As covered in our previous article, Grant Cardone told Patrick Bet-David in a December 2023 interview that he personally owns 6,000 of the 12,000 apartment units in the Cardone Capital portfolio.
We have cued the video to 59:06 so the reader can listen as Bet-David begins asking Cardone about his real estate holdings.
Cardone told Bet-David that these 6,000 units were purchased during the first 20 years of his real estate investing and were purchased by himself and his brother and sister.
It would seem to follow from this disclosure of family ownership, then, that Cardone paid himself and his brother and sister ~50% of the $60 million in 2023 distributions paid to “investors” as he counts these 6,000 units as part of Cardone Capital.
Cardone cited the $60 million in 2023 distributions in a Yahoo Finance article entitled “You Can’t Fake Cash Flow.”
Update: Grant Cardone and his family have purchased multifamily units through Cardone Real Estate Acquisitions, LLC (CREA) which was founded in 1995.
After Cardone Capital was founded in 2018, the various “Cardone Member LLC’s” became managed by Grant Cardone. For example, the SEC Form 1-K for Cardone REIT I, LLC, the following statement is made:
The Company [Cardone REIT I, LLC] does not have any employees but relies on services provided by the Manager and its affiliates. The Company’s Manager is Cardone Capital LLC (“Manager”). The Cardone Equity Funds which parallel invest with the Company in the Cardone Member LLCs are also managed by the Company’s Manager. The Company and the CEFs, and the Cardone Member LLCs operate under the direction of Mr. Grant Cardone, who is the Managing Member of Cardone Capital, LLC.
The Form 1-K goes on to state:
Mr. Cardone is also the Managing Member of Cardone Real Estate Acquisitions, LLC, (“CREA”). CREA, under the direction of Mr. Cardone, is responsible for the day-to-day operations of the properties, including overseeing the third-party property managers who supervise the day-to-day operations at each property and the eventual decision regarding each property’s disposal. (See Annual Report Item 3. Directors and Officer for further information.) Further information about the rights and obligations of the Manager, including certain limitations on its liability and rights to indemnification, can be found in our Offering Circular, SUMMARY OF AMENDED OPERATING AGREEMENT beginning on page 85, which is incorporated by reference herein as if fully set forth herein.
Cardone Real Estate Acquisitions LLC works with the Cardone Member LLC’s as we see in the 2020 real estate news report posted below. This news report makes it appear that Cardone Capital is a dba of Cardone Real Estate Acquisitions LLC:
Miami-based private equity real estate firm Cardone Real Estate Acquisitions LLC, also known as Cardone Capital, bought four multifamily properties in Florida and Maryland for $350 million, following the close of Cardone Equity Fund VI LLC and Cardone Equity Fund VIII.
Properties purchased in the funds include the 288-unit 10X Living at Panama City Beach and the 360-unit Retreat at Panama City Beach in Panama City Beach, Fla.; the 531-unit 10X Living at Columbia Town center in Columbia, Md.; and the 294-unit Addison Place in Naples, Fla.
The firm financed the multifamily property acquisitions using $112 million of equity and capital raised from the funds, bringing total AUM to $1.7 billion.
Cardone also launched its opportunity fund, Opportunity Fund IX, which focuses on distressed properties.
Cardone’s disclosure of his personal ownership of 6,000 units, or 50% of Cardone Capital holdings, would mean that Cardone Capital does not have $4 billion of assets under management unless the family-owned units are held by Cardone Capital in some sort of arrangement.
We ask how Grant Cardone can simultaneously claim to personally own 6,000 units while also counting them as part of Cardone Capital’s portfolio. Cardone owns Cardone Capital. However, Cardone Capital has member funds which are legally separate funds, or companies, managed by Cardone Capital.
In what way does Grant Cardone, along with his brother and sister own 50% of the rental units Cardone Capital claims to own? The interview with Patrick Bet-David:
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It is possible that Cardone owns those 6,000 units in separate entities that are underneath the overall Cardone Capital umbrella. If they were owned personally by Cardone’s family, I’m not sure why you would do that if you bought them in separate vehicles from the limited partnerships Cardone sells.
However, there is another intriguing possibility: that Cardone bought the units originally as part of the Cardone limited partnerships he sells. When I reviewed the SEC filings for one of Cardone’s deals, I recall a provision in there that Cardone can require limited partners (i.e., the “stockbro” investors that each put in $10,000) to sell their interest in the partnership back to him at fair market value at the end of the partnership.
That means that if Cardone sees potential for the units to appreciate in value at a faster rate than they did in the ten-year life of the partnership, he can take all the appreciation potential in the future for himself, and not share it with his investors.
So what’s the likelihood that the rate of appreciation for apartments after the 10-year partnership term is higher than during the first 10 years? Actually reasonably high. The US population continues to urbanize rapidly: half of the US population lives in the top 25 metro areas and 75% to 80% live in the top 100 metro areas.
The rise of remote work during the pandemic has accelerated growth in mid-sized cities, which is where Cardone invests, because big cities are rapidly becoming too expensive even for middle-income professionals, so they’re moving to places like Tulsa, Spokane, Tallahassee, etc.
Thus, a significant portion of Cardone’s personally owned units could have started out as units owned by a Cardone Capital limited partnership that he has called out from under his investors at the end of the partnership term.
It may also be the case that Cardone is simply reflecting his ownership percentage in the LP portfolio translated from dollars into numbers of units.
JP: Perhaps Grant Cardone’s long game all along was to get five year interest only loans which would allow him to pay distributions from day one and then refinance at year five when properties had appreciated. Then, when the deal was sold at 10 years, Cardone could cherry pick the best deals and buy out his investors as you have suggested.
Cardone buys properties with his own money and then sells them for a profit to his captive entity Cardone Capital. In doing so, he recoups his cash and shifts all financial risk onto the investors in the Cardone funds. By recouping his cash, he has money to buy out his investors on the best properties. Of course, he may have to take on debt to buy out all of the investors.
Because Grant Cardone exits a deal with a 35% profit position in the asset, he could conceivably use that money as part of the down payment to obtain another five year interest only loan in his own name. The new loan would allow him to buy out the other investors and thereby personally own the entire multifamily project.
By daisy-chaining deals in this way, Cardone would be using investors as 10-year transitional cash cows that allow him to ultimately own the properties in which they invest; this assuming the properties are desirous for Cardone to personally own.