Ryan Williams, Co-Founder, and CEO of Cadre is one of the leaders in the crowdfunding real estate market. He has a unique background that gives an incredibly valuable perspective as the real estate world continues to evolve. Prior to founding Cadre in 2014, Ryan worked at The Blackstone Group in its real estate private equity division as well as at Goldman Sachs in its technology media group. Ryan founded and launched an institutional real estate single family homes fund in 2009, acquiring, renovating, and selling single-family homes throughout the united states while acquiring more than 1,500 multi-family units.
In this episode, Millionacres Editor, Deidre Woollard, interviews Ryan Williams, CEO, and Co-founder of Cadre. They discuss Ryan’s background, his take on the current real estate market, and ways to encourage economic equity in the future.
Deidre Woollard: [MUSIC] Hello, I'm Deidre Woollard, an Editor at Millionacres. Thank you so much for tuning into The Millionacres Podcast. Today, in this special two-part episode, we're speaking about crowd funding with one of the leaders in this space, Ryan Williams, Founder and CEO of Cadre. In the second part of our conversation, we will dive into the current state of the real estate market, and find out what Ryan is most looking forward to next year in terms of real estate's trajectory. One of the things I'm looking at, and I think everyone's looking at is the great financial crisis versus what's happening now. This recovery is so much different so far, and it's really not quite the same thing. I believe in the beginning, a lot of people were thinking that this recession was going to act like the previous recession. It doesn't appear to be in a variety of ways. Why do you think this is happening the way it is?
Ryan Williams: Yeah. No. Oftentimes, I have discussed this with our team as well. I started investing in real estate during the 08/09 financial crisis. What I saw during that time was a pretty much universal shock to all asset classes, almost all markets. That was one that was credit driven, primarily. A lot of assets and a lot of owners were over-levered, and there was really no asset classes that were untouched. What I also saw was that if you were able to acquire properties at the right time, you had a pretty good chance of success when markets recovered no matter where you invested. Today is very different though, as you alluded to, this is really the story of what's looking like almost a barbelled winner and loser categories. What you're seeing is that there's some asset classes, and geographies, and markets that have held up well, while others have frankly been completely devastated. Our view is that this is not a time to gamble on real estate or to make a one size fits all bet, like maybe you would've done in 08/09. This is a time to ensure that you're focused on investing alongside experienced managers, almost more in a stock picking approach. The question then becomes, what are the asset classes this time that will provide the upside that a lot of asset classes did during the 08/09 crisis? What we said is that based off the work we've done, based off our existing portfolio and our team's experience, there's going to be a subset of winning asset classes and markets and losing asset classes and markets. Where do we feel like the winners will be? Multi-family, industrial, some suburban office, and sometime in late '21, early '22 select hospitality. In terms of the markets and asset classes that we are looking at as a lot riskier is retail, which frankly, pre-COVID was already suffering in many ways. It's the central business district office investments where they're seeing very low occupancy and people very hesitant to return, and a lot of the full-service hotels that require business travel, international travel, and the like. I think that as people are accessing the market and trying to figure out where are the opportunities, what's important it is, that you're focused on asset classes with their unique tailwinds, and in some cases, just defensive attributes like multi-family, and staying away from some of the asset classes where there's a lot of uncertainty, where we're still a ways off from getting any kind of pricing color. That's what we've been focused on at Cadre, is building portfolios of defensive asset classes and multi-family, industrial, and then niche office, like life sciences.
Deidre Woollard: Life sciences is definitely something that everyone is paying more attention to this year. I've really liked what you had to say there about suburban office versus urban office. I've heard that from other people as well, that the CBD, the downtown was the place to invest for the last few years, and now we're seeing an interest again in those suburban office perks. Do you think that that's something that's going to continue for the next few years or is that maybe just a temporary thing that changes after we get a vaccine and a treatment protocol?
Ryan Williams: Yeah. You're right on a lot of the heat in demand in central business district office pre-COVID. We actually took somewhat of a contrarian view even before COVID, and no, we're not sitting here pretending we knew there would be this kind of dislocation. But we justified the valuations in central business district office versus suburban office. The spreads between cap rates were really hard to make sense of. We decided that because we are focused on providing our investors with strong cash flow and income, that we would buy at much cheaper prices in the suburbs, make sure that we had long leases locked in, and deliver good returns to our investors. What we are now seeing is that a lot of companies, a lot of tenants are building satellite offices in the suburbs. They are saying, "It's okay for us to clearly work in a more remote distributed manner because we've been able to do it the past few months, and it's a lot cheaper in many ways as well to relocate to the suburbs as well. Our view is that there will be definitely some residual effect from the suburban move that will last for a while. I think that suburbs cap rates will continue to decrease. But I am a believer long-term in central business district and a lot of the large cities, the amenities, the cultural diversity they offer. I think at the end of the day, there is something to be said for folks put together and having those kind of social connection, especially as you're working through problems and challenges, and nothing can replace that in-person connections. I think you'll see probably late '21, '22 select central business district office markets begin seeing a resurgence, I think it's going to be extended. You're probably not looking at a return to the types of occupancy or valuations well into '22, maybe even further out. I think what you'll see on a long-term basis is there will be more suburban office demand. I think there will emerge a subset of new premier markets. You think about places like Nashville, Dallas, Orlando, markets that offer more affordability. New companies that are moving and relocating because of the affordability. Markets that offer great amenities, and there's emerging technology hubs. I think that there will be more focus on suburban office long term. I do think select central business district office markets will see a resurgence, but I don't think that's a 12-18 month timeframe. I think it's beyond that. I believe what will happen is there will be a new crop of ''central business district markets'' that will emerge, that'll provide companies and others, and individuals many of the same benefit that they thought they could get only in New York or in LA or in SF. I think what's probably most exciting is this rise of the next major markets that I believe will happen as a result of COVID.
Deidre Woollard: I totally agree with that. Even before COVID, I sat down with our analyst in-house and we were talking about the rise of secondary cities and tertiary cities, and then this year was proof point for that. But when you're in New York, and I know in New York, I think it's somewhere between 15 and 20 percent, maybe even less of people have gone back to work in the office. That's something that's really straining the New York market. Do you feel like that there's opportunity in New York? A lot of people are licking their chops a little bit about the potential for prices to go down and for a chance to get in and then wait until the resurgence of New York, because I believe it's coming back. I don't know about you, but I believe that New York is an internal city.
Ryan Williams: I do as well. I think that's frankly one of the drivers as to why there has been less transaction activities because there's a disconnect between potential sellers and buyers. Many buyers and investors, they're pricing New York for what they believe will happen, which many believe that it's going to take a long time, maybe if certain parts of the city never recover. Owners and sellers, unless they're really distressed or unless they really need the capital or liquidity are saying, ''You know what? I'm going to take the other side of the bet here. New York has rebounded many other times before and has faced a lot of challenges and issues, and it will do the same this time. It's incredibly resilient city.'' There is this disconnect, which is why I think right now there's less transactions and less volume happening and the like. I think as the virus begins to run its course and as people begin understanding how to navigate a return to office and work, what you'll see is some stress. I think there will be less distress than people think. But some stress in multi-family office and in some hotels, and they're actually a lot of distressed hotels because that asset class again, it has a longer path to recovery. But I don't think you'll see the high up sale prices that you saw during 08/09. The biggest reason why that's the case, because now more than ever, there's so much capital on the sidelines. There's so many institutional investors that are, basically to your point, licking their chops and waiting for the stress that will play out or distress that will play out. I think a lot of them are going to be a little disappointed because I do think, again, that people are better capitalized this time around versus 08/09. There is more capital. If there's pockets of stress, they're going to get snapped up quickly and prices won't take too big of a hit. I do think long term, again, New York will be a hub and a destination for people who are finishing up school, who want to start their careers and fit people in the financial services space. One thing people forget is that pre-COVID, New York was seeing an incredible level of growth from the technology space and industry, and the venture capital space and industry. There were a lot of folks who didn't really want to build businesses out in that set because it's a bit more homogenous and it's the cliche thing to do. In New York, we're seeing a lot of new companies sprouting up because it offers just this diversity and this vibrancy of people and of resources and amenities, and that's not going away. Now, will there be more markets that on a micro level can offer some of that? Absolutely. But New York in its own right, I believe, will be here to stay and if there are windows of distress, I think that they're going to get elevated and picked up pretty quickly given the capital on the sidelines. I think that the stressed opportunities which will be there will be a fraction of what you saw in 08/09. Again, it's a long-winded way of saying I'm pretty bullish on New York and the demand that will be here. We're in this really strange period of time where buyers and sellers aren't transacting. There's a real bid-ask between buyers and sellers, then you add on this confluence significant capital on the sidelines, and you're seeing a wait-and-see kind of approach that will play out once there is a stronger response and more clear light at the end of the tunnel with the virus.
Deidre Woollard: Well, you talked about hotels and retail as weak sectors, and one of the things we're starting to see is conversions, certainly of retail into fulfillment centers and things like that. Some of those Class B and Class C malls, do you feel like with hotels and to some extent with office that we're going to see different conversions? Is there anything you're looking for for the things that real estate could be over the next few years?
Ryan Williams: Yes. That's a great question. I think flexibility and adaptability are the key themes in a lot of asset classes, but in particular, asset classes that have been a bit more hard hit. So office and hotel, even some retail where people have repurposed their retail centers for a more logistic type purposes. Starting with office, what we're focused on is, what are the niche sectors in place that will be very much in demand that are uniquely suited to be realized because they're office space. Life sciences is one of the sub strategies I mentioned. We've done a life science transaction where we basically converted a few Class A office buildings into lab space. We were able to convert these buildings because they had adequate ventilation, ceiling heights. They were in a market that was very much known for universities in the area and some of the research institutions as well. If you can identify office opportunities that are relatively new, that are relatively updated, that are located around universities and or research hubs, and I think that's actually a really interesting adaptive reuse play that a lot of people are now beginning to talk about. But where it gets very interesting is, life sciences historically has had around a couple of dozen markets that have been the main hubs. I think there's an opportunity for, as we discuss the secondary life sciences market to emerge, if folks are thoughtful and intentional about converting office in some of these areas that, again, historically have been underserved, underinvested in. That's just one example. The other example is, in the hotel space, we've actually looked at some opportunities where there are opportunities to convert some of the hotel to residential and to basically create more short-term type rental opportunities for folks who are in different transitional phases of their lives or their current living situations. That's actually interesting because a lot of hotels are clearly purposed for people living there and spending time there and there are common spaces and the like. If you can pick again the right markets, the right hotels, especially if you start thinking about some of the full-service plays and more higher-end opportunities, we think again, a subset of the hotel space can be actually really interesting as adaptive residential investment opportunities. Then within office, what we have seen is that many office spaces and landlords are thinking more about, what does the future of office look like? How do we make our office assets more safe, more clean, more sanitary, and also how do we make our office spaces more comfortable for folks? For so long, office has been about, how many people can you fit in a certain square foot and what's the density, especially in the large cities? You're seeing the complete reverse play out now, where now it's about, how few people can you fit economically and financially? The implications of that, I think, are that there will be more office space for more people. When you're trying to jam in a bunch of folks into a couple of office towers, what suffers often times are other office buildings in this space, it's about winning one large tenant in your space. If there's less density and there's less people, then theoretically you're actually able to spread them out across more office assets. Now, pricing might go down, but at the end of the day, I do think those landlords who are able to really adapt their space and are well-capitalized and who can invest in repurposing their space, who can invest in showing that there is a level of safety associated with their space will be the winners. Those that can make the economics work with a lower density play will also be very resilient as well, which is one of the reasons why we like suburban office long-term is its a lot easier to make the math work when you have a lot more land, you have a lot more space, an area to play with and where you can get tenants comfortable with the safety standards versus, it's a little more challenging in the city where you are lot more supply constraint.
Deidre Woollard: That's really true. This year has been really interesting. One of the weird thing for me this year is that I found myself caring more about HFAC systems than I ever thought possible, just because of safety and concerns like that. What other thing do you think this year has taught you an investor?
Ryan Williams: What I think it's taught me is the importance of partnership. What I mean by that is, if you look at 08/09, there was a lot of behavior and activity that was not constructive, was not really about helping figure out problems, everything was pretty transactional. You can see that in the financing market rather and the banking sector, banks were very focused on getting a lot of these loans and assets off their balance sheet, which if you were an operator or sponsor that was underwater, you had no opportunity to go back and try to restructure and there's pretty much were given up on you. The other dimension of partnership beyond financing partners that we've seen the critical is strong operating partners as well. Similar to stock market again, great managers and great management teams can now perform even during challenging situations. When we found that Cadre, we pride ourselves on building a base of great operators in terms of their technical expertise, but also good, decent people on the care about the reputation that care about the community. In a time like this, when things are stress, where tenants might be requesting rent relief, you want to make sure that the partners that you're working with are solely transaction focus, but also relationship focus, and willing to navigate and work productively with you through the challenges, through some of the more painful short-term situations to get to a good long-term outcome. I don't think I may be fully appreciated the importance of good partners that are relationship oriented, that are thinking long term. I think what you've seen collectively is generally in real estate. A lot of banks fiscal around have been more willing to work and restructure loans or to extend loans, and you hear all the talk about forbearance. I think what it's done is it's actually stabilize the market. Maybe more so than people are anticipated. It allowed many owners and landlords to really figure out some of these short-term challenges. We've seen it in our own portfolio as well where we've had incredibly productive conversations with lenders, we've been transparent with them and we haven't had any real challenges or stress across our portfolio. We've seen it with our operators across our office assets where there are a couple of tenants who had needed some rent relief and our operators first question was, "What can we do to help support you get back on the right track here? You're out, we're going to figure out a new tenant." Again, I think what that's done is it's allowed us again, as a company, to move forward even faster to move from defense to offense, and also ensure that the entire ecosystem is as well taken care if is possible. Some partnership in the importance of relationship driven partners were honest, with high-integrity, sounds cliché. It sounds like something that you should appreciate. But in times of stress, in times of challenge and adversity, you see the real value of it and that's a lesson that I will take with me through the rest of my career, it's a lesson that Cadre, that we've been very pleased to see play out, and I think it's a lesson than everyone should internalize as they look to invest in real estate.
Deidre Woollard: I Love that. Just a couple of more questions. We talked about office, we talked about hotels. Wanted to get your thoughts on housing for next year. Multi-family I know is your bread-and-butter, but there's also a lot of interest lately in single-family rentals and build-to-rent. Any thoughts on where things are headed in housing?
Ryan Williams: Yeah. Well, we're very bullish across all residential pretty much and that includes pure residential single-family housing as well. One thing people will always need is access to somewhere to live or somewhere to stay. What we've seen is that in the multi-family space, it's been one of the asset classes that has held up incredibly well because on a relative basis is one of the few places where people can be healed, they can get stability, and I know that there's going to be long term demand. The single-family space, we've actually explored a few portfolio investments there as well, and we're seeing tremendous growth in demand there because there are a lot of folks who want more space, even in multi-family or provides an offers. There a lot of people who, the rates as low as they are, looking to buy and lock-in all-time low rates across the board. That's leading to a real lift and elevation in the residential space as well. Within single-family, we've been really excited about markets, again, that are emerging as these next primary markets that have historically being considered secondary markets where folks are saying look, long term, I want to be somewhere where I can set up a home office and I can have more spacing, I can have a backyard and I'm willing to actually invest in real savings that I have for that kind of peace of mind, and I think that's a really interesting tailwind for single-family that will persist. I think the final piece as to why we like residential besides the fundamentals and a lot of these tailwinds in terms of lifestyle changes is financing. When you think about individual homes that people could go and buy, now clearly, there's attractive long-term, low rate financing. But what's changed since I've started investing in real estate is that the institutional financing market has taken off. There's way more large institutions that are willing to lend and finance tremendous portfolios of single-family real estate that historically were a little bit more skittish to do so because it wasn't seen as an institutional asset class. Well, that's changing, and I think we're continuing to see in a world where banks are concerned about hotel on retail, multi-family and single-family be the golden options for banks to be financing. I think that's also going to lead to more lift and growth, and so when you have these macro trends, really strong growth in our residential market, people being able to buy more single-family homes themselves. You have the lifestyle changes that are happening where people are valuing space and privacy way more. You have a financing market that's really robust, where there's been a ton of institutional investment. I think that the single-family space could see one of its greatest years next year. I also think multi-family will see its greatest year in a long time next year because of the relative value it provides, the relative stability it affords versus some of the more questionable asset classes. Even in development, I think people are able to develop in single-family to pretty attractive yields still. As long as there is demand, and we have to be careful that we don't go to one of these boom and bust, like we've seen in 08/09. We feel like now there's going to be a lot of interesting opportunity in yield. The final piece here is just everything, of course is market dependent. It's one of the most important things about real estate. It's hard to generalize anywhere, and so you might have the right asset class, but if you're in the wrong market where there's not population growth or affordability or corporate relocations in everything you possess can go of course. I think if you identify high-growth markets, something we've done with our data science team, high-growth asset classes, that combination can be incredibly compelling.
Deidre Woollard: Absolutely. One last question. You got started in real estate pretty young but, if you could give a young real estate investor one piece of advice, what should their first move be?
Ryan Williams: A very first thing is to read up and learn as much as you can. I always say, real estate is not rocket science. All the information you need to get started is there. What you can't replace, and this is maybe the second piece of advice beyond we learn as much as experience. So you're getting started in real estate or advert investing or becoming an investment professional yourself, align yourself with experienced managers, with experienced investment professionals. That's the fastest way not have to deal with some of the growing pains that you would otherwise have to deal with when you're solely on your own, something that I did when I was younger and very focused on. We encourage first-time investors in real estate to invest along strong experienced management teams. It's one of the reasons we began marketing more so then investors can come to Cadre and be able to invest alongside an experienced institutional great team. It's also one of the reasons that Cadre we focus from a learning perspective on developing insights, white papers so that we can educate our investors, because Cadre it's not just about expanding access and democratizing access, it's also about democratizing insights. I think if you're relentless in your pursuit of understanding a knowledge around real estate, there's a ton of great research on ton of great books out. You're relentless in your pursuit on the assessment of experienced managers, experienced investment professionals that you can partner with, work with, invest through, then I think you can do a lot of great things. I think you can minimize the growing pains and maximize the returns. That's really what it's about.
Deidre Woollard: I love it. Well, you used to being relentless. Thank you for your time today and just a reminder to listeners, you can find out more about Ryan Williams and Cadre on cadre.com. As he mentioned, they've got lots of white papers and research. Take a look at, and of course you can always catch up with us and learn more about real estate investing on millionacres.com. Thank you.
Ryan Williams: Thank you. I love that. It was really fun.
Deidre Woollard: [MUSIC] Thank you for tuning into the Millionacres podcast. I hope you like today's show. If you enjoy this episode, please consider subscribing to your favorite podcast provider. If you have any questions, please feel free to drop us the line at email@example.com. Stay well and stay invested. People on this program may have an interest in the deals, offerings, or services they discuss. A Millionacres or the Motley Fool may have a formal recommendation for or against. Always consult the certified tax professional before acting on tax advice, and do not buy or sell assets based solely on what you hear.