Cadre Vantage: Quarterly Insights (Q2 2022)
High inflation and interest rate hikes are opening up new opportunities for commercial real estate investors with the flexibility to respond to market dislocations.
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Executive Summary
- High inflation remains a prime concern, although signs of moderation are encouraging. We continue to advocate for allocations to real estate to hedge against inflation.
- Interest rate hikes in May (0.5%), June (0.75%), and July (0.75%), are concerning investors in public markets, particularly stock investors, as a recession may be on the horizon.
- Some great investment opportunities across property types are available for managers with the flexibility to respond to market dislocations.
A Slowdown in Momentum
Uncertainty weighed heavily on investor momentum this quarter. Inflation is at a 40+-year high, the war in Ukraine continues to strain an already disrupted supply chain, and markets are only beginning to adjust to recent interest rate hikes (0.5% in May, 0.75% in June, and another 0.75% in July), bringing us to the brink of recession.
This is not the first time we’ve faced market instability, and it won’t be the last. As with so much in the U.S., we are faced with a lack of consensus around the direction we are headed.
The team at Cadre is working to reconcile the various signals in the market. We are encouraged by flickering economic improvement, which included a temporary decline in the Consumer Price Index (CPI). Yet we are also seeing signs of trouble in credit markets, with many investors camping out on the sidelines and large swings in repricing.
We continue to encourage investors to actively include real estate as a part of their portfolio.
Commercial real estate is a real asset that can generate cash flow, unlike many other investments in the current climate. As our recent study shows, actual pre-tax cash flows from commercial real estate have kept pace with—or outpaced—inflation for the last 15 years. Expense reimbursements, via pass-through leases or other measures, may also help keep up with increased costs. Property owners can raise rent to help counter rising inflation, and they are able to deduct depreciation losses from commercial real estate on their taxes.
It is important to remember that times of market dislocation often provide the greatest investment opportunities, and this is especially true in real estate. As a real estate investment manager, it pays to have the flexibility to be responsive to short-term dislocations and opportunities without losing sight of longer-term trends. That flexibility is one of Cadre’s competitive advantages.
No matter what the macro environment brings, prudent portfolio construction is key. Diversification across assets, sectors, and geographies can help mitigate risk, while protecting against many of the ill effects of our current inflationary environment.
Selecting investments in the current economic climate
Investors have several advantages at Cadre over other commercial real estate managers. One way we seek to ensure success is by being extremely selective about the types of deals we bring to our platform. Cadre leverages both macro and micro data seamlessly in our high-tech/high-touch approach to deal selection. This means we combine data-driven insights with decades of on-the-ground experience.
Cadre’s institutional-quality underwriting targets markets we believe will outperform regardless of the market environment. The evidence of success in our approach can be found in our impressive track record: as of June 15, Cadre’s net historical rate of return was 27.7% [1]
We truly believe that our experienced team and data-based approach will continue to benefit our investors going forward.
Cadre Updates
New Cadre Fund on the Horizon
The Cadre Horizon Fund will be open soon for early investment! This diversified commercial real estate fund will target capital appreciation and income, primarily through Core-Plus real estate investments in multifamily, office, and industrial properties in the U.S. The Fund may also pursue value-add or development investments, along with other property types, as opportunities arise.
This strategy will be focused on capital preservation and stability. We plan to convert the Cadre Horizon Fund to a private, SEC-registered REIT in 2023. Early investors have benefits available to them.
This has been a long-term goal of our team at Cadre, to further increase investor access to high-quality commercial real estate along with simplified tax filings and increased liquidity. Early investors have benefits available to them. Please reach out to your dedicated Investor Relations representative to learn more about the new fund and the advantages for early investors.
Cadre Partnership with BlackRock Impact Opportunities Fund
In Q2, Cadre partnered with the BlackRock Impact Opportunities Fund to acquire a multifamily asset in Salt Lake City. The newly constructed apartment complex offers upside potential to investors in a vibrant location. The sponsor is minority-led Ethos Real Estate, which was founded with a mission of creating and preserving affordable housing in highly populated urban areas.
Cadre’s partnership with Ethos and the world’s largest asset manager exemplifies a core tenet of our mission to expand access to institutional-quality commercial real estate. “This compelling multifamily investment will deliver capital to underrepresented minority operators, banks, and institutions,” Cadre Founder Ryan Williams announced to the press. “We are grateful to the BlackRock team for their partnership.”
We’re excited to work with like-minded investors in this deal while contributing to positive change in the industry.
Cadre Awarded Forbes Fintech 50 for Six Years Running
Cadre was named to the Forbes Fintech 50 for the sixth consecutive year in June—the longest streak of recognition in the industry. Forbes’ list honors the world’s most innovative fintech startups across categories such as personal finance, investing, and cryptocurrency.
This honor places Cadre among some of the country’s most ambitious thinkers. The motivation to create innovative technology and keep refining our platform so more investors can invest in commercial real estate has been at the forefront of our mission since Cadre was founded in 2014.
In June, Ryan Williams decided to assume new full-time roles at Cadre. He is now our Founder, Executive Chairman of Cadre, Chairman of Cadre’s Board of Directors, and Co-Chairman of Cadre’s Global Investment Committee, focused on launching new investment offerings, raising additional LP and corporate capital, and supporting Cadre’s diversity initiatives. Ryan hired a tremendous operator and partner, Jared Kaplan, an executive with extensive experience leading fintech firms, as Cadre’s next CEO.
To learn more about what’s trending in commercial real estate, and what’s new at Cadre, sign up for free to read our full Quarterly Investor letter, available only to Cadre subscribers.
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.
Indices are unmanaged and investors cannot invest directly in an index. Unless otherwise noted, performance of indices does not account for any fees, commissions or other expenses that would be incurred. Returns do not include reinvested dividends.
The Consumer Price Index (CPI) is a measure of inflation compiled by the US Bureau of Labor Studies.
The FHFA House Price Index (HPI) is a broad measure of the movement of single-family house prices. The HPI is a weighted, repeat-sales index, meaning that it measures average price changes in repeat sales or refinancing on the same properties. This information is obtained by reviewing repeat mortgage transactions on single-family properties whose mortgages have been purchased or securitized by Fannie Mae or Freddie Mac since January 1975.
- IRR calculation represents an equity-weighted average annualized internal rate of return (IRR) for realized real estate investments of offerings by Cadre since the formation of our Investment Committee through to the date of calculation, after deduction of fees and expenses. For recently realized investments, an estimate of proceeds to vehicles managed by Cadre may be used. The use of a different methodology may result in a materially different IRR. Please also see additional disclaimers and individual deal information at https://cadre.com/track-record/. Updated on 6/15/2022. ↩︎
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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