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spk06: Greetings and welcome to the Bridge Investment Group's third quarter 2021 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. If anyone should require operator assistance during the conference, please press star one, star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Charlotte Morse, Director of Investor Relations and Marketing. Thank you, Charlotte. You may begin.
spk01: Good morning, everyone. I'm Charlotte Morse. We appreciate you joining us for the company's third quarter 2021 financial results conference call. Our prepared remarks will include comments from our Executive Chairman, Robert Morse, Bridge's Chief Executive Officer, Jonathan Slager, and our Chief Accounting Officer, Katie Elsnapp. We will hold a Q&A session following the prepared remarks from our leaders. During the call today, we will reference slides highlighting key points of discussion as well as 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 IRR website at www.ir.bridgeig.com. These slides can be found under the events and presentations portion of the site along with the third quarter earnings call event link. They are also available live during the webcast. It is now my pleasure to turn the call over to Robert.
spk03: Thank you, Charlotte, and thank you to everybody joining us this morning. We're proud to report another strong quarter for Bridge and our first quarter as a public company. As you may recall, we executed our IPO on July 16th of this year, and some of the financial data is as of and after that date. During our roadshow, we highlighted a number of differentiating factors that positioned Bridge to succeed in the real estate alternative asset investment business. not the least of which is our purpose-built organization centered around the two pillars of real estate specialization and forward integration into property management to capture alpha at the asset level. These two pillars, in combination with our carefully curated focus on the most attractive areas of commercial real estate in the U.S., have driven strong results this quarter, and we believe will continue to power our company forward in the quarters to come. As I mentioned at the time of our 2Q results, which were disclosed after the IPO date, but for the benefit of the company as it was prior to the IPO, the bridge focus on the U.S. as the preeminent global investment destination, on selected rapidly growing sectors of the market, with specialized and forward integrated operations, and a professional team second to none, all helped to propel our company forward. Since the IPO, we have continued to invest in our company, in our professionals, in the infrastructure that effectively serves our funds and fund investors, and in our industry-leading research and analytics. On slide five, we highlight some of the important metrics from 3Q financial results. First, we had another strong quarter of gross AUM growth. which ended the third quarter totaling $31.8 billion, up 37% year over year, and represents a compound annual growth rate of 35% over the past five years. We continue to be pleased at our growth in both mature and newly launched strategies. In the aggregate, our strategies are designed to address and benefit from three of the major themes defining the U.S. economy and financial markets, the current and seemingly protracted housing shortage in virtually all parts of the U.S., which we addressed through our residential offerings in multifamily workforce and affordable housing, opportunity zone development, and seniors housing. Second, the dire need for infrastructure investments, which we addressed through our logistics offerings, logistics value add and logistics net lease. And third, the search for meaningful yield in a low structural interest rate environment. which we address through our residentially focused CRE-backed fixed income offerings, debt strategies, and AMBS. Our fund offerings are completed by an office fund, which addresses the growing need of office-using employers in fast-growing areas of the U.S. In all of these offerings, we seek to provide investors with leading returns characterized by current distributions and capital appreciation as appropriate. We do so while ensuring that our investments benefit our residents and tenants via social and community programming at many of our residential communities through the development and preservation of affordable housing and by carefully considering and incorporating leading ESG and DEI principles in all that we do. As we continue the 3Q review on the right side of slide five, you can see that Bridge also grew trailing fee-related revenue by 38% in the third quarter to $220 million. The growth in our fees was driven by strong and diverse AUM growth. In addition, we had another strong quarter for realized performance fees as bridge funds continue to harvest gains. Our outperformance in realized performance fees is related to a combination of timing of asset sales and outperformance of our assets in disposition. Jonathan will give you some more color on our unrealized gains as well. which will give you some context on how long the runway for our performance fee growth is. As you can see, it has been a good track record recently as our aggregate fee-related revenues have grown at a compound annual growth rate of 21% over the past five years. Finally, as you saw in our release, our results drove another strong quarter for distributable earnings to the operating company before taxes. which were $42.4 million or 38 cents per share in the third quarter, which represents growth of 185% compared to a year ago on a pro forma basis. For the stub period from the date of IPO to September 30th, the distributable earnings to the operating company before taxes was 34 cents per share. This translates into approximately 26 cents per share after tax. As a reminder, we plan to pay out substantially all of our distributable earnings in the form of dividends to shareholders. And as a result, our board declared a dividend for public shareholders of 24 cents per share, which is 95% of our estimate due to potential tax variance and will be payable to shareholders of record on December 3rd. If we turn to slide six, let me give a little more color on Bridge's achievements over the quarter that drive the types of financial results I just reviewed. Bridge had another strong fundraising quarter at over $1.5 billion. The fundraising in 3Q was largely comprised of our housing-oriented funds, which include Opportunity Zone Fund 4, Multifamily Fund 5, and Debt Strategies Fund 4. We also had our first successful closing of our Logistics Net Lease Fund and continued capital raising into our AMBS Fund. We are seeing strong demand in next generation funds such as multifamily fund five and also in new strategies like logistics net lease and logistics value. In the aggregate, our fundraising in the third quarter was a record for a third quarter and nearly double the previous third quarter fundraising record. Year to date, Bridge has raised $2.7 billion and we expect our full year 2021 fundraising to meet or exceed our expectations for the year. If we move to the second heading, strong fundraising fueled an equally strong pace of development in Bridge funds. Our teams excelled in identifying and executing against our disciplined investment opportunity pipeline. In total, deployments for the quarter were $1.3 billion, which is a 127% increase over a year ago and marks another record in Bridge's history. In addition to our record deployment, we had $241 million of realizations at attractive valuations that resulted in $31 million in performance fees. Turning to slide seven, let me give a quick update on our fund performances to date. As mentioned, 3Q 2021 was a strong quarter which followed earlier performance in our specialized strategies. Across the board, our funds recorded impressive results in the third quarter. as a result of growing occupancy, especially pronounced in our seniors housing assets, which were disproportionately affected by the COVID pandemic, strong rent growth in residential strategies and careful expense controls. We believe that the quality assets we operate coupled with a compelling suite of social and community services and amenities resonate well with our target audiences. On this slide, we show the returns for those funds for which the capital raising period and deployment period have expired. Our later funds have performed equally well, and in some cases even better. Bridge is recognized by the value it offers for residents and tenants, and that positively influences occupancy and the rents that we can charge. In fact, in many of our assets, we believe that we are in effect under market in terms of rent charge, so there's more upside looking forward, all things being equal. I want to speak to three key takeaways regarding our fund performance and track record. First, I want to re-emphasize how CriticalBridge's specialized and operational approach to commercial real estate is to our investment performance. Bridge manages the majority of the assets we acquire or develop. We have a nationwide operating team, and we strongly believe that local knowledge is key to making smart investment decisions. We strive to know more about the markets we invest in and act more quickly than other institutional investors, which translates into alpha and the types of performance results that we've been able to post. Secondly, we are operating in an environment with substantial tailwinds. Household formation is high. Migration to the select cities in which we invest, both personally and by companies, continues. And the economic health of the middle class and lower economic cohort of the US workforce is growing, in part by needed wage growth and in part by the massive fiscal stimulus coursing through the economy. The bridge focus on prime growth markets in Class B and Class C multifamily puts our investments directly in the intersection of these positive trends. Third, our track record is a key driver to fundraising success. When our funds outperform, that performance is one of the best tools to broaden our investor base, and we are doing just that. More on that later when we talk about fundraising for the quarter. In connection with slide eight, I'll give a brief market commentary. First, commercial real estate continues to be an asset class with significant demand. Allocations among institutional investors continue to rise and are expected to rise further in the coming years. We believe bridge should disproportionately benefit from this overall trend given our investment track record. As to the topic of inflation and rates, we would also note that many of our investors are specifically allocating to commercial real estate because of the natural inflation hedge embedded in the underlying cash flows. For instance, the average multifamily asset has seen an over 10% increase in rental rates over the past year. Similarly, industrial warehouse or logistics assets have seen a 7% increase in rents over that same period. This point dovetails with the second heading, which is that BRIDGES strategically focused on fundraising and investment within the fastest growing property sectors. specifically residential and logistics. To be clear, while the inflation hedge is a positive attribute for these asset classes, the rental rate increases are a byproduct of what we believe are long-lasting demand drivers for each sector. First, we have long believed and continue to see the U.S. residential market as significantly undersupplied in the wake of the great financial crisis. We believe the drivers of e-commerce combined with issues we are seeing in the supply chain are key multi-year drivers for demand in the logistics space. Lastly, I will quickly reiterate that while bridge benefits from industry or market trends, we will always be most focused on the value our unique forward integration model creates as defined by our relative fund performance. On slide nine, I want to share with our constituency some of the commitment and progress we have made towards our ESG and DEI objectives, all as a part of our mission and core values, which include the core value that the only way to achieve excellence is through diversity and inclusion. Specifically, our Workforce and Affordable Housing Strategy recently received several awards, including the ESG Private Market Strategy of the Year by PensionBridge. That strategy also won Social Fund of the Year from Environmental Finance and Best ESG Investment Fund in the Private Equity category from ESG Investing. In our Workforce and Affordable Housing Strategy, bridge partners also contribute individually and collectively towards amplifying the social and community programming at our communities. In fact, across all of our residential activities, we invest to provide numerous opportunities for our residents, and we celebrate their accomplishments as our own. And while I won't detail each, the whole team at Bridge is very proud of our broad efforts to drive diversity and inclusion. We supported the establishment of multiple new employee affinity groups to support our commitment to diversity. Our more than 1,650 colleagues are the cornerstones of our business success, and we continue to invest in them. Bridge believes that the best ideas come from the collaboration of many. Our teams have always been built that way, and we are very happy to work at a place that fosters that goal as part of our core business strategy. Our demonstrated commitment to the well-being of our residents and tenants is one of the key factors that distinguishes us in the marketplace. With that, let me turn the call to Jonathan. Jonathan?
spk08: Thank you, Bob, and good morning, everyone. If we turn to slide 11, let me quickly review our quarter and then provide some additional color on our AUM growth and performance. As you heard from Bob, our third quarter was another record at Bridge across a number of our key performance indicators. I'll run through some of the highlights quickly, and you can all review them in detail after the call. $92.2 million of total revenue was our second best quarter ever and by far the best third quarter, up 79% from Q3 2020. Investment income of $84.9 million sets a new quarterly record and is up over 300% from Q3 of 2020. Net income of $118.9 million for the quarter compares to $31.3 million in Q3 of 2020 and far exceeds our previous record of $92.5 million set in Q4 of 2020. Our third quarter fee-related earnings of $29.9 million are up 116% from the same quarter in 2020. And year-to-date, $90.3 million is up 38% from the same period in 2020. This was driven mostly by record deployment with the help of strong capital raising. Our realized performance fees for Q3 of $31 million is our second-best quarter ever and unrealized accrued carry is at record levels sitting at $302 million, which is 117% up from Q3 of 2020. This strong growth is a result of bridge being in the right sectors, and our outperformance in these sectors is due to our strong operating capabilities. Distributable earnings of $42.4 million for the quarter are up 185% for the same period in 2020. Distributable earnings for the trailing 12 months of $166 million is up 124% from the previous trailing 12. Gross AUM finished at $31.8 billion, up 37% from Q3 of 2020, and dry powder today at the end of last quarter sits at $2.1 billion. If we turn to slide 12, we can further highlight some of our key performance indicators. At the top left, our free-earning AUMs finished at $12.1 billion in Q3, 32% above Q3 of 2020. This was driven by another strong quarter of fundraising, totaling $1.5 billion. The third quarter fundraising activity is the third highest in the company's history and was driven both by legacy follow-on funds as well as new fund strategies. As Bob noted, we are excited about our progress on both our mature and our new strategies. Our new strategies, in particular, have so much potential to rapidly scale, and the early reception in the market has been tremendous. Our logistics net lease fund and value-add logistics funds are really well positioned to benefit from the strong sector tailwinds that Bob described earlier. Turning to the fee-related earnings, on the upper right, Bridges' trailing 12-month fee-related earnings of $109 million is 23% above the prior 12 months. In fact, fee-related earnings for the nine months year-to-date of $90.3 million exceeds our previous full-year record of $87 million set in 2019. The majority of the earnings growth was driven by recurring fund management fees, which as Bob noted, have grown at a compounded annual growth rate of 56% for the past five years. Recurring fund management fees were at 118 in the trailing 12 months. As Bridge launches new strategies and continues to roll out next-generation funds, we see a good pipeline for continued growth in these fees. And as we will discuss later, they continue to lengthen in average duration with each passing quarter. On the bottom left, you can see that realized performance-related earnings have had their two largest quarters in our history as the platform has grown and the size and scale of our overall dollars at work grow. We anticipate that we will continue to see strong increase in the overall growth trajectory of both total investment income and realized performance fees. It is important, however, to note that these fees will vary quite significantly from quarter to quarter, as many of our newer funds operate with European carry structure, which realizations are heavily concentrated toward the end of fund life. Lastly, at the bottom right of the page, As we said, our growth in distributable earnings has been dramatic, and our trailing 12 months is just 3% off of our record year in 2019. We are on pace to substantially beat our prior record of $134 million in distributable earnings set in 2019. If we turn to slide 13, let me put some context around what we believe is a very compelling growth story at Bridge. First, as noted, We had a record third quarter of fundraising at $1.5 billion, which drove strong growth in fee-earning AUM, despite the fact that we executed on $241 million in realizations in that same quarter. Bob will give more detail on both in a minute, but I'd like to make a point about the stickiness and the visibility of the fees that are driven by that fundraising. It is probably well understood that these management fees are contractual, But if you turn your attention to the pie chart, you can also see that our funds are very long dated. In fact, the $1.5 billion that we raised in the third quarter has an average duration of over 10 years. And as of the end of Q3 2021, our overall average duration of fund tenor sits at seven and a half years, up by eight months or 10% from Q3 2020. This increase in duration along with the increase of 32% or $2.9 billion of incremental fee earning AUM, illustrates the stickiness and visibility of our fee streams and allows Bridge to plan strategy with a well-defined view of our future revenue. As we have said many times before, the robust growth of our recurring fund management fees, combined with the long tenor of these fee streams, offer an attractive well-defined roadmap for our shareholders as they value the components of their return in the form of distributable earnings in future years. If we turn to slide 14, again we show our recent history of performance fees. In the chart on the left, you can see that in the quarter we earned $31 million, which was primarily driven by realizations in our multifamily funds with some additional support from our debt strategies fund. This $31 million is our second highest quarter and follows last quarter's all-time record of $35.6 million. Clearly, the market environment has been strong, and Bridge has done well in both deploying capital and also in realizing attractive returns in the past two quarters. It bears repeating that while on a strong upward long-term trajectory over the long term, realized performance fees will vary dramatically from quarter to quarter based on the timing of realizations of our funds. While quarter-to-quarter timing of realized performance fees can vary, we thought it made sense to add disclosure to give you all a sense of the pipeline of value creation embedded in the performance fees that sit in our funds. I'd like to turn your attention to the graph on the upper right that illustrates Bridge's accrued performance fees. which have grown 107% since Q1 of 2020 and today sit at $302 million in aggregate. If you look at the pie chart on the bottom right, we break down that $302 million by fund vintage. It shows two things. $75 million of this accrued unpaid income is in funds that are approaching seven years in vintage. This means they are nearing realization. And nearly all of it is three years and longer. Key takeaway here is that bridge funds have significant future performance fund realization that should accrue to the benefit of our shareholders in the form of distributable earnings and dividends in future years. Before I turn the time back to Bob, I'd like to leave you with some thoughts about why we believe bridge is so well positioned. Bridge's core business is well suited to perform in inflationary times, and our strong operating platform is simply built for this. Our operating performance continues to meaningfully outpace the very strong national numbers that Bob referred to in his opening remarks. Residential real estate has long been considered a great inflation hedge, and you are seeing that play out in the numbers in this quarter's announcement. Approximately 85% of our current AUM is residential equity or residentially backed debt. And moving forward, the largest growth part of our business is in industrial, which is experiencing unprecedented demand and is expected to continue for the foreseeable future. With that, I'll turn the time back over to Bob to discuss our fundraising.
spk03: Thank you, Jonathan. On slide 15, we show that we had a successful quarter for fundraising at over $1.5 billion in the quarter. Over the past five years, we've grown our AUM at a compound annual growth rate of 35%, including $4.9 billion raised in the past 18 months. Fundraising highlights from the third quarter include successful closes in our multifamily debt strategies, agency, MBS, development, and logistics net lease funds. The Bridge CSG team and I made several successful capital raising trips over the last 30 days within the U.S. to Europe and the Middle East. and our access to prominent institutional investors has never been higher. In fact, Dean Alera, our vice chairman and head of the client solutions group is in the Middle East through this week to continue our efforts in that region, which is why he's not on our call today. Turning to the right side of the page, our fundraising is inherently tied to our ability to identify investments and deploy capital. Bridge delivered there as well with over 1.3 billion invested in the quarter. That breadth of investment shows the scale of bridge as well as the local knowledge to source and execute on both large and small deals that satisfy our return requirements. Best of all is that our deployment over the quarter spans seven specialized investment strategies. And now let me turn the call over to Katie Elsnab to review our financials. Katie?
spk00: Thank you, Bob. I'll start on slides 17 and 18. As Jonathan and Bob have noted, it has been a record-breaking quarter for Bridge related to our capital raising and deployment. As I walk you through our GAAP financial statements and non-GAAP metrics, you will see the impact of our execution on our financial performance. Our total revenue for the three months ended September 30th, 2021 was $92.2 million compared to $51.4 million in the prior year. This is due to a 52% increase in fund management fees, which is primarily due to an increase of 32% of our fee earning AUM year-over-year and $4.2 million of catch-up fees, which will increase our reoccurring fund management fees. Additionally, our transaction fees are up 331% over the prior year, which is driven by $1.3 billion of deployment during the quarter. Finally, there is an $8.8 million increase in property management and leasing fees. which was largely driven by an increase in leasing activities in our commercial office assets. If we turn to investment performance, you've already heard that it was a record-breaking quarter that was driven both by realized carried interest of $31 million and unrealized carried interest of $53 million. This, again, is driven by assets in the multifamily sector. As Jonathan spoke to previously, we believe that our portfolio overall, especially given our diverse real estate asset strategies, is well-positioned for future cycles. We also have a significant increase in employee compensation and benefits, which was largely due to our increase in corporate employee headcount related to our increase in fee-earning AUM and new strategies. Finally, our third-party operating expenses are up $5.5 million, primarily due to the increased commercial leasing activity previously mentioned. Overall, it was a strong quarter with GAAP net income to the operating company of $118.9 million versus $31.3 million in the prior year. Our earnings per share for the period from July 15, 2021 to September 30, 2021 was $0.41 per share. Next to our non-GAAP measures. First, on a pro forma basis, our total fund level fees grew at 97% over last year to $62.5 million, driven by strong growth in our contractually reoccurring fund management fees, driven by continued AUM growth that Jonathan and Bob spoke about. Our transaction fee growth was also very strong, up more than four times compared to the same period last year. The compare was easier due to COVID, but also aided by elevated transaction activity during the quarter. Total fee-related revenues grew 94% over last year to end the quarter at $70 million. The performance was driven by strong fundraising, fee-earning AUM growth, and effective deployment. As you have heard many times already, we believe that Bridge's outperformance is driven in large part by our vertical integration. We drive value in our ability to make the direct changes at the operating level and to create alignment through a common vision with the entire team that starts with our deployment ad acquisition and through our operations of the fund's assets. This allows for our transaction fees and net earnings from property operators to be an extension of our fund management fees. Based upon the growth in our fee-earning AUM and execution of our strategy, we generated very strong fee-related margins of 60%. As we mentioned last quarter, these margins are top tier for asset managers, and that includes the expense we bear for our vertical integration and our property management functions. This strong growth in fees drove total fee-related earnings to the operating company of $29.9 million, up 116% compared to the third quarter last year. As Jonathan highlighted, Bridge also had a very strong quarter for realized performance and incentive fees, totaling $31 million. As noted, the realizations outperformed compared to our plan for the quarter, given the attractive market dynamics. Lastly, our distributable earnings for the quarter were $42.4 million, or 185% higher compared to a year ago on a pro forma basis. As you can see on slide 19, we have split our summary income statement to show the impact of non-controlling interest. We're going to walk through this one last time as we're still getting a few questions on this. The easiest way to look at our NCI is to separate our fee-related earnings from our performance fees. Within our fee-related earnings, we essentially have two buckets of non-controlling interest. The first is non-controlling interest related to our fund managers. As we launch new strategies, we provide our new teams a minority interest in their respective fund manager that can be later collapsed into the operating company. We believe that strategy differentiates us and provides us the ability to attract top talent. We also have NCI related to our profits interest program. These programs relate to profits interest granted at the fund manager prior to the IPO and will be collapsed into the operating company over the next several years. One thing to clarify is that when these interests are converted into interest and bridge, it is expected to be accretive to the public company. This will be done on a formulaic basis using DE of their respective fund manager and VIG to determine a value of the fund manager interest being converted. We will then discount that amount by 20%. As such, it is expected to be accretive to public shareholders. Our MD&A in our forthcoming 10Q discloses the allocation of MCI between profits, interest, and fund managers for your reference. Now performance fees. Due to our legacy structure, the allocation between compensation and NCI is somewhat complex. The easiest way to think about this currently is to apply around 35% to the performance allocation income to determine the amount that will be applicable to the operating company. Our MDA breaks out the NCI related to the realized and non-realized components. Additionally, on the face of the statement of operations, you will note that we also have non-controlling interest related to the operating company. This represents the allocation of the earnings of the operating company to bridge its pre-IPO continuing owners, which represents approximately 77% of the operating company as of September 30th, 2021. And lastly, on slide 20, let's review our distributable earnings and capitalization. First, our pre-tax distributable earnings for the third quarter to the operating company totaled 42.4 million, or 38 cents per share, up 185% compared to a year ago on a pro forma basis. driven by all of the components of our business we've detailed, including our strong AEM growth, fee-related earnings, and realized performance allocations. As you saw from our earnings release, Bridge also declared a dividend of $0.24 per share, which is consistent with our target to pay substantially all of our distributable earnings as dividends to the shareholders. Finally, similar to last quarter, Bridge has a significant available capital and relatively low debt, as we noted during our IPO. We believe that there are numerous opportunities to grow the business both organically and via strategic acquisitions. With that, let me conclude my remarks and turn the call back to the operator so we can take your questions.
spk06: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is from Bill Katz with Citigroup. Please proceed with your question.
spk04: Okay, Jimmy, thank you very much for taking the question this morning. Our first question is you listed off a ton of new asset opportunities. Can you help us just maybe frame out where you are in terms of the legacy footprint between, you know, sort of absorbing some of the existing footprint versus maybe successor funds and then maybe on some of the newer products so it gives us a sense of where we are today and how big they may get. I know you have a little more disclosure coming up in the queue. We're just trying to level set between like sort of capacity in the existing versus opportunity and so a successor and new initiatives. Thank you.
spk03: Thanks, Bill. This is Bob Moore speaking and hopefully interpreting your question correctly. We're seeing a significant amount of opportunity in our so-called mature strategies, which for the most part are aligned against the residential opportunity in the U.S., our are both capital raising and deployment for multifamily, for workforce and affordable, are going well for the current funds in those areas. And we think that the US is in the early stages of a protracted housing shortage. We believe that we're well positioned to help address that housing shortage, not only by renovating, existing assets, but through our Opportunity Zone Fund, developing new assets. We have about 70 developments around the country which are bringing a significant stock of multifamily with a meaningful component of affordable units to the market. I'd say we're equally excited about the opportunities in logistics. which is the focus of much of our new strategies, both value-add logistics as well as logistics net lease. You know, the fact that U.S. Congress, which has been so bitterly divided for so long, came together in a bipartisan way to produce an infrastructure bill of $1.2 trillion. I think messages how important infrastructure and logistics are, and we think that we're really well positioned to benefit from those continued government investments and supplement those with investments on the logistics side. I would say also, not to leave it out, that we're seeing a dramatic recovery, both in the appeal and value of seniors housing, as well as a reoccupation of offices, particularly in the prime growth markets in which we both have office assets and are investing actively in office. We think that the opportunistic nature of the office market is particularly important interesting. We've been seeing transactions that are priced very, very attractively at a meaningful discount to replacement cost, and we think that long-term that message is that we'll have a very competitive profile.
spk04: Okay, great. And just one follow-up for me. Maybe it's sort of a tethered question. The certainty of deployment transaction fees were quite strong as was the bridge property income. So I had to think about maybe a normalization of that and how might that tie into your FRV 60% margin on a go-forward look. Thank you.
spk03: Jonathan, do you want to address that? Sure.
spk08: Happy to.
spk03: Hey, Bill.
spk08: I think the way to think about transaction fees is transaction fees are always going to be a core part of our business. But as we talked about before, as the business grows, they become a smaller overall percentage. And we see most of our growth coming from long-term fee-related asset management fees and other areas of the business. Uh, but we don't see, you know, a dramatic drop off between like 21 and 22 on the transaction fee. We just see, um, nuts. We were not forecasting meaningful growth quarter to quarter. You're gonna, you're gonna see, you know, some quarters that are, you know, really strong, like, like this quarter. Uh, and some of the quarters you might see a slow quarter. And I think that we've always kind of tried to let you, let you know, that you shouldn't ever, you know, kind of measure our margins by a single quarter's margin because the business has, you know, is going to be impacted by both deployment and meaningful capital raising because a significant portion of our business is still closed-end funds. So, you understand about the nature of that. So, at the end of the day, you know, we had a very good quarter. Overall, we're looking, as we look forward, As the business scales, you know, longer-term, you know, modest improvements in our margins, but the margins that we had in this quarter are obviously, you know, really fantastic and not something that should be, you know, modeled out as, you know, a consistent margin level.
spk04: Okay. Thank you for taking my questions.
spk03: Thanks for your interest.
spk06: Thank you. Our next question is from Ken Worthington with J.P. Morgan. Please proceed with your question.
spk07: Hi. Good morning. In terms of commitments that contributed to the increase in fee-paying AUM, it looks like about $1.4 billion, and we were anticipating good fundraising this quarter but also next quarter. With three quarters so good, I'm curious, do you think there was any pull forward in in fundraising from 4Q into 3Q. And Bob, you mentioned that you expected fundraising this year to beat your expectations. Can you remind us what those fundraising expectations are for this year?
spk03: Thanks, Ken. We're seeing a great deal of momentum in our capital-raising efforts. The world is reopening. We're traveling much more. I just came back from a very productive trip to the Middle East. Some of the team remains in the Middle East now. We're seeing that investors, institutional investors, both existing investors as well as new investors, are finding themselves after 18 months or so of less activity with an enthusiasm to commit. We found that the track record that we posted in the past, we reviewed that, is a significant marketing tool for us. People like to invest with top quartile producers, and so I think we have a great deal of momentum. It's an interesting question. We have not interpreted the third quarter success as a roll forward from year-end activity. And, in fact, I would say that, you know, as the year comes to a conclusion, investors are interested in making sure that they meet their annual target. So we would anticipate a fourth quarter, which is strong as well. I believe, have messaged to the street that we hope to be well in excess of $4 billion of fresh capital raised in 2021 and more in the $4.5 billion range or so. And we're sticking by that estimate for the year.
spk07: Okay, great. And then maybe a little bit more color on multifamily and logistics. Can you remind us on your target for multifamily and even the hard cap and really how much you've raised thus far versus your target, so how far along that fund is? And then with the two logistic funds that I believe both launched in the quarter, maybe I'm wrong on that, but the same thing, sort of What is the target that you have for those funds and just how far along are those funds in actually fundraising?
spk03: Different status for each one of those. We're in the market today with our fifth multifamily fund and our second workforce and affordable housing fund. And those two funds are, in the first case, multifamily in the beginning stages of capital raising in the case of workforce and affordable sort of midway through and coming up towards the latter part of capital raising. We have a $2.5 billion target for multifamily fund five and confidence that we'll be able to achieve that. We have a $1.5 billion target for workforce and affordable. Excited about that because it's way more than a drop in the bucket to addressing the affordable housing crisis in the U.S. and believe that we're well on the way to achieve that as well. For both of those funds, we have closings that are coming up in the fourth quarter, and so we'll be able to give you more of an update when we announce fourth quarter results, but the amount of interest is as strong as it's ever been for both of those funds, both from returning investors you know, who've had a really good experience in earlier funds, as well as new investors who are looking for exposure into multifamily. And I think we, in both cases, have a veritable who's who of prominent institutional investors in particular, as well as a strong retail interest in participating in those sectors. You're correct about logistics. We are just out of the gates. with respect to logistics. Logistics net lease is an open-ended fund, and so there's no target for that. We feel that the opportunity set is very broad. We've really just begun the outreach for logistics net lease, but the combination of high current income, an attractive net to the investor IRR and the tax-advantaged nature of an equity fund all combined to make net lease appealing both to folks who want to be invested in logistics as well as investors who are interested in high current yield, which is so hard to find in today's market. So we feel we have a really broad runway there, but we're just getting started. I think we showed in the second quarter results the pretty de minimis contribution to overall either gross or fee-paying AUM that logistics, broadly speaking, represents, and we hope and expect that that's going to grow on a fast and disproportionate basis as we move forward. With respect to logistics value add, we really are just at the point of launching that fund now, so no real early returns. other than to report a great deal of interest. And we hope and expect that when we do have a closing, it'll be a strong closing. It'll be representative of what we think is the very solid investment thesis that we have for logistics value add, providing that infill, those infill investments in a in a sector that's in dire need of investment. What's really interesting is the long-term secular growth prospects, we think, for logistics and for e-commerce in particular. The US, I think today, e-commerce represents about 18% of total commerce. And in other countries, that percentage is much, much higher. We've seen the COVID pandemic accelerate e-commerce penetration to that 18%, but we think it's really just the beginning of the wave. And our team is so well positioned to find and to renovate and to expand and in many cases develop new appropriate assets that get in the way of that secular growth that I think the success of that fund is predicted and to us really exciting. It's garnering a lot of attention both internally and externally.
spk07: Great. Thank you very much.
spk03: Thanks for your questions.
spk06: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate that your line is in the question queue. Our next question is from Michael Cypress with Morgan Stanley. Please proceed with your question.
spk05: Hey, good morning. Thanks for taking the question. I wanted to ask about the private REIT space, which has attracted a lot of attention lately. So just curious what sort of opportunity you see from that sort of retail-oriented vehicle. What sort of strategies can make the most sense and actions that you might need to take to bring something like that to the marketplace? And maybe more broadly, you can just give us an update on your retail distribution initiatives.
spk03: Thanks, Michael. Retail is a big component of what we do. We have distribution relationships with virtually all of the leading wire houses, including Morgan Stanley, Wells Fargo, UBS, JP Morgan, First Republic, a number of regional firms, et cetera. And we raise a great deal of capital every year through those retail channels. Our current profile... is different from and differentiated from the retail REITs. We invest in value-add assets. I would say that our investment profile is higher octane than it is for the REITs, and our performance, generally speaking, has been far above those of the REITs. So it's a different product that's oriented towards a different, more affluent, more higher net worth qualified purchaser universe at this point. And that has been very successful. We certainly are aware of and focused on the fact that the retail market extends to a group that's bigger than the qualified purchasers and And we are aware of how popular some of the retail non-traded REITs have been. We're continuing to examine opportunities, how we can take our already strong retail presence and extend it further into the market. We think that if and when we do that, we would like to maintain the specialized nature of our investment teams. and perhaps combine that specialized nature into a diversified vehicle that has a competitive differentiation from what is in the market now. We know it's a crowded space, but we think that Bridge, when and if we launch a vehicle, would be competitively positioned to attract a meaningful amount of capital.
spk05: Great, thanks. And just a follow-up question, if I could, just on real estate credit, which is a meaningful portion of your AUM today. I was hoping you could just talk a little bit about the opportunity set that you see to grow the credit platform further. What might be more meaningful, would you say, over the next couple of years, scaling existing strategies that you have on the credit side or any sort of extensions into adjacencies and new strategies in credit? And what can make the most sense there as you think about building out your credit platform?
spk03: It's interesting how the credit markets have evolved. We've dramatically expanded our direct lending activities against transitional real estate in bridge debt strategies, in our bridge debt strategies series of funds. And the opportunities there, we think, remain very significant to continue to expand that. The fact that we now have a meaningful logistics capability we think would allow us to intelligently lend not only against multifamily assets, which has been the bread and butter of our business in the past, but also industrial assets, where we have a much more informed point of view at this point. So that represents some organic growth and related diversification, if you will. We've also seen a great deal of continuing interest in our agency mortgage-backed securities open-ended monthly liquidity fund, again, playing on the residential theme, but offering an open-ended vehicle that in many respects serves as a quasi-money market equivalent, not exactly the same, but offering 8% to 10% current returns with monthly liquidity and a great deal of structural principal protection. So that more newly launched effort is gaining meaningful traction and momentum as we go forward as well. And we thought that we had exquisitely bad timing when we launched that literally in the face of the market catharsis of of April of 2020. In fact, the performance of that fund was strong and stable and allowed us to translate that unfortunate launch timing into a marketing point, which a lot of investors are taking comfort from now that we can navigate, that that fund and its structure can navigate through tough times as well as succeed in good times. So we're excited about the future for that as well. We always are, and this is a comment that we would make, not limited just to real estate credit, but across all of our strategies. We're always looking for areas of appropriate related diversification to further expand what is already a pretty significant total addressable market. I'll give you an example of that. In our Workforce and Affordable Housing Fund 2, Unlike Fund 1, we're now investing, amongst other things, in the conversion of extended stay hospitality assets to workforce and affordable housing at better returns than workforce and affordable housing in its plain vanilla way. We've also expanded and own a number of assets in the manufactured housing space in workforce and affordable housing Fund 2, and that's a pretty significant market where we've developed some meaningful capabilities to assess and invest in manufactured housing assets across the country. Really all designed to provide a spectrum of choices for the renter between market rate, workforce and affordable, manufactured housing, etc., The unifying theme around all of that is we work hard to find ways to deploy our social and community programming capabilities to enliven the communities, to enrich the lives of the residents with the knock-on beneficial effects of lower turnover, ability to raise rents, et cetera. I would say as well, just because we think it's really important all the fiscal stimulus and growth of the economy that you're seeing, those financial metrics are benefiting the middle income and lower income cohorts of the U.S. population disproportionately in many respects. And that's precisely the part of the U.S. resident population that we focus our energies on. So we have some meaningful tailwinds in terms of ability to afford our communities in terms of the growth of the U.S. economy.
spk05: Great. Thank you.
spk03: Sorry for the long answer to your question.
spk06: Thank you. Our next question is from Bill Tats with Citigroup. Please proceed with your question.
spk04: Okay, thanks. Just a couple of technical follow-ups. Just, I don't know if Katie or John, just the share count from here. Should we assume that this is the right run right now, now that the IPO is sort of fully quarterized, if you will? And then on the NCI discussion, as you collapse that over the next three years, is that, and I apologize, I'm probably sure I know this, is that a cliff event or is that a ratable event? How should we be thinking about maybe the phase-in of that? Thank you.
spk00: Sure, so on your first question related to the share count, we have done our annual grant of approximately 2%. We'll do a similar grant in the first six months of 2022, so you can layer that into your forecast. For the second question, you'll see that we do break out the NCI related to the 2019, 2020, and 2021 programs in our MD&A. The expectation is that we'll collapse it at the end of January 1, 2022, January 1, 2023, and so on.
spk08: Thank you, again. The biggest, you know, the most significant one is the 2019, so that will kind of have a meaningful impact, I think, in terms of reducing NCI in 2022. Okay, thanks again.
spk06: Thank you. There are no further questions at this time. I would like to turn the floor back over to management for any closing comments.
spk03: Well, thank you, operator, and thank you to all who are participating in this 3Q earnings call. We're, as a group, pleased with our strong quarter. We're excited about the opportunities ahead of us, both to continue to grow our mature strategies and to expand and extend our newly launched strategies. We feel, as we've said before, that Bridge is well positioned with carefully curated activities, which are aligned against strong and fast-growing sectors of real estate. We continue to invest in our capabilities, invest in our teams. We continue to see strong momentum on the on the capital raising side and work tirelessly to be selective in our deployment. And we very much appreciate the support and interest of all of you in our business. So thank you.
spk06: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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