Cadre Vantage: Quarterly Insights (Q3 2022)
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In Cadre’s Q3 2022 Investor Letter, we lay out several economic fundamentals that remain strong in the U.S. despite continued interest rate hikes and rising inflation. In this macro environment, Cadre is optimistic in our search for high-quality commercial real estate assets with the fundamentals to support growth for our investors.
Executive Summary
- Despite repeatedly increased interest rates and rising inflation, many economic fundamentals remain strong. U.S. economic growth is coming in hot at 2.6% for Q3, unemployment is at 3.5%, and wages are continuing to rise.
- Cap rates are beginning to reflect the new borrowing environment. Cadre remains cautious about new investments, applying an even more discerning filter on qualifying opportunities.
Cadre Updates
- Launch of Cadre Horizon Fund: To take advantage of emerging market dislocations and compelling near-term investments, we successfully launched the income-oriented Cadre Horizon Fund at a members-only event in NYC this September. The Horizon Fund is now available for commitments.
- Launch of Cadre’s 2022 Most Valuable Places to Invest (MVPs): Cadre launched its 2022 Most Valuable Places to Invest (MVP) report in October, revealing our top markets for commercial real estate investing.
- Cadre Awarded the Top Real Estate Technology Provider: Cadre topped the “Technology Provider: Real Estate” category to win WealthManagement’s 2022 Wealthies Award—recrowning last year’s achievement!
A Slowdown in Momentum
The Federal Reserve’s fourth 0.75% interest rate hike this year, on the heels of smaller previous hikes (0.5% in June and 0.25% in March), increased fears of recession. The current market environment is not all negative, however. There are several positive economic signposts to point to, including:
- The Bureau of Economic Analysis’ advance estimate of GDP shows a positive annual growth rate of 2.6% for 3Q (official estimates are released by the Federal Reserve on a delay).
- Unemployment remains at 3.5%[1], the lowest levels we’ve seen in decades.
- Wages have settled into a steady growth rate after correcting for the initial COVID-induced dropoff in 2020.[2]
- Customer account balances remain higher than before the pandemic, and consumer credit remains pristine, with late-payment metrics still well below pre-2020 averages, according to Bank of America[3]
Investments in private commercial real estate can confer strong macro benefits to investors. Historically, these investments have been considerably less volatile than stocks and bonds, and they have served as a hedge against inflation. At Cadre, we are optimistic about new opportunities.
As an SEC-registered investment adviser, we are extremely thoughtful about the commercial real estate deals we bring to our platform, and cautious about pricing. Specifically, we look for new investments that have the potential to generate strong risk-adjusted returns without meaningfully increasing rent.
We monitor dislocations across asset classes that may allow us to capitalize on timely acquisitions. The current climate does not shift that focus. If anything, there is an opportunity to dig our heels in. Cadre continues to search for high-quality properties with the fundamentals to support growth in whatever macro environment awaits us.
Great Micro Deals in a “Bad” Macro Environment
Quality is the key for Cadre’s Acquisitions team in the current market environment. How does Cadre choose high-quality assets in markets poised for growth?
“With current market volatility, we are looking for defensive investments that will hold value. For multifamily assets, this includes properties that were constructed more recently that can capture higher rent as inflation persists. High-quality assets relative to others within the submarket help ensure that our investment is competitive. People fly to quality in times of market dislocation,” Dan Rosenbloom, Head of Investments, explained.
“We look for liquid markets by sales volume to ensure that demand is there at a good price, even in a market downturn. We study market fundamentals, such as employment and population growth that are outperforming the national average. Infrastructure spending is an indicator, as well. Markets that spend more on infrastructure are more likely to grow.”
Learn more about how Cadre’s Investments team identifies high-quality deals in our Q3 2022 Quarterly Investor Letter. Sign up for free to access the full letter.
New Diversified Fund Open for Investment
The Cadre Horizon Fund is now open for investment! The Fund will be diversified across various property types in high-growth markets throughout the U.S. We are pairing attractive risk-adjusted returns with downside protection in this portfolio, an approach tailored specifically for today’s volatile marketplace.
For illustrative purposes only, subject to change. There can be no assurance that the Cadre Horizon Fund will achieve its investment objectives or avoid losses.
We intend to allocate approximately half of the Fund’s assets to multifamily investments and the other half to select deals in other property types. Multifamily assets offer attractive risk-adjusted returns and downside protection, while investments in select industrial properties, offices, and hotels provide greater upside potential. Our team’s focus on middle-market deals[5] is also a distinct advantage of our investment strategy, as it allows us to pursue niche deals too big for smaller private investors and too small for the larger ones.
A Legacy of Success
Cadre seeks to leverage the same approach to a diversified offering that is delivering outsized success in our flagship fund (now closed to new investors). To date, our high-tech/high-touch market selection process, institutional-quality due diligence, and seasoned asset management have resulted in a phenomenal 27.5% realized net IRR.[6]
Learn more about the Cadre Horizon Fund.
Most Valuable Places to Invest
We are pleased to announce that our recent publication: The Cadre MVP report, details our approach to selecting the Most Valuable Places to invest in commercial real estate. Sign up with Cadre for full access to this report.
Cadre takes a high-tech/high-touch approach to selecting markets for our premier commercial real estate investment pipeline. Both data scientists and experienced real estate professionals contribute to our choice of top markets: the Cadre MVPs.
Learn about how we evolved our market selection process this year by signing up to access the full Cadre MVP report.
WealthManagement Wealthies Award
We’re proud to announce that Cadre has been honored with the Wealth Management’s 2022 Wealthies Award in the category “Technology Provider: Real Estate” for the second consecutive year.
Using technology as a tool to make commercial real estate more accessible has been a core part of Cadre’s DNA since the very beginning, and its evolution is evidence of our commitment to ensuring our users have the best access to our products and a seamless experience while using our platform. We are humbled to have our efforts recognized by WealthManagement.com.
Leveling the Playing Field
Cadre Founder Ryan Williams appeared on Bloomberg Black Business Beat in August to discuss the ways in which many individuals have been locked out of the types of deals that large institutions routinely access and how Cadre is leveling the playing field for individual investors.
Listen to the podcast episode.
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 members.
- Bureau of Labor Statistics ↩︎
- Bureau of Economic Analysis ↩︎
- https://www.cnbc.com/2022/10/17/bank-of-america-ceo-brian-moynihan-says-the-us-consumer-is-healthy.html ↩︎
- 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’s definition of the middle-market includes transactions in approximately the $50-$150mm total capitalization range, assets too small for large asset managers and too large for smaller private buyers. ↩︎
- Data as of September 30, 2022. IRR calculation represents an equity-weighted average annualized internal rate of return (IRR) for realized real estate investments of offerings by Cadre after deduction of fees and expenses. Calculations assume no fee breaks or concessions were applied. Equity multiple represents the investment multiple on equity, which is calculated by dividing the aggregate realized proceeds for the applicable investment after deduction of fees and expenses. Realized returns are subject to change following final distributions on sold assets. Please see IRR Disclosures for additional information. ↩︎
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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