We’ve been interested in (and cheering for) start-ups taking aim at the commercial real estate sector for some time. Why? Because commercial real estate is a lucrative and enduring sector, but in our opinion, it’s also too clubby and resistant to technology-fueled innovation. One of the start-ups leading the charge to transform the industry is New York-based Cadre. Led by Ryan Williams, a young, dynamic Baton Rouge native, Cadre has generated a disproportionate amount of attention because of its high-profile investors and eye-catching announcements, such as its recent $250-million partnership with Goldman Sachs’ wealth division. But from our vantage point, the real story (and question) is whether or not Cadre is making real progress towards achieving its bold mission. To find out, The FR’s Gregg Schoenberg recently sat down with Williams for an in-depth conversation.
The Financial Revolutionist: Ryan, it’s great to see you. Before we get into Cadre, I’d like to talk about your first success, because I think it gives insight into who you are.
Ryan Williams: Thank you, Gregg. Yes, my start came about 16 years ago. Growing up, I always played sports, but I grew increasingly tired of paying $15 or $20 for a Nike or Adidas headband or wristband. I didn't have that much money, and I didn't think any of these sports companies represented me.
FR: So you created your own product?
RW: Yes; I went to the wholesale district and identified that I could buy terry cloth headbands and wristbands for wholesale prices, which was a tenth of what I was paying to Nike or Adidas. I also knew that I had to differentiate my product to tap into the personalization trend.
FR: What made the business real?
RW: It took off when JP Morgan ordered hundreds for its 'take your sons and daughters to work’ day. Then other banks started taking notice and began ordering them, too. Pretty soon, we were in country clubs, retailers and large corporations.
FR: Were you involved on the tech side, or did you outsource that?
RW: I was very involved. We built this on PHP given the depth of the platform I wanted to create. So I audited a course where I could learn how to build the platform. Today, of course, the architecture would be considered Jurassic.
FR: It sounds like you got the job done. I say that because as an undergrad at Harvard, you had a successful exit, right?
RW: Yes; I got lucky and had a classmate who knew an executive at a large sports company. That led to a sale.
FR: Your next venture, which entailed buying up distressed properties in Atlanta, has been well covered by others. So instead, I want to jump past that, as well as your time at Goldman and Blackstone, other than to observe that you have gone from success to success.
RW: Actually, I've been fortunate and lucky in many different ways, so I never lose sight of that. Also, my dad taught me that there are a lot of things you can't control. What you can control is how hard you work. So I’ve never let anyone outwork me.
FR: Hustle and luck are often strongly correlated, Ryan, and your career has shown that. I’d add that the noise surrounding your early backers has taken attention away from the core story.
RW: I appreciate you saying that.
FR: Well, I’m not into tabloid gossip, so let’s jump to the main business. For the uninitiated, what problem is Cadre solving?
RW: It’s simple. History has shown that commercial real estate is the most important asset to building long-term, multi-generational wealth in this country. It’s outperformed the S&P over the last 20 years by more than 15% and is significantly less volatile as well. Our long-term mission is to help people improve their financial lives by providing greater access to this asset class.
FR: It’s an ambitious mission.
RW: Yes, but think about it: commercial real estate has created a disproportionately high number of millionaires and billionaires, but it’s an industry that operates incredibly inefficiently. The result is that most people are missing out.
FR: How are you addressing this problem?
RW: Essentially, we’ve digitized real estate private equity by creating a platform where quality deals are featured, but one in which more people can participate. Plus, we have data and insights that can be used to drive better buying and selling decisions for the participants on our platform and do so at a lower cost.
FR: You said somewhere that you can save up to 40% investing through Cadre.
RW: Gregg, you sound like you’re in a Geico commercial.
FR: Ha, I’ll take that as a compliment, Ryan. When you reference that figure, are you comparing it against a publicly traded commercial REIT?
RW: Yes, and PE funds as well. To be honest, when I first got into real estate private equity, I didn’t appreciate how punitive the fee construct of private equity was.
FR: Perhaps, but you knew about the standard two and 20 arrangements.
RW: Sure, but when you’re investing in a fund, you're effectively exposed to two levels of promote between the operators and the fund level. I'd put these models together, and I’d see the gross to net spread fees greater than 500 basis points when it was all said and done. I quickly realized that there are layers of fees and middlemen that could be stripped away.
FR: So if I understand correctly, your pitch is that Cadre can effectively act like a fund, not take so much vig thanks to tech, and yet maintain the ability to do deals with your balance sheet, right?
RW: Yes; it’s been reported that a large hedge fund has backed us. That was one of my first investors, but I brought them in to give us balance sheet access, so we could guarantee deal funding.
FR: To be clear, individuals and institutions can invest on a deal-by-deal basis, but you don’t have to wait until your investor clients commit, right?
RW: That’s right.
FR: Let’s turn to the other way investors can participate.
RW: The second way to invest on our platform is through a customized managed account, which is what we did with Goldman’s private wealth clients.
FR: How does that work?
RW: Well, you could say to me, ‘Ryan, I'm interested in seven-year duration, and I don't want to be in the Southeast, and I want to have office and hospitality exposure because I think those are interesting asset classes. Please make me a portfolio.’
FR: And you go out and build that. This sounds a lot like an SMA to me.
RW: Very similar to an SMA, yes. We're not a fund, but we do have fund-like capabilities, albeit with greater transparency, access, and, over time, liquidity.
FR: Given the financial flexibility you have, my sense is that you can either syndicate deals or keep them on balance sheet if you had to, right?
RW: If we wanted to, yes, but we've never had to.
RW: Our deals sell down quickly, and I think it's a testament to our deal quality.
FR: As you know, Cadre isn’t the only one out there shaking up the commercial real estate industry. What makes you different?
RW: The quality of our deal flow is a major differentiator. Also, we're actually evolving the asset class by creating liquidity through a true secondary marketplace. Finally, there’s our team. On the real estate side, we've got tons of folks from the Blackstones, Starwoods and Goldmans of the world. On the product and engineering side, our head of product, Andrew Borovsky, ran product at Square. We also have great folks from Apple, Adobe, Google and Facebook. I don’t think anyone else in our space is able to bring these two worlds together like we have.
FR: I want to go a little deeper on the secondary marketplace, because I spent some time on the board of an online consumer lender. And when I hear talk of a secondary marketplace, my instinct is to be quite skeptical.
RW: You're right. Frankly, building a secondary marketplace in this space is challenging given that the industry is relationship-driven. But we were driven to tackle this issue because there's no real efficient solution from a liquidity standpoint in the industry today.
FR: You can go out and buy and sell a public REIT all you want.
RW: Yes, but you don't get the same tax benefits of direct real estate ownership, and you're still correlated to the equity market. You also do not have access at the asset level.
FR: I realize that you may not be able to be specific, but are you actually seeing secondary trades happen on your platform?
RW: Yes. We have had meaningful success and are waiting to formally announce both partnerships associated with our efforts here. We'd love to talk with you as that time approaches.
FR: That sounds great, and I’m going to hold you to that kind offer. In the meantime, can you provide any clues as to how you’ve created this secondary platform?
RW: Basically, we’ve built a platform that helps connect the buyers and sellers by promoting information transparency, parity and structured pricing.
FR: I take it that pricing is variable.
RW: Yes; the pricing is variable, with a few different levels above and below current market valuations. Still, it's significantly better than anything else that you can do today.
FR: What is Cadre's role in all of this?
RW: Because of legal and regulatory dynamics — whether it's AML or KYC — we're checking every single user upfront.
FR: Are parties dealing directly with each other, or are they dealing through you?
RW: They deal through the platform.
FR: So there's no human involvement?
RW: No, no, there's not any person-to-person, but the idea is to make it as transparent from a pricing standpoint as if it were. It's just more structured.
FR: And you’re providing enough information to participants in order for them to make a decision?
RW: Yes; we probably provide more information than anybody would ever want to know, including people in the real estate and private equity space. And I have to say, investors have been really engaged in the experience.
FR: How so?
RW: Well, it’s fun. If you own a building, or a piece of a building in New York, you're pretty much stuck with annual updates and news. Imagine being able to test the market and see where demand is. That’s why our users are excited.
FR: So let’s talk about your other stated differentiator: your people. I have to start with Mike Fascitelli, who runs your investment committee.
RW: He’s been around today. You just missed him.
FR: I find it interesting that you have all these engineers working here, and then you’ve got the LeBron James of real estate walking the halls.
RW: Don't tell him that.
RW: Because he's an owner of the Milwaukee Bucks.
FR: Ha, fair enough. Would it be safe to say that Mike gets a lot of first calls?
RW: He does, but its importance to our overall model shouldn’t be overstated. We have a network of nearly 350 operating partners that come to us with quality deals.
FR: Operators who might otherwise do deals with your former employers?
RW: Yes; these are folks who would otherwise go to the large funds of the world, so I'd argue that Cadre’s network of top institutional grade operators is far more important than the talents of any one person.
FR: Let’s talk about the tech side of your story. The real estate side is plain as day. You’re overflowing with talent. But on your website, I don’t see as many tech folks as I do here in your office.
RW: Actually, we have an incredible technology and engineering team.
FR: I sense the pride you have in them, but my inquiry is about depth.
RW: The team is deep, and it goes way beyond Andrew Borovsky. For example, Leonid Movsesyan is leading our engineering team of 30 or so people, and he’s been an absolute superstar.
FR: What’s his deal?
RW: He was a senior engineering manager at Dropbox before he came to us, and he has been integral in building out our infrastructure.
FR: Let’s turn to Cadre’s longer-term aspirations. Today, you’re still pretty institutional in focus, but it sounds clear to me that you want to shift away from that over time. Is that right?
RW: Today, we still look fairly institutional, but we're increasingly moving to high-net-worth family offices and accredited investors, and then retail eventually. But we're sequencing it because we want our infrastructure to scale properly.
FR: And when the current cycle eventually turns, will you have the flexibility needed to handle troubled deals, capital calls and PIPs?
RW: Yes; when things hit the fan, we will be 100% prepared both from a capital call standpoint and from a business model standpoint. If you think about '08 and '09, I was buying homes in Atlanta, I didn't really know how much I was going to make on them, but I bought at the right time. The reason I was able to buy at such great prices was that there was no liquidity. And part of my responsibility as CEO and founder is to make sure that we’re seeing around the corner of as many curves as possible. So yes, we’re ready.
FR: I know you’re readying a debt platform for commercial real estate. Any other asset classes in mind beyond commercial?
RW: We have a whole roadmap, but it really depends on how this business evolves. We’re certainly looking at other real assets, whether it's farmland, infrastructure or timber. We have also looked at alternative verticals like illiquid credit and private equity.
FR: I’d like to end things by noting that you're one of the most visible tech entrepreneurs in this country who happens to be African-American.
RW: There are not a lot of us.
FR: Yes, I agree. Do you feel any added weight on your shoulders? I can walk into a tech conference and plenty of people look like me. But I bet when you walk into a room, you’re often the only person of color there.
RW: It’s clearly something I've dealt with my whole life. And I’m not naive to the fact that when I walk into a room, I’m recognized. But a different perspective can be an advantage.
FR: How so?
RW: I've had to deal with a lot of adversity in my life, but it’s taught me how to respond to challenges and failures. I've learned pretty quickly, frankly, that success is not the enemy of failure. I've gotten to where I've gotten by meeting tons of people, testing, iterating ... that's Technology 101. And if I can uphold my personal purpose of promoting self-determination amongst the underserved and represent our company’s values of fearlessness, selflessness and exceptionalism, the sky’s the limit.
FR: That sounds like a great way to look at things.
RW: Well, today, we have our issues as a country. But when you look back to the challenges my folks had in the 60s and even before that, I put it into perspective. I have every opportunity and every advantage, and there really should be no excuse for me.
FR: Do you ever bookmark in your mind that when you reach a certain level, you’ll carve out more time to inspire others? Perhaps kids from the poor side of town who didn’t have amazing parents?
RW: I think you can do both, and I'm working on finding that balance now. I'm actually exploring a bunch of different missions, which all tie back to promoting self-determination amongst the underserved.
FR: Can you really find that time now? I mean, I look around here and I can just tell that the moment we’re done speaking and you leave this conference room, you’ll be swamped with things to do.
RW: Yes; one of my resolutions for 2018 was to find the kind of personal balance so that I can be more purpose-driven. And I’d be happy to talk with you about it again, because it’s a priority for me.
FR: Well, on that front and on every other front, I wish you great luck, Ryan.
RW: Thanks, Gregg. It was fun to talk to you.
This Interview has been edited for content, length and clarity.