Bridge Investment Group Holdings Inc. (NYSE:BRDG) Q4 2023 Earnings Call Transcript

Bridge Investment Group Holdings Inc. (NYSE:BRDG) Q4 2023 Earnings Call Transcript February 22, 2024

Bridge Investment Group Holdings Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings, and welcome to the Bridge Investment Group’s 4Q 2023 and Full Year 2023 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. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bonni Rosen, Director of Shareholder Relations. Thank you, Bonni. You may begin.

Bonni Rosen: Good morning, everyone. Welcome to the Bridge Investment Group conference call to review our fourth quarter and full year 2023 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&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. 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-K. 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.bridgeig.com. These slides can be found under the Presentations portion of the site along with the fourth quarter earnings call of that 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 GAAP net income to the company for the fourth quarter of 2023 of approximately $700,000. On a basic and diluted basis, net loss attributable to Bridge per share of Class A common stock was $0.20, mostly due to changes in non-cash items. Distributable earnings of the operating company were $25.3 million or $0.14 per share after tax, and our Board of Directors declared a dividend of $0.07 per share which will be paid to shareholders of record as of March 8.

It is now my pleasure to turn the call over to Bob.

Robert Morse: Thank you, Bonni, and good morning to all. Despite difficult fourth quarter results impacted by low transaction volumes as asset prices continued to reset and modest year-end capital raising activity, Bridge continues to have a resilient business with a distinctive confidence in targeted real estate, credit and secondary strategies. Even with challenging financial results for the fourth quarter, our yearly results and outlook for 2024 present a brighter perspective. On a general basis, projected growth for alternatives, broadly defined, remains strong. The Bridge brand continues to grow globally, and the discipline we practiced in 2023 serves us well as a patient and capable steward of capital. Financially, for the full year, our fee earning AUM increased 25% year-over-year to $21.7 billion, and recurring management fees increased 18% to $228 million.

The Federal Reserve’s recent actions and announcements, including an appearance by Jay Powell [ph] on 60 minutes, highlight how 2024 should represent a pivot point to interest rate cuts, which in our view has meaningfully positive implications for real assets, transaction markets and the broader private markets ecosystem. While rates may be slow to decline, they are likely headed in a more constructive direction with respect to asset pricing in a departure from the past 18 months. We believe our patience over the last couple of years has been warranted and rewarded, and further believe that now is the time to lean in on attractive values. As an example, we are seeing quality value-add residential rental assets, in some cases priced at 6% plus cap rates.

As difficult as cap rate expansion has been in our portfolios, this has been meaningfully offset by improved operating metrics. Today, we believe the generational opportunity to acquire at attractive entry prices is compelling. While transaction volumes broadly have not yet recovered, we are seeing signs of optimism, with bid-ask spreads narrowing and seller reluctance giving way to seller capitulation. With $3.4 billion of dry powder, we believe now is the time to start wading back into the water. Our recently published 2024 outlook, called Navigating the Curve, outlines our perspective and provides details on why we feel so strongly about investing in the areas where Bridge has developed distinctive competencies. We see this cycle of opportunities across many sectors of real estate equity, private credit and private equity secondaries.

With this as a backdrop, Bridge’s selected areas of focus residential rental, logistics, private real estate credit and secondaries are poised to outperform. First, the residential rental sector, a core area for Bridge, continues to experience robust long-term secular growth drivers. The interplay between chronically low supply growth and durable demographic tailwinds has created a persistent imbalance that is expected to propel rent growth. While certain markets experienced overbuilding during the pandemic, near-term supply pipelines have begun to wane due to higher development costs and lower availability of construction debt and equity capital. With the long-term investment thesis intact in residential rental housing, our platforms and strategies have a generational opportunity to capitalize on cyclically lower asset values with the ability to further drive above average returns from select distressed situations.

Of course, navigating markets, submarkets, asset characteristics and other criteria is neither easy nor straightforward, and optimizing what one acquires or develops takes focus and expertise. Our specialized teams bring these capabilities to every transaction from first look to final disposition. In real estate credit, we are equally bullish. We see continued demand for real estate credit in an increasingly bifurcated marketplace. Regional and local bank lenders are effectively out of the markets. JPMorgan’s Jamie Dimon has stated that private debt funds should be “dancing in the Streets.” And although we are showing some more restraint, we see enormous opportunity to provide critical capital to asset owners at pricing terms and covenants that are attractive.

With the market options narrowed for borrowers, private credit providers like Bridge [ph] in a prime position to be selective, attracting high quality borrowers under favorable terms. Our historical focus on residential rental lending has the added benefit of strong collateral to protect principal. Logistics real estate strategies continue to see strong fundamentals. The sector has experienced robust demand tailwinds over the past decade, and we anticipate these will persist with sustained e-commerce growth, global trade alignment, onshoring and the growth in business inventories. Each of these factors highlight the need for logistics infrastructure across the U.S. over the next decade. Given the sea change in interest rates, with valuations down and increased pressures to create liquidity for some asset owners, we anticipate seeing increased opportunities for acquisitions at compelling discounts to replacement costs.

Of course, like residential rental, where one invests is critically important. We feel on the ground teams in the most attractive markets, notably Southern California, New York, New Jersey, South Florida and Dallas-Fort Worth, and we source much of our deal flow off market. Similarly, our private equity secondaries business is also experiencing powerful tailwinds. The overall secondaries market is growing as private markets become increasingly dynamic and complex, driving LP demand for sophisticated liquidity solutions. The surge in primary investment commitments over the past several years, along with a significant decrease in exit activity and distributions, we will create meaningful opportunities for the secondary market in the coming years.

Real estate capital raising was challenged in 2023 for Bridge and the industry in general, characterized by a reset of valuation parameters, muted transaction activity, and general market uncertainty. Against this backdrop, Bridge raised 334 million of new capital in the fourth quarter and $1.6 billion for the full year 2023. For most of 2023, our large flagship funds were in their investment periods and therefore not actively fundraising. This has changed for 2024. In the fourth quarter of 2023, we held an initial close for our latest debt strategies vehicle, and we will be actively fundraising for this vehicle throughout 2024. In addition, 2024 capital raising activities will include vehicles from our other four horsemen, including the next vintage of our acclaimed workforce and affordable housing strategy, the continued marketing of the current vehicle in our Newbury Partners secondary strategy, and the current vintage of our logistics value-add strategy.

Although these strategies will represent the bulk of capital raising focus, we have other attractive vehicles and initiatives to further drive our business and evolution. Bridge wrapped up our first year with our secondaries team and we are excited about the long-term prospects for this strategy. 2023 for this strategy was largely focused on integrating new business under the Bridge umbrella. We are seeing encouraging capital raising activity with repeat Newbury investors and expect 2024 to be successful from both a fundraising and deployment perspective. Looking forward, we are seeing a major shift in sentiment from LPs looking to allocate capital in 2024 versus 2023. Our capital raising teams are averaging 50 plus meetings per week, which is up materially from last year.

In addition, this heightened level of client interaction has progressed LP due diligence processes across multiple Bridge products, including an increase in cross-selling activity. Based on the pipeline we see today, we expect the fundraising trend experienced in the fourth quarter to persist in the first quarter. However, the high level of activity and constructive dialogue with LPs gives us confidence that inflow should improve over the course of the year. We have continued to invest in and expand our capital raising organization. We’re adding sales coverage personnel based in Dubai to deepen our coverage in the Middle East and to enable more focus on Continental Europe and Scandinavia. We will continue to invest in capital raising both in international markets as well as in the U.S. Over the last year, we have added both senior and junior talent to focus on growing and servicing our large institutional and wealth platform coverage, as well as to add true accredited investor retail coverage.

One early 2024 bright spot our wealth platform, which already counts most of the major wealth management platforms as distributors, has added yet another in the first quarter. This new relationship has added our current opportunity zone vehicle to their client offering. We’re looking forward to pursuing the prospects of additional business with them in the future. As we have discussed on previous earnings calls, we have been exploring ways to expand our retail capital raising efforts by making certain strategies accessible to accredited investors, thereby broadening our potential investor base. We launched an accredited investor focused product within our net lease industrial income strategy earlier this year. Since inception in 2021, the Bridge net lease industrial income team has invested more than $700 million into industrial net lease properties, including sale leasebacks and built-to-suit development projects.

The combination of the attractiveness of the industrial sector along with the consistent income generation and inflation, hedging attributes will be more attractive to this new constituency. With household wealth estimated in excess of $50 trillion in North America alone and the allocations to alternatives less than 5%, the total addressable market is enormous and growing rapidly. We expect in the future to add additional retail vehicles, which offer specialized exposure to areas in which Bridge has demonstrated competitive expertise. With that, I will turn the call over to Jonathan.

Jonathan Slager: Thank you, Bob, and good morning. In the fourth quarter, 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, industry transaction volume for 2023 was down 50% year-over-year, the sharpest year-over-year decline since 2009. The experience from our investment teams in Q4 confirmed that data as bid-ask spreads remained wide and deals were challenging to consummate. With the significant reset in asset pricing and strong long-term demand drivers particularly for residential and logistics real estate, we believe the cost basis for properties acquired in 2024 will look attractive in years to come.

We believe there will be both opportunity and some choppiness in valuation resetting as sales stimulated by interest rate induced liquidity issues hit the market over the coming months. We also see a slowing in operating trends for certain submarkets with near-term supply issues, but most of these continue to be high growth market where we expect recovery. With interest rates now reaching their peak and poised to decline and given the scale of dry powder in both equity and debt markets for commercial real estate, we anticipate macroeconomic trends to become a tailwind in helping market prices recover and transaction volumes rebound to pre-pandemic levels. Even though it will take time, the building blocks for a real estate resurgence are becoming evident.

Against this backdrop, Bridge’s deployment during the quarter was mostly centered on our Opportunity Zone, Credit and Secondary Strategies. While transaction activity remains muted, our pipelines are beginning to build and we have $461 million of equity deployment under our control and subject to due-diligence. While we are encouraged by the increased level of deal sourcing, our pipelines remain well below normal activity levels with $3.4 billion of dry powder and deep and long standing relationships with lenders and owners, we are well positioned to find attractive opportunities as the broader market normalizes. With the exception of office, the operating trends in most of our property portfolios remains healthy though they may have moderated from their peak levels.

Bridge’s vertical integration and operational focus continues to drive results. Multifamily and workforce same-store effective rent growth for Q4 increased 2.2% year-over-year. Our apartment communities are benefiting from the effects of a strong labor market on our resident base, though levels of supply pipelines will have near-term impacts in certain submarkets. Single-family rental has been a standout from a performance perspective. Fundamentals in our latest single-family rental portfolio are strong; with the 7% year-over-year rent growth in Q4 and over 9% in 2023 as a whole. Investor interest in the sector has rebounded with several large scale transactions announced recently, including an M&A deal and improved debt financing markets. In our logistics vertical, the portfolio continues to experience historically low vacancy rates, aided by continued supply demand imbalance, supported by ecommerce based demands.

Like multifamily there have been some markets that experience high deliveries, but most of them are not submarkets we invest in and overall occupancies remain at historically high levels in the industrial market. Leasing outperformance continues to drive portfolio returns, with Bridge’s portfolio net effective rent exceeding original acquisition underwriting by 25% in 2023. Now, turning to investment performance. Excluding office our equity real estate portfolios were down approximately 3% in Q4 and 5.1% in 2023 as a whole, as higher current income was offset by slightly more conservative terminal values and cap rates. The fourth quarter was characterized by continued uncertainty over asset values in the marketplace as persistent interest rate volatility weighed on price discovery.

As holders of assets and closed end funds with long fund durations, we have the wherewithal to withstand short-term capital markets volatility as we focus on improving operations at the property level to maximize future exit values. In our credit strategies the increase in base rates has supported a strong distribution yield. Looking ahead, the future earnings of Bridge will benefit significantly as real estate transaction markets inevitably recover. I’ll now turn the call over to Katie.

Katie Elsnab: Thank you, Jonathan. Bridge delivered resilient performance for 2023 amidst a challenging external operating environment. Recurring fund management fees increased 18% year-over -year and Fee-Earning AUM increased 25% year-over-year to $21.7 billion, aided by the acquisition of our secondary business. Fund management fees in Q4 were negatively impacted by a $5.7 million write-off related to Office Fund I fees deemed uncollectible. Management fee revenue was also lower due to the timing of higher placement agency that were noted on last quarter’s earning call. Adjusted for the prior period office write-offs, management fees would have been $60.7 million. The headwinds in the office sector have been well documented across the industry.

By the end of 2023, Office Fund I was unable to align with a significant portion of its lenders on a restructuring plan. Market conditions have deteriorated further such that it is unlikely that we can create needed liquidity with additional asset sales or incremental equity infusions. Discussions with lenders also continue to be inconclusive, which has led us to assume that we can no longer expect to collect management fees for Fund I. While market conditions have limited our options in the near-term we will continue to work closely and cooperatively with our lenders and pursue any avenues for positive outcomes for our investors. Going forward, we do not expect to recognize further management fee revenue on Office Fund I. As such, recurring fund management fees from the office vertical will decrease from approximately $2.3 million in Q3 or 3.7% of recurring fund management fees to approximately $729,000 a quarter, or 1.2% of recurring fund management fees.

This will continue to be less meaningful as other parts of our business grow. From a Fee-Earning AUM perspective, Office Fund I was small at 2%. Additionally, our balance sheet commitment to Fund I is comprised entirely of an unsecured loan to the fund for $15 million, which generated approximately $711,000 of interest income during 2023 and is included as a receivable on the balance sheet. Based upon the equity in the fund, the loan is collectible as of December 31, 2023. However, if conditions in the office sector do not improve, the recoverability of the loan is uncertain. Office Fund II, which was generally invested at a more favorable vintage during the pandemic at current market valuations, has positive performance in spite of market headwinds within the office sector.

While the assets are performing relatively well operationally, if the current market conditions continue into 2025, the fund may be constrained by limited liquidity. Our Fee-Earning AUM exposure to Office Fund II is small with Fee-Earning AUM of $184 million representing just under 1%. Our balance sheet commitment to Office Fund II is comprised of a GP equity commitment of $15 million and a $13 million unsecured loan to the fund, which generates $565,000 of annual interest income; we continue to recognize interest income on this loan. While we remain committed to protecting investor capital in the office vertical, the vast majority of our AUM and profitability has been in our other real estate equity and credit and secondary strategies. Moving further in our results, Fee-Earning AUM decreased slightly by $75 million from last quarter, primarily due to a $461 million decrease in Fee-Earning AUM related to Bridge Office Fund I, partially offset by inflows which Bob described earlier.

Over 97% of our Fee-Earning AUM is in long-term closed in funds that have no redemption features and a weighted average duration of 6.8 years. Fee related earnings to the operating company were $28.5 million in the quarter, down $7.5 million from Q3, mostly driven by the impact of Office Fund I and lower transaction revenue and partially offset by lower fee related expenses. The lower fee related expenses were impacted by the slower operating environment during the quarter. While the organization remains disciplined on expense management, we would expect an increase to fee related expenses more in line with inflation to begin the year. While Jonathan noted that we think transaction activity is beginning to pick-up that will take time before we start to see a material financial impact.

As such, we expect a more muted level of transaction revenue in the near-term. Fee related margins will continue to be impacted to the extent we have lower transaction catch-up fees. As transaction and capital raising volumes normalize, you will see a movement of our margins towards our longer term average of 50%. Distributable earnings to the operating company for the quarter were $25.3 million with after tax DE per share of $0.14, a decrease of $0.085 from last quarter, mostly due to the items discussed previously. $0.03 from Office Fund I impacts, $0.03 in lower transaction fees and $0.03 in lower net realizations offset by lower fee related expense of $0.015. Realizations for the quarter were mostly comprised of tax distributions within the debt strategies.

Realization revenue in the near-term is expected to remain subdued. However, we are well positioned for an eventual acceleration in the context of improving liquidity in the real estate transaction markets. Net accrued performance revenue on the balance sheet stands at $382 million. Net insurance income decreased during the quarter related to new stop loss policies that have claims front loaded during the contract period, which runs from June to June. Finally, our Board of Directors declared a dividend of $0.07 per share payable to shareholders of record on March 8th. This dividend represents a lower percentage of our distributable earnings than in previous quarters, and their retained cash will allow us to invest in our business and strengthen our balance sheet.

With that, I’d like to now open the call for questions.

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Q&A Session

Operator: Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of Chuma McCoy [ph] with Morgan Stanley. Please proceed with your question.

Unidentified Analyst: Hey, good morning. Thanks for taking the question. It’s [indiscernible] here from Morgan Stanley, standing in for Michael Cyprys. Just a quick question on your access to financing, just interested in some of the comments you made about inconclusive conversations with the banks. So just remind us how reliant you are on bank financing, generally speaking across the business? And how are those relationships now relative to, say, a year ago and what sort of conversations are you having with your banking partners? And how difference is that by strategy, or how do you characterize that across the board?

Robert Morse: Good morning, Chuma. Thank you. Thank you for the question. This is Bob Morse speaking and I’ll start out, Katie I’m sure will have some comments as well. That’s a complex question in an evolving marketplace. I think in general our relationship with our leveraged providers, broadly defined are quite good. There are multiple elements of that. We have some term leverage at our public company level with a number of insurance companies, and those relationships, of course, remain strong. We have a line of credit as well. At the asset level we finance with a variety of sources, and the fund level we finance our residential rental assets primarily with agencies Fannie and Freddie, and they are open for business. Actually, their pipelines are not terribly large and their appetite is strong, particularly on the workforce and affordable housing side, where it’s a priority for them as well as for us to finance workforce and affordable housing assets and capacity.

Across our other verticals, we rely on a variety of lenders, some agency, some securitization markets, some direct lending with different banks, local banks, regional banks, some debt funds, et cetera. And in general, the market is returning to some health at this point. It’s very different depending on the strategy. The amount of appetite for office assets is pretty low, quite low. The appetite for logistics assets, residential rental assets, the financing vehicle we have in place for our net lease activities is quite strong as well. We’ve worked hard over the years to create a diverse and robust universe of lenders across the different parts of the business that we pursue. And those relationships have certainly paid dividends in the more difficult times of 2022 and 2023.

Like many markets, and like our remarks suggested, the financing markets seem to be on a path towards more normalization. At this point, we’re seeing some lenders who actually are professing an increased appetite to increase exposure with us and undoubtedly with others, as well as markets normalize. Katie, would you add anything to that?

Katie Elsnab: The only thing I think that I would add is that we do have relationships with – lending relationships with almost 40 financial institutions. And related to that, we pride ourselves in making sure that we communicate clearly and accurately to our investors, and we try to be very good lending partners, and we work very well with them.

Unidentified Analyst: Excellent. Thank you both for the color there. And as a follow-up, just want to turn to fundraising. I hear you on the Q1 will be a bit lighter, and then you should expect that to pick up as you go through the year. Just curious, how would you characterize the total quantum of fundraising you’re expecting for 2024? I guess in the context of either the sort of $4 billion to $5 billion range you did in 2021 and 2022, understanding, of course that you had multifamily, your flagship in the market for that period. So just curious, how should we think about that relative to the call it just under $2 billion you did for 2023. How should we think about 2024?

Jonathan Slager: $2 billion for 2023 was a struggle, it was a struggle as we said because the markets were not terribly interested in real estate at that point, and the funds that we had on offer, the vehicles that we had on offer were not necessarily our flagship vehicles. We’ve entered 2024 with a lineup of investment vehicles that are later in their series, well performing, popular et cetera. We think that the fundraising market has improved as the calendar page has turned, and certainly that is reflected in the amount of dialogue that we’ve been having. It’s also a product of the investments that we’ve made in our Client Solutions Group, both domestically as well as non-U.S. in a lot of respects. We have high aspirations in terms of fundraising for 2024 and beyond.

We think that our funds – we think that our investment vehicles offer great opportunity and have residence across the suite of investor sectors if you will. We referenced the continued interest and pursuit of a retail investment vehicle, and that obviously would represent a significant expansion of the potential investor base as well. So while we don’t necessarily guide the future in terms of what we’ve accomplished in the past we certainly don’t look at the past as a limit to what we can do in the future.

Unidentified Analyst: Thank you very much. Go back in the queue.

Operator: Thank you. Our next question comes from the line of Finian O’Shea with Wells Fargo Securities. Please proceed with your question.

Finian O’Shea: Hey, everyone. Thanks and good morning. So, first question on the Office Fund. Appreciate your color there, but a lot of value went away quickly, and it sounds like this is still a risk without an improvement in liquidity conditions as you’ve cited. Does this mean that the bid-ask spread is just still really wide? And if so, are you able to get sort of in front of the wall here to preserve value through refinancing or secondaries capital or so forth, even if that feels a little bit more painful today? And then on a follow-up there in terms of how idiosyncratic or one-off this event hopefully was, are there enough other situations that give you comfort where you’ve say, received maturity extensions or found refinancing capital? Or was this kind of the first test against a larger financing wall? Thank you.

Robert Morse: Thanks, Finian. And Jonathan, do you want to – do you want to tackle that question?

Jonathan Slager: Yes. Happy to. And thanks for the question. I’m going to clarify that with respect to the bulk of our portfolios, which is non-Office, so industrial/logistics and multifamily and other residential, that we have significant liquidity. We have – there’s – there’s no concern with respect to our ability to manage our liquidity in those portfolios. With respect to Office in particular, Office is in a very unique situation where almost overnight it went from a circumstance where there was continued activity, liquidity both on the debt and the equity markets, to where the markets just basically seized up. And as a result I think both lenders and equity investors have been trying to figure out how to proceed and what the market should be.

And what was unique about Fund I was that it was literally in its sort of harvest period, where it had maturities in a lot of the debt was structured so that it would mature. At the time we were liquidating the assets, the time we were liquidating the assets was just as the market was just completely seizing up. And so in a normal circumstance, you would be liquidating strong assets where you had significant equity value that would create liquidity to restructure, refinance anything that needed to be done to extend it. But when you’re in a situation where there’s neither equity nor debt liquidity, and the lenders are unclear. And I think what we were alluding to with respect to Fund I was that the lenders have just been unwilling to give us feedback or provide us with enough guidance to be able to structure anything.

And so we’re sitting here, kind of as these loans continue to mount in a situation where we don’t know how that proceeds and the equity continues to erode in that fund. And so that’s why we’ve made the difficult decisions that we’ve made. We think that we’ve pretty much taken most of the issues that we’re going to take now with respect to Fund II, which is a much smaller fund and a really small part of our continuing, ongoing AUM as a business. Sure, there’s a possibility that if the market doesn’t – on the office side if the market doesn’t clear and we don’t start to see more sources of capital, either equity or debt or a combination thereon, that, yeah, that could start to be a problem with respect to that. But again, as that relates to Bridge Investment Group or BRDG, it’s a relatively small item.

As it relates to our reputation with our LPs, it’s very important, and so we’re working really hard to do everything we can. But as Bob said, we’ve continued to be super transparent. Everybody’s seen the effort. We’re continuing to be committed to doing everything we can to return capital to LPs and to support our bank and lending relationships, which seem to have survived really well because they’re all very understanding of this larger problem. It’s not a Bridge problem, it’s a larger problem in the office market overall.

Katie Elsnab: Thanks, Jonathan. I think one other thing that’s helpful to add, if you look at Bridge and exclude the Office assets, we have less than 10% of our loans maturing in the next 12 months.

Finian O’Shea: Very helpful. Thank you both. And just to follow-up, I guess on the broader portfolio or the core multifamily business lines, you’ve generally described your strategy as value-add, which to our understanding can be more light or more heavy, but translates to a lower cash flowing issuer profile. You’re putting money into reservations and then you’re dependent on the output of higher achieved rents after executing the plan. Correct me if I’m wrong. So how are you navigating the market liquidity headwind? Specifically, are cash constraints at the property level stalling your value-add plan execution and our exit rent expectations holding up to underwriting? Thank you.

Robert Morse: The last part was you asked, just so I can clarify, Finian, did you ask about the exit plan expectations generally? Is that what you…

Finian O’Shea: Yes. So just – mainly are you able to enact your value-add plan?

Robert Morse: Yes.

Finian O’Shea: And as – okay, thank you.

Robert Morse: Yes. We have a very robust, and part of what I think distinguishes Bridge is its integration between its asset management and its property management on the ground. And we have really sophisticated tracking mechanisms to determine whether we are getting paid for making the investment in the value-add improvements. And in terms of that, it’s a case-by-case basis, market-by-market basis and we always adjust based on what’s happening in the market. Broadly speaking, we are in the strongest of the markets. We are continuing to see significant value in doing the renovations. But there are also a lot of markets where there’s supply issues, which we’ve alluded to in some of our comments that we think are near-term because these are high growth markets where there’s a lot of demand.

And so we adjust and moderate accordingly in terms of liquidity if that’s the question, or availability of capital to do it. We don’t rely on leverage to do those plans. Those are funded out of subsequent equity, and we continue to have sufficient capital in each of our funds to support our original business plan as long as the market continues to support it.

Finian O’Shea: It’s very helpful. Thanks so much.

Jonathan Slager: Finian, I would add, and I believe this is something that we alluded to in our prepared remarks, that when we look at the results of our value-add process, of course, we of course, when we acquire an asset we have a detailed projected pro forma in place that costs out everything that we’re going to do that attributes revenue to the actions that we undertake, et cetera. And we would characterize those as achievable, but in part aspirational in some respects. And overall, we’re double-digits ahead of those pro formas in terms of the actual NOI created at our residential rental multifamily assets. That varies a little bit by fund, but the overall trend is a positive trend, and I think it comes from understanding what resonates with residents and potential residents.

It comes from being cost effective in implementing those renovations, both in the common areas early on in the ownership of an asset and as units become vacant in the on-going ownership of an asset and making sure that we’re getting paid for what we’re doing. But we think that the value-add process and our day-to-day management of that value-add process really creates a meaningful amount of alpha at the asset level. Over the course of the last year or so, maybe more than a year we’ve seen cap rates increase as interest rates have gone up. In some instances, those cap rate increases have been offset and in some cases meaningfully offset by the NOI increases that the value-add process has created at the asset level. So it’s a process that pays dividends in good times and in more difficult times.

Finian O’Shea: Awesome. Thank you.

Robert Morse: Thanks for the question.

Operator: Thank you. Our next question comes from the line of Ken Worthington with J.P. Morgan. Please proceed with your question.

Ken Worthington: Hi. Good morning. So performance is holding up well in certain of your verticals under pressure elsewhere, and I know the focus has been office this quarter. But as we look to Multifamily V, it seems that Fund continues to struggle. Now, you have dry powder, but there seems to be a pretty big hole here. How does a more benign interest rate environment or time or investment resolve the performance here? Or given the depth of the hole, is this fund sort of destined to be a poor performer?

Jonathan Slager: Do you want me to do that one, Bob?

Robert Morse: Yes, why don’t you start Jonathan, please?

Jonathan Slager: Yes. I mean, Ken, no one has the crystal ball, but I think we’re sitting here. Our perspective is that there’s been what I would consider an overcorrection in the multifamily valuation. I think that, broadly been, when you look at the expansion of cap rates and the impact on values on kind of like-for-like net operating income is about a 30% drop, which is very meaningful when you think about, especially with respect to leverage. That being said, we have a very strongly held house view that interest rates are going to come back down as inflation comes down and as the Fed makes their moves, yield curves normalize. We think that will contribute, but we also see significant amounts of dry powder and long-term secular demand in the Multifamily sector that will also drive cap rates back down.

So we expect them to kind of move back down and mean revert. That will recover a lot and as Bob alluded to, we are well ahead on our NOI targets and our underwritten operating performance at the asset level. And the combination of those two things, we expect will generate positive recovery of the existing portfolio. And then we’ve got the remaining half of the portfolio where we’re able to buy, we think assets at what will look like incredibly attractive positions. And so when you start taking those two together, we still have hopes – very high hopes that the performance of this fund will be solid. And will it be as good as some of our highest performing vintages? No, but not all vintages are traded equal. But I do think it will be an outperformer relative to its peers in the same vintage, which at the end of the day, is probably how the market will measure us.