Buy an Office Building Online with Cadre: Amazon for Commercial Real Estate Deals
Real estate investing startup Cadre is finally disrupting the real estate investing business.
Show me the Deals!
Sorry, insiders only! In a growing digital world in which transparency and knowledge sharing are becoming more prevalent and disruption reigns supreme, the real estate industry has managed to resist significant changes to its fundamental business model. Many real estate deals are discovered during casual dinner conversation in which only a few major players have a seat at the table leading to asymmetric information flow [1]. To disrupt this, real estate investing platform Cadre seeks to leverage its online platform to provide more information about real estate investing opportunities to a wider audience, in a sense creating more seats at the table [2].
Traditional Real Estate Investing
A typical real estate deal is generally sourced via word of mouth. The price of a building is not publicly listed in the way the price of a stock is listed and it is certainly not always clear how one can even buy a building [3]. Smaller qualified potential investors must then rely primarily on their own network and assessment of market conditions to determine how much a deal is worth to them while other investors may have access to significantly better information. Due to such information gaps, the real estate investing market is highly inefficient.
Cadre Business Model
Cadre leverages technology to bring more transparency and efficiency to the real estate investing market. Cadre reimagines the typical word of mouth deal flow by leveraging an online platform in which investors have access to the same information across deals. For an annual set of fees, members of Cadre’s platform have access to due diligence information, and standardized financial data about various assets in which they may invest [4]. Sellers must apply to have their deals listed, and those deals are only listed on the site after a comprehensive deal vetting process [5]. This added transparency levels the playing field by fundamentally changing how sellers and buyers connect thus allowing more qualified buyers to have access to deals.
Cadre Platform
Cadre delivers such value by executing five critical steps: sourcing, due diligence, investment review, investor presentations, and asset management. Cadre sources deals by leveraging pre-existing relationships with real estate operators who are in need of capital. They then underwrite transactions by conducting comprehensive due diligence in which they review all facets of the real estate asset including occupancy, building structure, building use, and legal concerns. Additionally, Cadre reviews the overall real estate market where the subject building is located as well as the operator’s management team. The transaction is then taken to an investment committee to be reviewed and approved. Cadre generally makes an investment in all approved deals. Finally, Cadre presents the deal to additional investors by using their technology platform to provide clear and consistent information across deals. Investors shop for deals online (in the same way one would shop for a printer on Amazon.com) and commit capital to the deals they find enticing (capital commitment is at least $100,000). Once deals close Cadre works with the building operator to strategically manage the asset and maximize value [6]. Cadre earns a portion of the deal profits (based on their own investment) and also collects fees for access to the service. Currently, competition to their operating model is limited. Compared to their competitors, Cadre has a higher amount of liquid capital allowing the company to fill in gaps in deals if the online platform does not produce sufficient funds.
Outlook
Cadre has already raised $70 million in just a few rounds of funding and with time Cadre will fundamentally change how real estate deals are done [7]. While Cadre provides a tremendous service its core value add relies on relationship building, which still allows for some asymmetry. For example, buyers and sellers involved in lucrative deals may simply not feel the need to list those deals with Cadre. Cadre must build a tremendous amount of relationships in order to gain access to a large amount of real estate deals and maximize the value of their platform to both buyers and sellers. Additionally, in an industry in which many deals are done in person, simply picking investments online without access to sellers may not be the most enticing investment option for either party, so Cadre must allow for some direct buyer and seller interaction. Overall the use of technology to bring transparency to a historically opaque industry will mark a large transition in the way business is done, but will definitely be met with some resistance from traditional investors.
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Citations
[1] TechCrunch, “Cadre’s Ryan Williams”, YouTube, published May 9, 2016, https://www.youtube.com/watch?v=bGUsq5OB4Vc&t=1s, accessed November 2016
[2] ibid.
[3] Alyson Shontell, “Google and Facebook Employees are Flocking to a Startup that’s Raised ~$70 Million to Shake Up the Real Estate World,” Business Insider, June 23, 2016, http://www.businessinsider.com/what-is-cadre-and-how-to-invest-in-its-real-estate-deals-2016-6, accessed November 2016.
[4] Real Cadre Company, “About Us,” https://cadre.com/about, accessed November 2016
[5] Alyson Shontell
[6] Real Cadre Company
[7] Alyson Shontell
Jaiye – thanks for the interesting article! It seems as though this could be an interesting platform for those interested in real estate investing without sufficient capital for a substantial investment or know-how to accomplish the entire due diligence process. I wonder though how Cadre will limit investors from using their information to then bypass Cadre in the selling process, favoring investing on their own. In other words, as Cadre makes the market at least a little more efficient, how will they continue to capitalize off of this shift? Will they hit a point where the culture of real estate sales/investing is so transparent that a service such as Cadre is unnecessary? Of course, this would be a substantial shift in an industry that has been largely operating in a similar fashion for a long period of time. It seems as though Cadre could have the front-runner, competitive advantage for at least the foreseeable future.
SO, I concur with Kerrin’s initial skepticism. Has Cadre attempted to ensure buyers are filtering payments and communication on site? I know this was initially a big problem with Airbnb. Airbnb responded by mandating all users communicate and pay on its software platform, so that these types of behind-closed-doors deals wouldn’t occur.
Great article. I agree that Cadre will be challenged with trying to change the mindset of traditional investors, but it is great that the platform enables more investors to have access to possible real estate investment opportunities. I was really optimistic about the company until I realized that the investor network is still limited to “A network of high-wealth individuals or “qualified purchasers” who want to make real estate investments” (http://www.businessinsider.com/what-is-cadre-and-how-to-invest-in-its-real-estate-deals-2016-6). I wonder how much of the traditional way of doing business (i.e. restricting information to certain investors) will translate to the digital world?
Also, I wonder about the company’s competitive advantage. How long do you think they can remain competitive by just having liquid capital as their primary source of competitive advantage?