity to the transaction. The remaining share, approximately $45.6mm (95%), will come from Cadre’s investor partnerships including Cadre Direct Access Fund.We have committed to backstop the transaction; Cadre’s senior partners and employees invest personally in this transaction through the Cadre Direct Access Fund, aligning interests with investors.
As with most development projects, primary risks include (i) development budget and timing, (ii) market dynamics, including Charlotte’s significant multifamily supply pipeline, and (iii) exit valuation given a large component of the returns are not derived from cash flow. We believe these risks are mitigated by (i) already having a signed GMP construction contract and Sponsor’s direct relevant experience and a strong track record (ii) strong microlocation and ability to create a premier product while offering rents at a discount to comparable product (iii) conviction in the Charlotte market due to strong market fundamentals. Cadre maintains a ~$1.6mm hard cost contingency in excess of the 5% held in the GMP to account for possible escalations.Please reference the Investment Memo for Sensitivity Analysis, as well as additional risk factors.
Investors who commit or fund after the Initial Close (defined above) and after the date that Cadre closes on the underlying Asset will be subject to contribution interest calculated at a 6% annual rate from the Initial Close to the date of the subsequent investor close. The contribution interest is paid to a Cadre affiliate that funds remaining equity between the date Cadre closes on the underlying Asset and subsequent investor closings. Any such cost will be deducted from the investor’s initial distribution(s).Regardless of when they commit or fund, all investors are entitled to their share of Asset cash flows (if any) from the Initial Close onward. More details can be found under "Subsequent Closings" in the "Summary of Principal Terms of the Investor Partnership" of the Final Investment Memo.
Cadre charges investors the following:
• 3.5% commitment fee on each investor’s capital commitment;
• 1.5% annual asset management fee and 0.5% annual administration fee on the fair value of the applicable Cadre fund’s investment in the joint venture. Refer to Section 8.7 of the Partnership Agreement for a determination of “fair value”
Other deal fees are charged by the LLC joint venture. Investors should review the Investment Memo for complete fee disclosures and descriptions.
The partnership will be calling 50% of the committed capital at the time of the Initial Close. The balance will be called before the end of 2022. Investors may choose to fully fund their commitment at the time of the Initial Close.
We intend to make regular (roughly quarterly) distributions from available cash flow once the Project is stabilized. These distributions may vary depending on each period’s cash flow and capital requirements.
Through the Cadre Secondary Market, you may have an option to offer your position for sale on our platform at a target sale price based on the net asset value (“NAV”) of the investment at that time. Investments are typically eligible to post on the Cadre Secondary Market six months after the initial investor closing. However, liquidity and pricing are not guaranteed. Prior to investing, you should assume that you may be required to hold your investment for the duration of Cadre’s hold period.See important disclosures below.
Investors will purchase an ownership interest in a Delaware limited partnership managed by Cadre. The Cadre partnership) and an affiliate of the Sponsor entered into an LLC joint venture that indirectly owns the property.Certain non-U.S. or tax-exempt investors may alternatively opt to purchase ownership interests through a parallel blocker partnership.
The Sponsor is responsible for providing Cadre with reporting data that we use to prepare updates for the investor partnership. Investors can expect to receive the following:
Property Updates: We provide quarterly updates for each property within 45 days of quarter-end. An online summary and full downloadable report can be accessed through our Portfolio page.
Capital Balance Statements: We publish investor capital balances on our Portfolio page. We also provide quarterly downloadable statements roughly 60 days after quarter-end. All current and historical statements are available for download on our Documents page.
Tax Reporting: For U.S. taxpayers, we aim to provide annual K-1 statements by the first week of April. All current and historical statements are available for download on our Documents page.