About two years ago, a few dozen wealthy individuals put $16 million into the hands of a real estate investment firm, which used the money to purchase an East Coast multifamily building. Normally, the investors would have had to wait until the property sold to make a profit.
But Cadre, a real estate investment platform founded in 2014 by Trump in-law Jared Kushner, his brother Joshua, and CEO Ryan Williams, made it possible for four of these aforementioned individuals to sell their stakes in the building for, on average, $315,000 per stake — $15,000 more than they had put in to start.
The transactions marked an initial test of a new fractional real estate equity exchange that Cadre unveiled today. Called Cadre Secondary Markets, the exchange lets accredited investors who own slices of commercial buildings sell their stakes to other investors, potentially bringing new liquidity to the commercial real estate market, and enticing more wealthy individuals to invest in the asset class.
Cadre allows for investment in multifamily, office, industrial and hospitality assets. In order to participate, investors must be willing to put in a minimum of $25,000 per deal. A new managed portfolio offering allows investors to put in $250,000 divided across 10 deals.
So far, 40 transactions have taken place on the fractional exchange so far, ranging in size from small individual positions to multimillion dollar equity stakes. Investors are eligible to try to sell their equity through the marketplace after a one-year holding period.
In addition to Cadre Secondary Market, Cadre also unveiled a service called Managed Portfolio that allows investors to hire Cadre as an asset manager, in which Cadre will invest their funds across a range of deals, rather than picking and choosing investments themselves. The service grew out of the commercial real estate asset management work that Cadre has done on behalf of Goldman Sachs and other institutional investors.
Cadre says its new services are steps towards its goal of “democratizing” direct investment in commercial real estate, which it believes can be more lucrative than buying shares in a publicly-traded real estate investment trust (REIT). This in part due to how the tax code treats direct real estate ownership, according to Cadre CEO Ryan Williams.
Williams — who founded his first business as a 13-year-old — has done stints at Goldman Sachs and Blackstone. He said he joined Blackstone after the private equity firm contacted him for insight into how he was using technology to build a single-family rental business amid the housing slump. (Blackstone had launched a similar venture that the firm eventually took public as Invitation Homes.) Cadre has raised a total of $133 million in funding and is one of a handful of ambitious real estate startups, including Opendoor, with close ties to the PayPal mafia and Blackstone.
“I was within a cadre of the most fortunate people, whether its Blackstone or Goldman who had access to these [private fund real estate] products, and I wanted to build a bigger cadre,” Williams said, explaining where the name of his startup comes from.
To understand what Cadre does, Williams said it’s worth reviewing the three traditional ways to invest in commercial real estate.
- Partner with a commercial real estate investor through personal connections and provide some of the cash that the investor uses to purchase property.
- Buy shares in a public commercial real estate investment trust (REIT) through a stock exchange. That means owning part of a real estate investment company, not real estate itself, as well as more exposure to the overall health of the stock market, rather than just the real estate market.
- Invest in a private fund managed by an asset manager, such as a private equity firm, that focuses on commercial real estate. This option is only available to institutional investors, such as pension funds and sovereign wealth funds, and requires paying steep fees.
Cadre was designed to offer more investors access to the sort of real estate deals that have been available mostly to private funds, but at lower fees and with more insight into the nature of the deals.
So far, Cadre has facilitated $1.5 billion-worth of commercial real estate purchases. It’s done this by matching investment opportunities sourced from a network of roughly 300 “operators” — real estate investment firms that sniff out and execute deals — with members of a network of a few thousand wealthy people and some institutional investors, according to Williams. Those institutional investors include Goldman Sachs, which has tasked Cadre with funneling $250 million from Goldman’s private wealth clients into commercial real estate.
Cadre can compete with private funds for the best deals by guaranteeing operators the funds they need to make purchases. That’s thanks to Cadre’s partnership with an undisclosed institutional investor who has promised to step in to provide any extra capital needed for a deal that can’t Cadre can’t raised from other investors.
But even with potential access to previously-obscure commercial real estate investment opportunities, many wealthy investors might still be reluctant to participate in them because doing so would tie up their capital until the property is sold, for as long as a decade or more.
Cadre introduced Secondary Market to help investors deal with this drawback: It lets Cadre investors list their stakes in buildings after they have owned them for at least a year, rounds up bids from other Cadre investors who are interested in purchasing those stakes, and then brokers trades — much like a stock market.
This enables “potential liquidity where it has never existed before,” making real estate investing more approachable for individuals who want the flexibility to cash out before a property is sold, according to Cadre.
A range of other companies are seeking to sell fractional ownership in properties in new ways, such as an asset management firm that sold a minority stake in the St. Regis Aspen for $18 million worth of tokens on the Ethereum blockchain. Harbor, another startup, is also pursuing the idea of fractionalized ownership via blockchain.
But Williams said Cadre has now created the first exchange where investors can trade such stakes.
Editor’s note: This story has been updated with information about the terms of a Cadre-facilitated investment and to clarify how Cadre’s CEO began working at Blackstone.
