Cadre Vantage: Quarterly Insights (Q4 2021)

Executive Summary

• Inflation is a growing concern in the macro space. However, inflationary price increases can actually benefit investors in commercial real estate (CRE).
• Micro markets and quality assets are key across property types.
• Cadre reached $3.5bn in total transactions executed across 23 U.S. markets in 2021.
• Cadre will be increasing our investment capabilities and expanding our investment offerings this year.

On the macro front, headlines insist that we’re in for a long winter. Inflation is increasing. Significantly, too—at 7%, 2021’s numbers reflected the largest 12-month gain in almost 40 years. However, we believe that there are compelling investment opportunities for the real estate industry. Inflation can actually benefit investors in commercial real estate.

Here’s why.

Private Real Estate Could Outpace Inflation

As building costs increase, we can expect that fewer new properties will begin construction. This could help curb supply, opening up more runway for existing assets. Additionally, owners of commercial real estate could increase rent to keep pace with rising inflation. As rent increases on newer properties, it raises the ceiling for older vintage assets to follow suit.

With its built-in income, real estate has historically been a typically good hedge against inflation. Cadre’s research bears this out.

Become a Cadre member to access our data insights about real estate performance throughout inflationary environments in the Q4 Investor Letter.

The Fed is on the Case

Inflation has a watchkeeper in the form of our central bank. The Federal Reserve (Fed) is in charge of keeping prices relatively stable. The goal is to allow the free market to operate as freely as possible while preventing the pendulum from swinging too far in any direction. To that end, the Fed is concerned with keeping rising prices within a range of acceptability.

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Raising interest rates may discourage consumer borrowing. The reverse is also true; the Fed can lower interest rates to encourage more people to borrow money and make purchases, which has been the case over the last few years.

The Fed recently announced that it intends to increase interest rates this quarter. The goal is to constrain rampant spending so prices come back down to more reasonable levels. If effective, the Fed’s move could help decrease spending and bring prices into check. Once goods and services are priced more affordably, the Fed could consider lowering interest rates again.

A concern for commercial real estate investors: higher interest rates typically lead to higher cap rates. This could negatively impact the value of existing real estate assets, particularly those purchased at historically low cap rates. To this end, Cadre continually monitors the changing macro environment as part of our ongoing due diligence to help us make the best investment and divestment decisions for our investors.

What property types are on our radar? Learn what’s trending in commercial real estate in the full Quarterly Investor Letter, accessible to Cadre members. Sign up for free.

Cadre Key Wins for 2021:

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Expanded Deal Offerings at Cadre

In the fourth quarter, Cadre expanded the breadth of investment opportunities on our platform.

We are teaming up with top operators in our network to deliver highly curated commercial real estate investment opportunities. Our top operators source and underwrite these assets. We conduct rigorous due diligence on each operator and closely review partner underwriting to make sure all investments fit our criteria for institutional-quality offerings.

These curated deals are now offered in addition to Cadre’s principal deals (i.e., deals in which Cadre performs full deal and sponsor-level due diligence and co-invests). Our deep industry relationships allow us to deliver this wider range of opportunities that many of our investors would not be able to access on their own. The end result is a wider variety of institutional-quality commercial real estate available to investors on the Cadre platform.

What Kind of Additional Deals are Being Offered?

Cadre is inviting some of the top operators in the U.S. to contribute to our curated investment marketplace. All curated offerings adhere to our high-quality standards. Our principal deals, for which we provide our own underwriting and in which we co-invest, are our premier investment products. We operate the infrastructure and ensure that the overall experience is top-notch. Both curated and principal deals remain consistent from the investors’ perspective.

The marketplace as a whole benefits from a continually expanding selection of offerings. In 2022, we will offer more investment options than ever before. You have the power to pick and choose across property types, geographies, and strategies. As a member of Cadre, you don't need to pay extra to access these additional opportunities—you’re in. Where you go from here is up to you.

What are the Benefits to Investors?

Greater portfolio diversification and more opportunities! Cadre’s sizable network of 400+ operators around the U.S. allows for a significant increase in the types of deals we can offer our investors. This exciting partnership allows Cadre to help our partners extend their capital-raise capabilities so they can focus their efforts on sourcing fantastic investments for you. We are proud that members of the Cadre platform can now choose from a wider array of investment offerings and build a truly diversified investment portfolio.

Ongoing partnerships like ours highlight a difference in the way Cadre does business. We look for ways to unite and empower our operating partners while also providing a wider range of opportunities for members of our platform by sourcing across markets and property types, including assets outside of the Cadre 15.

What are the Benefits to our Partners?

Raising capital can be burdensome and operationally inefficient for many top operators. Cadre’s automated platform is well-positioned to provide access to our streamlined infrastructure and dedicated client base. Such access empowers our partners to fundraise successfully while keeping resources focused on their core competencies: sourcing and operating the real estate.

Cadre’s extended network reduces duplicative efforts throughout the investment cycle, which makes good business sense. Teamwork within our network helps Cadre deliver a greater number of premium real estate investments more accessibly, transparently, and affordably to our investors.

Looking Ahead to 2022

2022 is already set to be Cadre’s most meaningful year to date. We are increasing our investment capabilities and expanding our investment offerings by:

• providing more principal deal-by-deal opportunities
• increasing the selection of curated deals on the platform
• building out additional investment products to serve our growing base of Registered Investment Advisors (RIAs).

Fund Updates

Cadre will finalize raising capital for our flagship fund early this year. We are pleased with the early performance we generated for investors. In the next 12 months, we plan to launch a new fund for an increased base of investors and their advisors.

Cadre Secondary Market

We will be increasing our capabilities in the Cadre Secondary Market this year. The potential pool of liquidity available in our secondary market is a standout feature of Cadre’s platform, and we intend to make investor-friendly improvements, including more dynamic pricing and increasingly streamlined subscriptions.

Diversity, Equity, and Inclusion (DEI)

Cadre’s Diversity, Equity, and Inclusion (DEI) efforts are front of mind. We are committed to building a diverse and inclusive team, and we hold deposits with a minority depository institution. To that end, we will be announcing a significant partnership with one of the world’s largest alternative asset managers to help scale our efforts, which we plan on sharing in the coming months.

2022 will be a year in which we deliver our greatest innovations to date. We will continue to work tirelessly to deliver strong investment returns and a superior client experience in this new year!

Become a Cadre member to access our full Q4 Letter to Investors and future quarterly updates.

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