(Bloomberg) -- This spring, the real estate startup Cadre e-mailed a small group of investors, offering them the chance to buy part of a 100,000-square-foot office building in Greenwich, Conn. They were directed to a web page where they could see video from a drone flyover and listen to the owner describe why he’s selling property to a bunch of strangers. Within two weeks, the company raised $60 million from a dozen clients.
Cadre is a technology platform not unlike crowdfunding. But instead of making it easier for just anyone to buy a piece of a building, the company is wooing family offices and pension funds that currently put their money in real estate through private equity. The sell? Lower fees, greater transparency, and the opportunity to customize their portfolios. The company has closed transactions totaling more than $200 million so far this year, said Chief Executive Officer Ryan Williams, 28.
However, he's now gearing up to expand his business at a moment when many in the real estate industry fear that commercial properties have become overvalued. And there's the issue of Cadre co-founder Jared Kushner, 35, who made himself a lightning rod for attacks on his father-in-law, Donald Trump, after he defended the candidate against claims of anti-Semitism.
Kushner and Williams started working on Cadre in 2014, along with Jared's brother, Josh Kushner, managing partner at venture firm Thrive Capital Management LLC. (Jared is married to Trump's daughter Ivanka and runs New York-based real estate firm Kushner Cos.) Jared's connections in the real estate industry and Josh's experience building tech startups made them natural partners, helping the young company raise $70 million from Thrive, General Catalyst Partners LLC, and Khosla Ventures LLC, as well as from some well-connected individuals, including Andrew Mathias, president of SL Green Realty Corp., and Island Capital Group LLC CEO Andrew Farkas.
From the outset, Williams wanted to target an old problem: The world's largest asset class is known for being almost impenetrable for most individual investors. Anyone can buy shares in property owners that trade publicly as Real Estate Investment Trusts, and the wealthy might have access to real estate-focused private equity funds. But even deep-pocketed family offices and pension funds can lack the know-how or relationships to buy an individual apartment complex or office building.
"Investing in real estate is super-inefficient, and the gatekeepers charge a lot of money for access," Williams said in an interview. "We think technology will fundamentally transform the way buyers and sellers connect in opaque industries."
To capitalize on that thesis, the cofounders designed Cadre to place buyers with sellers. On one side, the company recruited family offices, endowments, and pension funds, offering fees that they say are 50 percent cheaper than what private equity firms charge. These investors also gain the ability to select the properties they want to invest in on a case-by-case basis. Williams said he plans to roll out a secondary marketplace that lets users sell their investments—a key distinction with funds that lock up investor capital for years at a time. Cadre invests a small amount in every deal, he said. (Cadre also lined up a $250 million commitment from an undisclosed family office to serve as something resembling a balance sheet, allowing it to complete deals even if users don't pony up enough money.)
Along the way, Cadre sought out industry heavyweights including Jon Winkelried, co-CEO of TPG Holdings LP, and Michael Fascitelli, former CEO of Vornado Realty Trust, to help evaluate properties. When the company's investment committee likes a deal, it e-mails the offering to a portion of the 100 investors currently on the platform. Cadre tries to match properties to investors' stated preferences, so not everyone sees every deal. There are an additional 2,000 investors whom Cadre has vetted but are still waiting to get onto the platform, Williams said.
On the other side of the transaction, the company is trying to convince property owners to sell on the platform by promising to move faster than traditional institutional investors.
Williams was working at private equity firm Blackstone Group when he pitched the idea for Cadre to his longtime friend Jared. The enterprise started out in Thrive's space in the Puck Building, a SoHo property owned by Kushner Cos., but later moved to a separate office there. And while keeping the title of co-founder, the Kushner brothers are now just strategic advisers, Williams said. Since then, Jared Kushner has gained notice outside New York's real estate world for different reasons. In an opinion piece published in the New York Observer, he defended Trump against claims that an attack ad the candidate tweeted was anti-Semitic because of its use of a six-pointed star. "My father-in-law is not an anti-Semite," Kushner wrote in an opinion piece published on July 6 in the weekly newspaper, which he owns. Jared Kushner didn't respond to a request for comment.)A bigger challenge for Cadre may be convincing users to try a new way to invest, amid signals that commercial real estate has grown too expensive: The market's indices have plateaued, according to Real Capital Analytics, even as Federal Reserve Bank officials have warned that the asset class may be on the cusp of becoming a bubble.
Cadre may bear some resemblance to a business model being developed by Origin Investments, a Chicago-based private equity investor in commercial real estate. That firm, which has $500 million under management, has a limit on how much it will put into a single project, said Michael Episcope, who co-founded the firm. If it sees an opportunity to invest beyond that limit, his firm uses an online platform to offer the deal to its limited partners, and subsequently, to a larger universe of accredited investors. “I think there’s a very big appetite among individual investors looking for higher-quality deals than what they’re getting,” Episcope said.
A company with a more fraternal resemblance to Cadre is Oscar, the startup health insurer that Cadre's other co-founder, Josh Kushner, helped begin in 2012. That company used funding provided by deep-pocketed venture capitalists to create a team of technologists who work with the health-care industry. Oscar is worth $2.7 billion, but reported losing $105 million in New York and New Jersey last year. Williams said that, unlike Oscar, which depends on scaling its user base, Cadre wants to deliver high-quality opportunities to a small number of users. In the near future, Williams said he hopes to expand his reach into investing in markets such as energy and natural resources. “We’re a tech company powering a more efficient way to buy and sell,” he said.
To contact the author of this story: Patrick Clark in New York at [email protected] To contact the editor responsible for this story: David Rovella at [email protected]
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