Bridge Investment Group Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 8, 2023

There are 9 speakers on the call.

Operator

Greetings, and welcome to the Bridge Investment Group's 3Q 'twenty three Earnings Call and Webcast. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bonnie Rosen, Head of Shareholder Relations.

Operator

Thank you, Bonnie. You may proceed.

Speaker 1

Good morning, everyone. Welcome to the Bridge Investment Group conference call to review our Q3 20 we will begin the Q3 financial results. Prepared remarks include comments from our Executive Chairman, Robert Morse Chief Executive Officer, Jonathan Slager and Chief Financial Officer, Katie Elsnab. We will hold a Q and A session following the prepared remarks. I'd like to remind you that today's call may include forward looking statements, which are uncertain, outside the firm's control and may differ materially from actual results.

Speaker 1

We do not undertake any duty to update these statements. For a discussion of some of the risks that could affect results, please see the Risk Factors section of our Form 10 ks. During the call, we will also discuss certain non GAAP financial metrics. The reconciliation of the non GAAP metrics are provided in the appendix of our supplemental slides. The supplemental materials are accessible on our IR website at ir.

Speaker 1

We will be conducting a webcast at bridgeig.com. These slides can be found under the Presentations portion of the site along with the Q3 earnings call event link. They are also available live during the webcast. I will present our GAAP metrics, and Katie will review and analyze our non GAAP data. We reported a GAAP net loss to the company for the Q3 of 2023 of $17,900,000 On a basic and diluted basis, net loss attributable to Bridge per share of Class A common stock was $0.04 mostly due to changes in non cash items.

Speaker 1

Distributable earnings of the operating company were $40,800,000 or $0.22 per share after tax and our Board of Directors declared a dividend of $0.17 per share, which will be paid to shareholders of record as of December 1. It is now my pleasure to turn the call over to Bob.

Speaker 2

Thank you, Bonnie, and good morning to all. From a macro perspective, The Q3 of 2023 was volatile, impacted by a number of crosscurrents. On the positive side, robust U. S. GDP growth highlighted the strength and resilience of the American economy.

Speaker 2

GDP growth accelerated to an annualized we are pleased to report that the U. S. Labor market remains strong with high wage growth, low unemployment we are confident that we will

Speaker 3

continue to grow in the

Speaker 2

long term and growing labor force participation. These factors have bolstered consumer income and spending. In particular, wage growth has been while we note wage gains are decelerating relative to their prior peak, they remain strong and above 5% year over year, which are levels well above prior cyclical averages. In addition, the U. S.

Speaker 2

Manufacturing sector has been revitalized we will be conducting a few key financial measures to our financial results by the globalization, reshoring and new U. S. Manufacturing tax incentives from the CHIPS Act and other government stimulus. Broadly stated and informed by 2 weeks of international travel recently to meet existing Bridge LPs in Asia and the Middle East, the U. S.

Speaker 2

Remains a preeminent investment destination. In addition to strong growth of the overall the company and household income inflation metrics have decelerated. Perhaps the most meaningful measure is core CPI minus shelter inflation, which is 1.95% year over year compared to the peak in February last year of 7.62%. This has created the conditions for an extended pause in interest rate hikes or potentially a reduction in rates looking forward. In our view, the confluence of all these factors is supportive of the case for interest rate increases to at least pause and possibly remain higher for longer while the U.

Speaker 2

S. Economy continues to show strength. With the fastest tightening cycle in recent decades, commercial real estate values in the U. S. Have reset over the last 18 months And now are at levels which we believe represent an attractive entry point.

Speaker 2

This increase in cap rates has created unique opportunities across many of we firmly believe that 2024 represents an excellent vintage in which to invest and a reward for the patience we have shown for much of 2023, particularly in our real estate equity strategies. What one buys is important as is where and at what valuation level. We believe residential rental, a core area for Bridge is poised to outperform. Housing prices are at an all time high measured by the Case Shiller Home Price Index and combined with a high mortgage rate environment, many households are finding it difficult to access the homeownership market. The most recent census data emphasizes this point, over 1,000,000 new renter households were formed last year compared to $4,400,000 formed between 2011 2019, this is a historic amount of new renter demand.

Speaker 2

At the same time, we are appropriately focused on what we see as a short term surge in housing supply. We also acknowledge we are in we are in a far different environment than in previous cycles. Estimates from Fannie Mae as an example suggest that there is a shortfall of 4000000 to 5000000 housing units today. With high construction costs and tight credit conditions, we anticipate more shortages are to follow. For residential rental, we see the ability to capture value in today's market and capitalize on the growth driven by the demographic tailwinds and long term fundamentals by taking advantage of the 2022, 2023 reset in values and potential balance sheet distress.

Speaker 2

In real estate credit, investors are benefiting from the increase in base rates and spreads, creating compelling all in current yields. Amid tightening credit conditions, we note that an increasing number of banks we have exceeded their commercial real estate concentration limits, which is sidelining many conventional lenders. With less competition from banks, particularly regional and local banks, we see this not only as a broader opportunity set, but also the potential we are pleased to build lending relationships with new high quality borrowers with high quality assets. With fewer active lenders, we believe this translates to the ability to structure loans with attractive terms at lower leverage points, a great we will continue to see strong demand tailwinds from a combination of growth in e commerce, reshoring and manufacturing and retailer supply chain reconfiguration. Supply chain resilience is further driving demand for novel logistics solutions, creating opportunities in both coastal gateway and intermodal markets.

Speaker 2

Initiatives like the CHIPS Act have incentivized advanced manufacturing, including battery technology and semiconductors, leading to a rise in real estate investments supporting such industrial activity. Each of these factors highlight the need logistics infrastructure across the U. S. Over the next decade. Despite some near term supply issues in certain markets, we continue to see an undersupply relative demand in the infill gateway markets where we invest, which continues to drive rent growth and opportunity.

Speaker 2

Our private equity secondaries business offers similar opportunity. The overall secondaries market is growing as private markets become increasingly dynamic and complex, driving LP demand for sophisticated liquidity solutions. The global private equity market has raised more than $1,600,000,000,000 of new capital commitments over the past 36 months. This surge in primary investment commitments, along with a significant decrease in exit activity and distributions, we'll create significant opportunities for the secondary market in the coming years. Bridge's team recently launched capital raising and deployment on its 6th we are very pleased with our results and our results are very positive.

Speaker 2

We have deployed meaningful capital across these four core strategies at we will now be conducting a few key strategic opportunities ahead. Residential rental, logistics, credit we are also impacting how investors allocate capital across the industry. The reset of valuation parameters, reluctance on the part of owners to sell assets during volatile times and general market uncertainty have contributed to a slower capital raising environment, particularly for commercial real estate equity strategies. However, significant repricing and a recognition the compelling demand side are starting to capture more attention and we see capital beginning to focus on 2024 allocations to take advantage of dislocated pricing. Against this cautionary backdrop, Bridge raised $303,000,000 of new capital during the Q3 we have a very strong balance sheet across our investment vehicles, including new incremental capital as part of the recapitalization of Multifamily Fund III.

Speaker 2

Year to date, we've raised approximately $1,300,000,000 With our large flagship funds still in their investment periods and not we are actively fundraising. Almost all of the strategies which had closes in 2023 to date were our newer verticals, including ANBS, net lease industrial income, logistics, solar and single family for rent. We also had inflows into our latest Opportunity Zone vehicle. These newer verticals continue to perform well, are in attractive sectors and are starting to achieve scale, which is an encouraging indicator for the future growth of these strategies. As we discussed last quarter, some of our mature strategies reached the necessary thresholds to begin marketing the next vintages heading into 2024.

Speaker 2

The Next Step strategies Vintage will have inflows to AUM in the Q4 of 2023. Workforce and Affordable 2 is now 79% allocated and pre marketing has begun for the successor of Vintage with expectations for a strong reception from our LP base and others, Bridge's secondary strategies did not have a 3rd quarter closing, we will have inflows in the Q4. Our secondary strategy is seeing strong acceptance in the marketplace as the industry broadly continues to grow into its we expect the trend of more limited allocations of capital to persist in the 4th quarter. However, the high level of activity and constructive dialogue with LPs gives us confidence that allocations should start to improve as we enter the New Year. From a sales channel perspective, we continue to maintain a good balance between individual investors and institutional clients.

Speaker 2

Approximately 47% of our investor base today is from individual investors, having raised $8,700,000,000 since inception through the Wealth Channel. This is testament to our strong track record, differentiated platform and high touch approach to client service. As we mentioned on our last earnings call, we are also exploring ways to expand our retail efforts by making certain strategies accessible to accredited investors, thereby broadening our potential investor base. We continue to make good progress on this front. With household wealth estimated at approximately we expect to be approximately $53,000,000,000,000 in North America alone and allocations to alternatives less than 5%, the opportunity for expansion is huge.

Speaker 2

With that, I will turn the call over to Jonathan.

Speaker 4

Thank you, Bob, and good morning. Despite the market volatility experienced in the 3rd quarter, Bridge was more active on the real estate deployment front compared to recent quarters as we closed on several acquisitions at attractive pricing. Industry wide commercial real estate transaction volumes remain at depressed levels as higher interest rates and volatility within the debt capital markets continue to weigh on activity. For the latest Real Capital Analytics data, transaction volume for Q3 was down 51% year over year. In contrast, transaction activity in the secondaries market has been strong as PE secondaries capital is highly sought by LPs seeking liquidity.

Speaker 4

Based on the high levels of activity in this segment, the secondary market is now and will continue to be one of the bright spots for deployment activity. Against this backdrop, Bridge's deployment during the quarter was mostly centered on our credit strategies as well as our previously announced workforce and affordable housing portfolio. Bridge Debt Strategies continue to be an active participant in both the investment and origination of floating rate credit collateralized by multifamily properties and investments into investment grade CRE, CLO and CMBS bonds we are trading at outsized yields, which have represented an extraordinary risk return opportunity. As mentioned, we closed on the Boston workforce portfolio discussed last quarter, which expands our multifamily footprint into an attractive major market. We believe that as the debt market stabilize, values and transaction volumes will improve.

Speaker 4

And in the meantime, we continue to see more opportunities to deploy capital from sellers who need to recover equity from some assets to support liquidity needs elsewhere. Additionally, we are already seeing potential opportunities for 4 sellers that no longer have the ability service the higher cost of debt and the credit distress that is coming from higher rates. With $3,600,000,000 of dry powder and deep and long standing relationships with lenders and owners, we are well positioned to find attractive opportunities in the near term, while the broader market normalizes and regular volumes return. The operating trends in our portfolio properties have moderated, but remain healthy. Multifamily and workforce same store effective rent growth for Q3 increased 4.6% year over year.

Speaker 4

Our apartment communities are benefiting from the effects of a strong labor market on our resident base, though elevated supply pipelines will have near term impacts in certain submarkets. Fundamentals in our latest single family rental portfolio are similarly strong with 9.3% year over year rent growth in Q3. Logistics, which is a growing component of our AUM, we continue to experience historically low vacancy rates. Leasing outperformance continues to drive portfolio returns by exceeding original acquisition underwriting by 24% on a net effective rent basis so far this year. Now turning to investment performance.

Speaker 4

Our equity real estate portfolios were down approximately 1.6% as higher current income was offset by slightly more conservative terminal values and cap rates. Asset pricing continues to be volatile as the rise in interest rates is impacting near term valuations. We have the ability to hold assets through the market volatility and have managed leverage in our funds to make sure that we have sufficient liquidity to operate through the impacts of this rate regime. In our credit strategies, the increase in base rates has supported a strong and growing distribution yield. We are well positioned to manage through a more challenging we are pleased with the market environment with a stable core business of long duration recurring fund management fees.

Speaker 4

Looking back to our IPO 2 years ago, we've grown fee earning AUM by over 102%, which represents a 37% compounded annual growth rate. This strong growth in long tenured AUM provides stable profitability to our business during periods such as now when market disruptions impact the overall commercial real estate transaction volumes and values. Furthermore, we've diversified our business model to having 43% of fee earning AUM in credit and secondaries. This diversification adds to the stability of our company, creating opportunity for a steadier deployment and fundraising over time. Looking ahead, the future earnings power of Bridge will benefit significantly as real estate transaction markets inevitably recover, enabling a more normalized level of deployment.

Speaker 4

With the business on solid footing, underpinned by stable and recurring management fee revenue, a more diversified platform and potential upside drivers to transaction revenue. We look forward to a strong future at Bridge. I will now hand the call over to Katie to discuss our financial results.

Speaker 5

Thank you, Jonathan. Amidst a challenging external operating environment, 3rd quarter earnings improved from the 2nd quarter aided by stronger transaction revenue and realization. Recurring fund management fees increased to $61,500,000 up 1% from last quarter and 20% year over year. Our recurring fund management fees and the growth we've achieved have continued to provide stability to our business. Fee earning AUM increased 31% year over year to $21,800,000,000 and was slightly down from the 2nd quarter, primarily due to a $570,000,000 impact from Workforce Fund II converting its management fee base from committed capital to deployed capital, as we mentioned on our last earnings call.

Speaker 5

Future deployment in this funds and capital raises and deployment in other funds will continue to push the trajectory of this number upward. Over 97% of our fee earning AUM is in long term closed end funds that have no redemption features we expect to be in a weighted average duration of 7 years adding to the foundational stability of our business. Fee related earnings to the operating company were $36,000,000 in the quarter, up 3% from Q2, mostly driven by higher transaction revenue, partially offset by higher compensation expenses and the impacts from the FRE attributable to non controlling interest. The year over year FRE comparison was impacted by lower catch up fees and transaction revenue along with higher comp expense. Given the recent slowdown in general real estate activity as Jonathan discussed, we expect a more muted level of transaction and realization revenue in the near term until capital markets improve.

Speaker 5

On a modeling note, there are typically higher placement agent fees in the 4th quarter due to the timing and when the capital was raised, we expect this amount to be approximately $1,500,000 higher versus Q3. Fee related expenses were $44,400,000 an increase of $2,500,000 compared to last quarter with fee related revenues outpacing this amount, this resulted in margin expansion versus last quarter. We continue to maintain cost we remain confident in the resilience of our business, we also recognize the headwinds that exist in the current backdrop we have taken strategic measures across many business units to drive efficiency and effectiveness in our organization. This has included reallocating resources to support key priorities. We have also offered certain tasks and centralized property accounting teams as we continue to carefully manage expenses and seek to be good stewards of capital.

Speaker 5

This is all being balanced with rewarding good performance and a focus on retaining key talent within the organization. Distributable earnings to the operating company for the Q4 were $40,800,000 with after tax DE per share of $0.22 an increase of 10% from Q2, mostly driven by the increase in realizations during the quarter. This included $14,700,000 performance fees from our successful closing of the approximate $550,000,000 recapitalization of we are pleased to take our cash flow through the balance sheet and cash flow through the balance sheet and cash flow through the quarter. We are proud of the success this fund has achieved and the attractive returns we have delivered to our investors, while also extending the duration for these assets by 5 years. Realization for the quarter also included tax distributions within debt strategies.

Speaker 5

Unrealized care for the quarter we will be conducting a reconciliation and tax distribution just discussed. Since our IPO in 2021, our accrued carry has increased 53% And we are well positioned for additional increases as markets stabilize and potentially rebound. As we discussed on our prior earnings call, we collapsed the 2021 profits interest program on July 1. This was the last of our planned legacy profit interest collapses for the foreseeable future. This resulted in an increase to the diluted share count of 2,900,000 shares, which is offset by lower non controlling interest going forward, such that the overall transaction should be accretive for Public shareholders.

Speaker 5

Our long term capital and asset light balance sheet model position us well to navigate we remain confident in Bridge's long term vision and strategy for success. With that, I would now like to open the call for questions.

Operator

A confirmation tone will indicate your line is in the question for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star thank you. Our first question comes from the line of Michael Cyprys with Morgan Stanley. Please proceed with your question.

Speaker 6

Hi, good morning. Thanks for taking the question. Wanted to ask on real estate debt, just given, Bob, some of the challenges you alluded to in your prepared remarks, I was hoping we could come back to that just in terms of the challenges facing Banks new capital rules that are coming down the pipe as well. How do you see this impacting banks' participation in the CRE marketplace? How do you see the implications to the broader market and CRE playing out as you look out over the next couple of years?

Speaker 6

And maybe you could talk to some Of the opportunity sets that you see for Bridge, what's most compelling for Bridge might be able to step in? And maybe talk some of the steps that you might take over the next 12 months to 24 months to either expand your capability set or to best capitalize on the opportunities set here on the commercial real estate debt side.

Speaker 7

Thanks, Michael. That's a very insightful and complicated question. And you're right in saying that there are implications, both positive implications for our existing debt business. We think very positive implications, as well as some challenges as it relates to providing leverage for real estate assets that we and others might acquire. The banking sector overall and particularly the regional and local banks have stepped we're back meaningfully from lending against real estate that's been evident in terms of construction lending, it's in terms of acquisition, finance, etcetera, not fully out of the market, but the overall Attitude waxes and wanes depending on the sector, depending on the particular bank, etcetera.

Speaker 7

We think on the positive side, that represents great opportunity for us in our fixed our we've had a long and successful track record lending mostly against multifamily assets with some increments from there Since our first investment vehicle in 2014 and that opportunity set continues to expand, we're in a great position, we think, at this point, both as an industry and as an individual manager. Base rates are high, spreads have remained quite wide, terms, which are always individually determined with in negotiations generally are way more negotiable than they were in the past, and covenants are strong. So unlike some sectors of private credit, the opportunity in private real we think is very strong as we look forward into 2024 and beyond. We're starting to see more transaction volume, which provides the fundamentals to make loans, and we think we're really well positioned to create compelling returns in that sector. The flip side of that, as your question suggests, it is that it's harder to achieve the desired capital structure when you when one acquires assets.

Speaker 7

And that's true to a degree, there are a couple of mitigating The fact that the banking sector broadly defined is less enthusiastic about commercial real estate lending is a fact. There are, in addition to our vehicle, other credit real estate credit vehicles that Have stepped into some of that breach just by note, we never lend from our debt vehicle to our equity vehicles, but others do. And so there's been some stepping into that breach. The other factor is at current values, leverage is way less important than it was during the extended period of low rates and leverage is for the most part neutral for transactions at this point, so the desire and need for leverage is down from what it was when rates were low, we think that not to plug Bridge too much, But we think that our forward integration into property management is more critical than ever in terms of creating alpha at the asset level, and we're seeing that in the operating metrics that we're able to post in the assets that we own and operate and focus on the minutiae of every day. Sorry for the long answer, but it was an insightful and several part question.

Speaker 6

Great. And then if I could just a follow-up question on fundraising, specifically for debt strategies. Maybe you could just update us which debt strategies you have in the market that you're raising right now, which may enter into the market and raise as you look out over the next 12 months across your real estate debt strategies and then what new strategies and adjacencies might make sense to be able to extend into over time?

Speaker 7

We generally have reentered the market every 2 years or so with our debt strategies vehicles, we had a 2014 vintage, 2016, 2018, 2020 and we are in the very early stages of Raising capital for the Debt Strategies Fund V Vehicle. We think that we have a time tested approach to investing with a singular focus on the multifamily sector in the U. S, it's a sector that has strong tailwinds we have expanded our fixed income focus. We have an AMBS oriented investment strategy. We have a net lease income oriented investment strategy as well.

Speaker 7

And there is probably additional white space That we can potentially capture going forward. From a broader basis, we have grown to where we are today by finding adjacencies and investing into those adjacencies, we have enunciated a number of times oriented suite of vehicles as well. I think from our perspective, the true mass affluent retail space is a beneficiary of a couple of things. The fact that there's under penetration of alts In the Accredited Investor space and like some aspects of life sometimes being the pioneer is not necessarily the best way to structure things and we can stand on the shoulders of all the learning that's happened from others who have entered the mass affluent space with sophisticated structures and approach and Hopefully, a highly differentiated suite of products.

Speaker 6

Great. Thank you.

Speaker 7

Thanks for the two questions.

Operator

Thank you. Our next question comes from the line of Finian Osei with Wells Fargo Securities. Please proceed with your question.

Speaker 8

Hi, everyone. Good morning and thank you. A question on the transaction revenue improvement this quarter, it sounded like a lot of the deployment was out of the debt and secondary strategies, which we would think Entail less of those fees, correct me if I'm wrong. Was it otherwise something like the Boston Multifamily deal being outsized

Speaker 7

Jonathan, do you want to handle that?

Speaker 4

Yes. It was there was a significant amount of fees that were driven by the Boston portfolio is a sizable portfolio and we did have some other modest multifamily deployment as you might have seen. So those were the primary drivers. We continue to have a significant amount of work that was done in refinancing and restructuring debt There's some modest fees that come from that sort of transaction work, but you are correct. There's no transaction fees oriented With the secondary business and the debt business, generally speaking, doesn't have any significant deployment DD fees.

Speaker 8

Okay. Thank you. And just a higher level question on the active rates against your flagship real estate equity strategies. Are you needing to put more money into your deals to soften those pressures or retain refinancing? And how does the maturity profile look like at this point for the borrowings against your positions in real estate?

Speaker 4

Yes. I'm happy.

Speaker 7

Go ahead, Jonathan. I'd like to add something, but you should go first.

Speaker 4

You want to jump in 1st, Bob?

Speaker 7

No, no. Well, I was sure. What I was going to say is that the from a broad perspective, I think that Bridge's philosophy related to leverage has been quite straightforward. We have in the past used leverage, primarily just senior leverage to create a capital structure for our assets. And we intentionally over the course of the last decade plus have not sought to push the edge of the envelope as it relates to using leverage it works when it does and it comes back to really hurt you when it doesn't and we're not in that position.

Speaker 7

Having said that, of course, the rapid rise in rates has created stresses. Those stresses are for mild in some sectors and more intense in other sectors and we've taken a we've done a great deal of work to make sure we recognize where those stresses are and that we address those stresses with preemptive actions to make sure that our Assets are safe and secure. And maybe with that comment about philosophy, Jonathan, you could dive into some of the details.

Speaker 4

Well, I mean, I think I honestly think you covered things pretty well. I mean, we we very, very assiduously track our maturities. We it's a constant review of our overall portfolio situation to try to keep any loan maturities or any near term financing issues at bay, we get ahead of it, make sure everything is structured right and make sure that we have the extensions taken care of. So we feel very confident about the current liquidity in our funds. We continue again as I said to actively that one of the benefits of our vertical integration is that we have an internal debt team that spends 100% of its time with all of the lending relationships, both private and bank and agency relationships making sure that we have our credit side covered.

Speaker 4

So we're in a very strong position with respect to liquidity and have high degree of confidence in terms of your question about whether or not we're Rebalancing or using incremental equity, I think right now is a time as Bob alluded to where the credit is actually non accretive in many cases. So we've always been focused on trying to drive the appropriate balance of how much leverage to have and now is a time when less leverage is better. So we are delevering some of our portfolios at the right with the right balance in mind.

Speaker 3

Thanks so much.

Speaker 7

Thanks for the question.

Operator

Thank you. Our next question comes from Ken Worthington with JPMorgan, please proceed with your question.

Speaker 3

Hi, good morning and thanks for taking the question. I've got a couple around the conversion to the continuation fund. So maybe first, what was the impact of the conversion on 3Q deployment? 2nd, can you talk about the economics of the conversion to Bridge and how fee and carry rates compare between Fund 3 and then the conversion fund as we look forward. And then The continuation fund raised new capital.

Speaker 3

What is the appetite that you're seeing from investors to contribute new capital to continuation funds maybe broadly and do you see more opportunity for more conversion funds in your portfolio, if the environment remains kind of challenging as it is today. So thanks for all.

Speaker 7

Jonathan, do you want to talk through the metrics of the Fund III continuation vehicle and then perhaps we can both share some comments on the overall environment for continuation funds.

Speaker 4

Actually, I'm going to let Katie give some of the specific numbers that are actually in the financials, so I don't get any of those wrong. I think she has them up. So I'll let her give the answer, so I don't give you round numbers. But before I do, I will say that I think you understand the logic that, that fund was not only at the end, but beyond the end, it was in its first extension period. And we had a development asset and a handful, I think it was 3 to be exact, assets that were in Fund 3 that we felt were not in their optimal position to realize.

Speaker 4

We all know that the market conditions are not super attractive to exit assets, but the assets that have had the best success in achieving a realization have been the assets that have been In extremely strong positions, which these were not. So rather than asking the Fund III investors to continue with longer extensions and putting more capital into these assets, we created the option for them of staying in and continuing or taking the capital that they had. And I would point out that people received basically a 2x multiple And approximately a 20 IRR, so it was a very successful vehicle and about 90% of the people opted To take the capital and redeploy it into hopefully other bridge funds, but into other things. So Katie, you can give the exact metrics perhaps.

Speaker 5

So for capital raising included in our Q3 total $200,000,000 was related to the continuation vehicle And $173,000,000 was related to the recap or deployment.

Speaker 3

Right. Okay. So both those numbers were in deployment? From the

Speaker 5

$200,000,000 in capital raise and $173,000,000 in deployment.

Speaker 7

Okay. Thank you. And to the point about appetite for continuation funds and the use of the continuation fund structure as a path to monetization. We approach all of our funds with a common philosophy that it's our fiduciary duty to achieve the best results for investors. We felt At the time that we completed the continuation fund for Multifamily Fund III that it was a tougher market in which to sell assets.

Speaker 7

We didn't want to be misinterpreted as a motivated Or seller who had to sell assets, we felt in assessing all the alternatives that the continuation vehicle, as Jonathan said, provided both optionality for the investors, a very positive result if they chose to monetize and a really attractive outlook if they chose to roll And continue to so it seemed to tick all the boxes. Our continuation funds the best tool in all environments, Probably not, but are they a useful tool to have in the toolbox as we look to create Optimal value for investors, they're a good tool to have.

Speaker 3

Okay. And then lastly, the economics is are the economics Meaningfully different between the continuation fund and Multifam 3?

Speaker 7

I think in part it It depends on how you look at it. There's a 5 year extended term. So the fact that we're continuing to manage the assets for 5 years is a positive. The economics are not exactly equivalent to fund economics. They're for the most part lower than fund economics, but not inconsistent with the economics that one would get from a large institutional investor, which is really the characterization of the capital that came in to fund the continuation vehicle.

Speaker 3

Okay. Thank you for bearing with me on all those questions. I appreciate it.

Speaker 7

It's important from a modeling perspective. We know that.

Operator

Thank you. There are no further questions at this time. I'd like to turn the floor back over to Robert for closing comments.

Speaker 7

Great. Thank you, operator, and thank you all for your time and attention this morning, we leave the Q3 and enter the Q4 with a great deal of anticipation, we think that unlike some markets around the world, the real estate markets, particularly in the U. S. Have adjusted to a higher interest rate environment. As we said in our prepared remarks, we're beginning to see meaningful green shoots that are sprouting up, both on the transaction as well as on the capital raising side, we think that Bridge is well positioned to navigate through a continuing Market volatility and hopefully be able to capture some of those opportunities as they manifest and we appreciate all your support

Operator

this concludes today's teleconference. You may disconnect your lines at this time.

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Key Takeaways

  • Q3 results: Reported a GAAP net loss of $17.9 M, distributable earnings of $40.8 M ($0.22/share), and declared a $0.17 dividend.
  • Market outlook: Robust U.S. GDP growth, strong labor market and decelerating core inflation support a potential pause or cut in interest rates, while commercial real estate cap rates have reset to attractive entry points.
  • Strategic deployment focuses on residential rental, real estate credit and logistics to capture value from demographic tailwinds, reshoring incentives and supply chain reconfiguration.
  • Fundraising momentum: Raised $303 M in Q3 and $1.3 B YTD, with strong demand for new verticals like net-lease industrial, single-family rental and opportunity-zone funds, plus a $200 M Fund III continuation vehicle.
  • Diversified, recurring revenue: Fee-earning AUM rose 31% y/y to $21.8 B, with management fees up 20% and 43% of AUM in credit and secondaries, bolstering stable, long-duration fee income.
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Earnings Conference Call
Bridge Investment Group Q3 2023
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