Most real estate investors are familiar with the process of evaluating new deal offerings on Cadre’s primary marketplace. But what about evaluating offerings on the Cadre Secondary Market?

The dynamics for secondary market offerings are a bit different: why invest in a property being sold before the disposition of the actual project? To understand the potential appeal of secondary market offerings, it’s necessary to first understand the typical deal lifecycle — from the drawing board to the finish line.

How Cadre evaluates, executes and manages investments

Cadre, as an investment manager, develops and maintains a business plan for each deal on its platform. A typical plan may include steps to assess local market demand, estimate the revenue potential of certain property improvement, evaluate the cost of these improvements, and finally execution.

Assuming the property meets Cadre’s investment criteria, the resulting plan is associated with a set of target cash flows and values across the life of the hold.

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Source: Cadre

The future of an investment

Despite every effort to accurately underwrite projections, no business plan unfolds exactly as originally anticipated. To put it simply, after the first year, a property will experience one of two outcomes — performance exceeds and/or is on par with initial plans, or the asset underperforms.

Scenario 1: Everything goes according to plan, or better. This outcome can occur for a variety of reasons, such as increased demand or lower-than-expected renovation costs. When this happens, Cadre’s valuation committee reassesses the value of the asset and updates its target go-forward returns. The value of the asset is then marked accordingly.

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Source: Cadre

What does this scenario mean for investors on the Secondary Market?

  • Buyers have a degree of certainty — they know execution has matched or exceeded expectations to date.
  • The asset is likely to be deemed more valuable, since buyers are entering a deal that has already generated value, has an established track record of positive performance and has reduced renovation and certain other risks.
  • Go-forwards (IRR and Yield) are updated according to current performance and projections. It’s important to note that while in some cases these metrics may seem lower than the asset’s initial projections, they are based on the updated marked value and also generally reflect increased certainty the investment management team has around future operating performance.

Scenario 2: The asset underperforms relative to the initial business plan. This could happen for a variety of reasons including market weakness, delayed renovations or unexpected expenses that cut into returns for a period of time.

In a situation like this, Cadre’s valuation committee would reassess the value of the asset and build that into asset’s go-forward projections. The value of the asset would then be marked accordingly. While this scenario is not ideal for original investors in the deal, deals that initially underperform are still capable of creating value, especially for secondary market investors.

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Source: Cadre

What does this scenario mean for investors on the Secondary Market?

  • While there may still be uncertainty surrounding the asset’s future performance, in many cases the key risks are known and addressed.
  • Go-forwards (IRR and Yield) are updated by the management team according to current performance and go-forward targets, giving investors increased confidence that past issues have been resolved and that the go-forward metrics are accurate and attractive.
  • The updated marked value of the asset reflects the underperformance, and has been set at a level that is expected to generate positive returns going forward.

Finally, independent of a particular investment’s performance, every asset’s business plan is constantly being updated — future outlooks are revised to incorporate current performance, and key metrics like IRR, equity multiple and yield are refreshed on a quarterly basis. So, whether a deal is offered on the primary or secondary market, investors can have the confidence of knowing that every opportunity has a seasoned management team working to make the offering as transparent and successful as possible.

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Source: Cadre

Cadre Secondary Market affords investors the opportunity to enter deals at a discount to the latest valuation, at a stage closer to exit, and with the benefit of seeing how the deal has performed through at least part of its business plan. Those benefits, aided by an understanding of where each deal is in the deal lifecycle, gives investors the confidence to enter secondary offerings with conviction. Learn more about our Secondary Market here. To become an investor, please request access to our platform.

Disclaimer

Educational Communication

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.

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.