Cadre’s investment management and advisory business operates as a Registered Investment Advisor with the Securities Exchange Commission — which means we have a legal duty to act in our clients’ best interests, with undivided loyalty and good faith. In our industry, this legal duty is called a fiduciary obligation. At Cadre, this standard of integrity drives our every action.
The past decade has proven prosperous for investors across the globe. Asset valuations have continually appreciated, and cash flow has been consistently strong. Of course, in good times, the interests of investors and investment managers appear to be well-aligned as all parties are benefiting.
In periods of severe stress, however — as we are experiencing now — that dynamic can be tested as firms confront choices between doing what is best for their investors versus what is best for themselves. At Cadre, we remain anchored by a simple guiding principle: Our commitment is to serve our clients’ best interests. This is our legal obligation. Even more, it is our unwavering standard of integrity for how we do business.
So, in the midst of current market volatility, we are seeking to prioritize and protect the financial interests of our investors through the following actions:
1. Actively Managing Our Existing Assets
Our highest priority is to optimize the value of our current portfolio. Because the transaction market is currently frozen, our acquisition specialists have joined our asset management team to review each existing property in our portfolio for emerging risks — and to work with our partners to adopt changes where necessary.
We are focused primarily on the following two risk factors:
- Multifamily: Although considered among the most defensive property types, we believe it is possible to experience higher than normal vacancy and slower collection of rent due to extensive job losses. We are closely monitoring properties located in markets dependent on leisure and hospitality — along with student tenants and other rental cohorts that have been adversely impacted by COVID-19. Given existing tenants have paid rent through March, this type of weakness is more likely to become apparent in April and beyond. We are also tracking emerging laws concerning both tenant and landlord protections, including rent relief and loan forbearance.
- Office: Industry experts anticipate that in coming months, office tenants may request various forms of landlord concessions, including deferral of rent payments. We are undertaking a lease-by-lease review to identify tenants who may be disproportionately impacted by the economic downturn and represent a material percentage of overall building rental income.
We are maintaining active dialogue with our lenders about property operations and analyzing the ability of each asset to maintain compliance with loan covenants, including debt service coverage ratios, debt yield tests, and cash reserve requirements.
2. Increasing Cadence of Investor Communications
At a minimum, investors can normally expect to hear from our asset management team on a quarterly basis — with updates on assets and portfolios. During this period of time, we intend to communicate with you more, both to offer insights into the overall market, as well as specific investments.
One key aspect of investor communication relates to our quarterly asset valuations. We want to remind investors that changes in the value of private real estate assets tend to lag the public market and, therefore, will likely not be apparent until the second half of the year. The performance of real estate has historically been closely correlated with GDP and our investments will not be immune to the impact of the broad-based economic downturn. We will have more to share on this as uncertainty abates about both the containment of COVID-19 and the direction of the economy.
3. Pausing Investment into Existing Cadre Assets
We are currently pausing any new investment into “warehoused” Cadre assets.
Whenever launching a new investment opportunity, we reserve a portion of equity for new Cadre Portfolio enrollments. Investors have enjoyed the timely deployment of capital this provides.
Yet, each of the investment offerings currently available was underwritten based on the pre-pandemic economic environment. As a result, we believe it is our fiduciary duty to pause any investment into these legacy offerings by newly enrolled Cadre Portfolio clients.
So, if you commit to a Cadre Portfolio in the coming days and weeks, your portfolio will be comprised of investments we have underwritten or re-underwritten after understanding more about these changed circumstances. This may mean that the time to invest capital will be prolonged until we have more confidence in the economic outlook.
4. Position Investors for Potential Buying Opportunities
To quote Warren Buffett, “attempt to be fearful when others are greedy and to be greedy only when others are fearful.” Consistent with this philosophy, Cadre plans to raise capital for future deals in the coming months. Accumulating capital now will allow us to take advantage of potential dislocations in the market that will give rise to attractive risk adjusted returns. Periods of severe distress have invariably been followed by periods with outsized return potential for those who are prepared. Cadre intends to be positioned to offer our investors access to these opportunities.
Once the dust settles, we look forward to introducing new investment opportunities for our clients. And when that time comes, you can be assured that we hold our fiduciary duty — our integrity to do right by our clients — in the highest regard.
The views expressed above are presented only for educational and informational purposes and are subject to change in the future. No specific securities or services are being promoted or offered herein.
This communication is not to be construed as investment, tax, or legal advice in relation to the relevant subject matter; investors must seek their own legal or other professional advice.
Performance Not Guaranteed
Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections are not guaranteed and may not reflect actual future performance.
Risk of Loss
All securities involve a high degree of risk and may result in partial or total loss of your investment.
Liquidity Not Guaranteed
Investments offered by Cadre are illiquid and there is never any guarantee that you will be able to exit your investments on the Secondary Market or at what price an exit (if any) will be achieved.
Not a Public Exchange
The Cadre Secondary Market is NOT a stock exchange or public securities exchange, there is no guarantee of liquidity and no guarantee that the Cadre Secondary Market will continue to operate or remain available to investors.
Opportunity Zones Disclosure
Any discussion regarding “Opportunity Zones” — including the viability of recycling proceeds from a sale or buyout — is based on advice received regarding the interpretation of provisions of the Tax Cut and Jobs Act of 2017 (the “Jobs Act”) and relevant guidances, including, among other things, two sets of proposed regulations and the final regulations issued by the IRS and Treasury Department in December of 2019. A number of unanswered questions still exist and various uncertainties remain as to the interpretation of the Jobs Act and the rules related to Opportunity Zones investments. We cannot predict what impact, if any, additional guidance, including future legislation, administrative rulings, or court decisions will have and there is risk that any investment marketed as an Opportunity Zone investment will not qualify for, and investors will not realize the benefits they expect from, an Opportunity Zone investment. We also cannot guarantee any specific benefit or outcome of any investment made in reliance upon the above.
Cadre makes no representations, express or implied, regarding the accuracy or completeness of this information, and the reader accepts all risks in relying on the above information for any purpose whatsoever. Any actual transactions described herein are for illustrative purposes only and, unless otherwise stated in the presentation, are presented as of underwriting and may not be indicative of actual performance. Transactions presented may have been selected based on a number of factors such as asset type, geography, or transaction date, among others. Certain information presented or relied upon in this presentation may have been obtained from third-party sources believed to be reliable, however, we do not guarantee the accuracy, completeness or fairness of the information presented.