Cadre Vantage: Quarterly Insights (Q1 2023)
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In our most recent quarterly letter to investors, we explain how commercial real estate investors (CRE) may be able to benefit from ongoing market dislocations, and how Cadre could help you diversify into CRE to capture these timely opportunities for income and growth.
Executive Summary
- In the first quarter of 2023, capital markets and consumer sentiment were affected by high inflation, interest rate increases, and a series of challenges in the banking industry.
- While there is significant volatility in capital markets, we firmly believe that deploying capital into specific assets in select commercial real estate sectors could prove beneficial. Diversifying into and across commercial real estate has historically been a compelling way to generate strong returns and decrease overall volatility.
- We’re excited to announce that Cadre Direct Access Fund II (“CDAF II”), a Value Add Fund, is now available for investment. This successor to our first diversified Fund, Cadre Direct Access Fund I, is expected to include predominantly multifamily, supplemented by select industrial, hospitality, and office assets.
While capital markets stifled investment activity in the first quarter of 2023, we believe that there will continue to be compelling sector-specific commercial real estate opportunities to pursue in the coming months and quarters.
Inflation stayed high throughout the quarter. To combat it, the Federal Reserve hiked interest rates again: 0.25% in both February and March. The U.S. jobs market remained strong despite sizable layoff announcements from large technology companies. Treasury rates and stock prices were also significantly disrupted by bank failures in Q1 but thankfully stabilized a great deal by quarter-end.
This market turbulence reduced commercial real estate transaction activity (down 56% year-over-year).[1] At Cadre, we remain patient. There have been limited opportunities for price discovery to validate potential distress. We are encouraged, however, by the relative affordability of multifamily rents versus the costs associated with home ownership, now at its most attractive level in years.[2]
We cannot predict the future. We can nevertheless underscore this about recent events: overloading holdings in specific instruments or concentrating too heavily in specific industries proved the undoing of many storied financial institutions.
The team at Cadre firmly believes that diversification[3] and prudent asset selection are good ways to stay solvent, and tangible assets like commercial real estate can help achieve this diversification and performance. For instance, adding commercial real estate to an investment portfolio has been shown to contribute stable return streams and decrease volatility over the long term.[4]
Cadre’s investment offerings have been designed to help diversify into and across compelling commercial real estate sectors. We are currently focusing on multifamily, industrial, and hospitality assets in high-growth, affordable U.S. markets. Now investors can participate in two diversified portfolio strategies at their discretion:
- Cadre Direct Access Fund II, a value-add fund, focuses on growth-oriented investments. We leverage the same investment approach that drove returns in our first Direct Access Fund.
- Cadre Horizon Fund provides a diversified portfolio of stabilized, income-oriented commercial real estate investments across the U.S.
Not sure which to choose? Visit our fund comparison page for help deciding.
Both funds target institutional-quality multifamily real estate supplemented by select industrial, hotel, and office assets. All investments are individually selected for their potential to outperform and are actively managed by Cadre’s Investments team.
Our investment approach allows us to target assets in specific U.S. markets that we believe have the fundamentals to support growth. As Cadre Founder and CEO Ryan Williams recently told CNBC, “You’re starting to see some clear winners and losers from an asset class and sector perspective. There’s no more ‘rising tide lifts all boats.’ Thematic investing is no longer in vogue. Instead, you have to be a specialized sharpshooter in order to really find opportunity.” Additionally, our focus on mid-cap opportunities in the $50mm-$150mm range allows us to take advantage of capital markets and operational inefficiencies in investments that are typically too small for large institutions and too large for small private buyers.
We believe that our approach allows us to source attractive opportunities for our investors, who are able to access institutional-quality commercial real estate investments to help diversify their portfolios and gain peace of mind through any market environment.
In addition to the potential for attractive returns, the broader benefits of adding private commercial real estate to a larger portfolio hold true in today’s marketplace, specifically:
- Private real estate, a tangible asset, may provide unique tax advantages through depreciation that can shield investors from paying outsized taxes.
- Private real estate may help you hedge against inflation.
- Private real estate can help diversify your portfolio against the volatility found in traditional investments like stocks and bonds.
- Private real estate has the potential to produce stable income streams and compelling long-term returns.
Trending Now in Commercial Real Estate
To learn what’s trending in commercial real estate, and what’s new at Cadre, sign up for free to read our full Quarterly Investor letter.
Cadre Updates
Introducing Cadre Direct Access Fund II
You asked; we delivered. The next diversified fund in Cadre’s direct access series is now available: Cadre Direct Access Fund II, a value-add fund (CDAF II) with no upfront fees.
Continuation of Cadre’s Historical Investment Strategy
CDAF II’s investment strategy is intended to be largely consistent with both the strategy deployed in our first direct access fund and Cadre's historical approach to commercial real estate investing.
Why Now?
We believe that market dislocations are creating attractive opportunities to acquire assets at meaningful discounts to recent pricing and replacement cost. We intend to tap into these timely opportunities in CDAF II.
Why Us?
Cadre’s experienced Investments team and Investment Committee have worked together for years across multiple economic cycles. CDAF II is the result of decades of our team’s collective experience across tens of billions of dollars of commercial real estate investments.
Why CDAF II?
Cadre will follow a primarily value-add strategy, purchasing assets in need of capital expenditures, improved operations, and/or lease-up. We are targeting multifamily assets in high-growth markets, supplemented by investments in industrial assets, leisure-oriented hotels, and high-quality, well-occupied office buildings, property types we believe are ripe with opportunity in the current market environment.
Invest Early for Less
Limited time offer: Invest in the Cadre Direct Access Fund II by the Fund’s first close to save 0.75% on asset management fees for a full year.[6]
CDAF II Launch Event
On March 15, senior leaders at Cadre hosted investors and interested parties at our headquarters in New York to celebrate the launch of our new value-add fund, CDAF II. Cadre Founder & CEO Ryan Williams and Cadre CIO Dan Rosenbloom were among the leaders who welcomed platform members to our new office in Manhattan and introduced our long-anticipated sequel to Cadre Direct Access Fund I.
Our team hosted investors at our roadshow events this spring in Chicago, Boston, and NYC. Other cities are on deck across the U.S. If you are interested in joining us, please reach out to your Investor Relations professional to see when we will be in a city near you!
Industrial Development Opportunity Available in Houston, Texas
Earlier this quarter, Cadre launched a new Deal-by-Deal investment: Constellation Telephone Road, a Class-A industrial development in Houston, Texas. Houston consistently ranks among top U.S. markets for population growth and job growth. The city is also home to the largest container port on the U.S. Gulf Coast.
Cadre was attracted by the opportunity to partner with Constellation Real Estate Partners to develop this high-quality asset in an extremely accessible location with robust industrial demand. We closed on the land in December 2022 and expect to break ground later in 2023.
Leveling the Playing Field
In Q1, Cadre was selected as the Fintech Breakthrough Award Winner for "Best Real Estate Investment Platform" as part of the FinTech Breakthrough Awards for 2023.
In March, PERE announced Cadre’s launch of CDAF II with a full page article in the News and Analysis section devoted to our new diversified fund.
Ryan Williams, Cadre Founder and CEO, joined “Closing Bell: Overtime” on CNBC to discuss how recent volatility and interest rates are impacting the commercial real estate sector. Watch Now.
Ryan was a featured speaker at SALT Abu Dhabi in early March. He spoke about the future of real estate to a wide audience at the SALT global thought leadership forum as one of the invited experts in finance, technology, and public policy.
Ryan also spoke with FundFire about founding Cadre in Q1, and he authored an article discussing Cadre’s new office space at 315 Park Avenue South, which he designed with the future of both work and the changing asset class in mind.
“As more companies bring more employees back to physical space, employers need to be future-minded and consider where their organizations will be long term. Our team at Cadre is growing, so our selected space accommodates the anticipated potential of continued growth.”–Ryan Williams, Cadre Founder & CEO
Cadre’s latest office exit, the Colorado Springs Office Portfolio, was featured in Mile High CRE, which discussed the way “Cadre’s investment in the portfolio generated a 28.1% realized net return for its investors, highlighting the value discerning investment managers can deliver through institutional quality deals.”
To continue the theme, Cadre’s Chief Investment Officer, Dan Rosenbloom, chatted with Benzinga in Q1 about where he believes the future of the office is heading. Our CIO appeared on the Street Smart Success podcast, as well, to discuss some of the top asset classes Cadre is looking to invest in. We look forward to bringing you great deals in those chosen asset classes in the coming months ahead.
To learn more about our views on commercial real estate, and what’s new at Cadre, sign up for free to read our full Quarterly Investor letter, available only to Cadre members.
- MSCI Real Capital Analytics ↩︎
- Zillow Home Value Index, FRED 30-Year Fixed Rate Mortgage Average, CoStar United States Rent Per Unit, all as of March 31, 2023 ↩︎
- Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk. ↩︎
- Cadre. “How Investors Can Benefit From Real Estate.” Cadre Insights, 09 Feb 2022. https://cadre.com/insights/how-investors-can-benefit-from-real-estate-2/ ↩︎
- Young, Jane. “Don’t Place All Your Eggs In One Basket.” The Gazette, 17 April 2022. https://gazette.com/business/dont-place-all-your-eggs-in-one-basket/article_54bdc3d8-b9d1-11ec-ad09-cbd6208b605e.html. ↩︎
- Management fee discount expires on the one-year anniversary of the first closing of Cadre Direct Access Fund II (“Fund II”). Applies only to investors who submit completed and executed subscription documents on or prior to June 30, 2023. Promotion period is subject to change or termination at the sole and absolute discretion of Cadre without advance notice. Prospective investors must carefully review the limited partnership agreement and confidential private placement memorandum of Fund II, along with the additional information provided on this page, before making an investment decision. Interests in Fund II are illiquid and suitable only for sophisticated investors who can afford a complete loss of invested capital. ONLY ACCREDITED INVESTORS WILL BE PERMITTED TO INVEST IN CADRE DIRECT ACCESS FUND II. ↩︎
Disclaimer
Educational Communication
Not AdviceThe 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.
Not Advice
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.
No U.S. or foreign securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through us.
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