I love marketplace businesses. I’ve had the privilege of working with some of the best digital marketplace businesses in the world, both as an operator — for eBay and OpenTable — and as an investor, supporting the efforts of teams at companies like Airbnb, Instacart, and OfferUp, as they seek to build out defining digital marketplace businesses.
In doing so, I have found that there are essential commonalities across all kinds of digital marketplace businesses. They bring efficiencies to previously inefficient markets, be it in terms of liquidity or cost savings. Each is its own micro-economy where the laws of supply and demand operate in close-to-textbook fashion. They thrive on transparency. Reputation is typically a critical component of the business. And lastly, and most importantly, digital marketplaces often trend towards network effects that increase the business’ value to its users as more users engage. Although the markets each of these marketplaces are designed to serve are different — from connecting consumers to hard to find goods, accommodations, restaurant reservations or even groceries — the marketplace dynamics and terminology are virtually identical.
Given my love of marketplaces, it’s not surprising that our most recent investment is a marketplace. And like some of our earlier successes, the market this one is designed to serve is, well, surprising. Cadre is a marketplace designed to bring marketplace efficiencies to alternative asset classes, beginning with commercial real estate.
This is not, in fact, the first time that a marketplace model has been designed for large financial assets. When I was at eBay in the early 2000s, an entrepreneur came and presented his idea for an exchange (a.k.a. a marketplace) addressing energy commodity trading. That entrepreneur was Jeffrey Sprecher and the exchange was Intercontinental Exchange (ICE). Fast forward a decade and a half and ICE now has revenue of $4.5 billion and a market cap (as of this writing) of $36 billion, and actually owns the iconic New York Stock Exchange. Clearly, the marketplace model can be successfully applied to large financial assets.
Commercial real estate is an asset class that has generated strong financial returns for investors. Over the past three decades, returns from commercial real estate have out-performed those of the S&P 500. But it’s an asset class that can be challenging for individual investors to access. The size of these investments can be huge — Cadre targets deals in the $50 to $250 million range — making direct investment inaccessible to all but the largest investors. Private equity real estate funds and REITs that do offer investors commercial real estate exposure typically feature very high fees, little or no liquidity, and are a “black box” that permit no investor discretion on individual deals.
Cadre is designed to give accredited investors direct access to slices of individual commercial real estate investments, allowing deal-by-deal discretion. While targeting the same size investments, Cadre’s fees are significantly lower than its analog competitors and it offers deep transparency. And the company is in the process of refining functionality that will give these investors the potential for liquidity during the life of the investment. This all makes us believe that the Cadre value proposition for investors is far superior to that of existing options, and will — like other digital marketplaces before it — disrupt less efficient analog incumbents.
We also believe that Cadre offers a robust value proposition to property managers and sponsors, the other side of their two-sided marketplace, by offering them guaranteed funding as well as a permanent source of capital — and that capital is lower cost as Cadre leverages the efficiencies inherent in a digital marketplace. Last but not least, Cadre offers a suite of technology services that helps operators efficiently manage the capital raising and asset management processes. The fact that a billion dollars have already been invested on the Cadre platform — and one early investment has already sold at a price that generated attractive returns for its investors — suggests that their value proposition is resonating on both sides of the marketplace.
The Cadre team is very well suited to execute on this opportunity. Cofounder and CEO Ryan Williams started his first business at 13 and sold it shortly after high school. Then, as an undergraduate at Harvard, he began leveraging technology to make real estate investments and enable some families to remain in their homes in the aftermath of the subprime mortgage crisis. After college he moved to Goldman Sachs and then Blackstone, where he worked on billions of dollars worth of transactions across asset classes including residential real estate, hospitality, and office properties.
In addition to Ryan, the Cadre team is comprised of a rare combination of talent that is deep in both commercial real estate domain knowledge and product design and engineering. On the real estate side, Michael Fascitelli, former President and CEO of Vornado Realty Trust and global head of real estate banking for Goldman Sachs investment, serves as Cadre’s investment committee Chairman. On the product front, Cadre is led by Andrew Borovsky, former Director of Product at Square, who had previously left his mark on products at Nokia, Google, and Apple. We can’t think of another team that has brought this combination to bear to realize the benefits of marketplace economics.
We are proud to be supporting the efforts of Ryan and his team to use the dynamics of digital marketplaces to disrupt yet another market, and bring access, transparency, and insight to an otherwise opaque industry.