Cadre launches second value-add fund

The firm expects family offices and high-net-worth individuals to make up a higher percentage of Fund II’s capital than with its predecessor.

New York-based manager Cadre has begun raising capital for its second value-add fund, Cadre Direct Access Fund II, PERE has learned.

The firm is targeting a $400 million fundraise, according to founder and executive chairman Ryan Williams. Cadre raised $276 million in its inaugural fund in 2020.

Fund I’s capital was made up of mostly institutional investors despite having a low minimum investment threshold of $50,000. Investors included Harvard Management Company and MacArthur Foundation.

Given the denominator effect is hitting institutional portfolios, Williams believes family offices and high-net-worth individuals could make up a higher percentage of Fund II’s capital compared with its predecessor. “There’s more trepidation from a lot of institutions,” he explained.

Many of the firm’s previous investors have already indicated they plan to re-up with Fund II. Williams predicts any new investors will take longer to sign on because of the market uncertainty.

Fund II strategy

Fund II’s overall strategy is unlikely to differ much from the previous fund in the series. The firm expects around half of Fund II’s capital to be invested in multifamily properties with the remainder split between industrial and hospitality properties, a similar allocation plan to Fund I.

The firm plays in the mid-cap space of the US market, targeting properties valued between $50 million and $100 million. Geographically, the firm leans on its Most Valuable Places to Invest list of cities. Raleigh, Charlotte and Nashville were high priorities for all property types, Williams said.

Cadre is targeting mid-teens net IRRs, similar to Direct Access Fund I. Prior to Fund I, Cadre invested via one-off structures and separately managed accounts, including a $250 million account formed with Goldman Sachs in 2017. The firm has returned an average of a 27.6 percent IRR and returned $478 million of investor capital across strategies since inception in 2015.

Where Fund II differs from the last fund is Cadre will now be investing in a volatile market. While the firm also faced risks investing during the middle of the pandemic, the market has become further challenged by higher interest rates and slow macroeconomic growth.

Cadre will target properties affected by the current market dislocation. “There’s a heavier bent towards driving value-add because many properties have been undercapitalized over the last year or so,” Williams said. “Many operators have been lacking liquidity or struggling from a cashflow perspective.”

With Fund II, Cadre is targeting development opportunities as a key part of the strategy. Up to 30 percent of Fund II can be used for ground-up development or heavy redevelopment. The firm did not have a specific allocation target to development or redevelopment with Fund I.

Cadre has increased its focus on development because of the strong performance these investments have yielded, with two projects in Fund I producing a 40 percent and 67 percent return upon exit, according to Williams.

Development also offered an advantage from a pricing perspective. “There’s going to be a premium for newer vintage products; high quality, well-amenitized product,” Williams said. “Developing or redeveloping gives you an opportunity to differentiate your offering.”

Williams founded Cadre in 2015, initially focusing on multifamily. He previously worked for two years in the real estate business at Blackstone.