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Most real estate investors are familiar with the process of evaluating new deal offerings on Cadre’s primary marketplace. But what about evaluating offerings on the Cadre Secondary Market?

The dynamics for secondary market offerings are a bit different: why invest in a property being sold before the disposition of the actual project? To understand the potential appeal of secondary market offerings, it’s necessary to first understand the typical deal life cycle — from the drawing board to the finish line.

How Cadre evaluates, executes and manages deals

Cadre develops and maintains a business plan for each deal on its platform. A typical plan may include steps to assess local market demand, estimate the revenue potential of certain property improvement, evaluate the cost of these improvements, and finally execute the plan.

Assuming the property meets Cadre’s investment criteria, the resulting plan is associated with a set of projected cash flows and values across the life of the hold.

Lifecycle of a deal

The future of an investment

Despite every effort to accurately underwrite projections, no business plan unfolds exactly as originally anticipated. To put it simply, after the first year, a property will experience one of two outcomes — performance exceeds and/or is on par with initial plans, or the asset underperforms.

Scenario 1: Everything goes according to plan, or better. This outcome can occur for a variety of reasons, such as increased demand or lower-than-expected renovation costs. When this happens, Cadre’s valuation committee reassesses the value of the asset and updates its projected returns. The value of the asset is then marked accordingly.

Source: Cadre

What does this scenario mean for investors on the Secondary Market?

  • Buyers have a degree of certainty — they know execution has matched or exceeded expectations.
  • The asset is likely to be deemed more valuable, since buyers are entering a deal that has already generated value, has an established track record of positive performance and has reduced renovation and certain other risks.
  • Go-forwards (IRR and Yield) are updated according to current performance and projections. It’s important to note that while in some cases these metrics may seem lower than the asset’s initial projections, they are based on the updated marked value and also generally reflect increased certainty around future operating performance.

Scenario 2: The asset underperforms relative to the initial business plan. This could happen for a variety of reasons including market weakness, delayed renovations or unexpected expenses that cut into returns for a period of time.

In a situation like this, Cadre’s valuation committee would reassess the value of the asset and build that into asset’s go-forward projections. The value of the asset would then be marked accordingly. While this scenario is not ideal for original investors in the deal, deals that initially underperform are still capable of creating value, especially for secondary market investors.

Source: Cadre

What does this scenario mean for investors on the Secondary Market?

  • While there may still be uncertainty surrounding the asset’s future performance, in many cases the key risks are known and addressed.
  • Go-forwards (IRR and Yield) are updated according to current performance and projections, giving investors increased confidence that past issues have been resolved and that the go-forward metrics are accurate and attractive.
  • The updated marked value of the asset reflects the underperformance, and has been set at a level that is expected to generate positive returns going forward.

Finally, independent of a particular investment’s performance, every asset’s business plan is constantly being updated — future outlooks are revised to incorporate current performance, and key metrics like IRR, equity multiple and yield are refreshed on a quarterly basis. So, whether a deal is offered on the primary or secondary market, investors can have the confidence of knowing that every opportunity has a seasoned team working to make the offering as transparent and successful as possible.

Source: Cadre

Cadre Secondary Market affords investors the opportunity to enter deals at a discount to the latest valuation, at a stage closer to exit, and with the benefit of seeing how the deal has performed through at least part of its business plan. Those benefits, aided by an understanding of where each deal is in the deal life cycle, gives investors the confidence to enter secondary offerings with conviction. If you have questions about Cadre’s Secondary Market can learn more here. To become an investor, please request access to the Cadre platform.

About the Author
Cadre is building the world’s premier digital marketplace for real estate investing.
The views expressed above are presented only for informational and educational purposes and are subject to change in the future. Cadre makes no representations, express or implied, regarding the accuracy or completeness of this information, and the reader accepts all risks in relying on the above information for any purpose whatsoever. These materials are not intended to provide, and should not be relied upon for investment, accounting, legal or tax advice. Additionally, these materials are not an offer to sell or the solicitation of an offer to buy any securities or other instruments.

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