Bridge Investment Group Holdings Inc (BRDG) 2021 Q4 法說會逐字稿

Hello, and welcome to the Bridge Investment Group Fourth Quarter and Full Year 2021 Earnings Call and Webcast. (Operator Instructions) As a reminder, this conference is being recorded.

It's now my pleasure to turn the call over to Bonni Rosen, Investor Relations. Please go ahead.

Good morning, everyone. I am Bonni Rosen. We appreciate you joining us for Bridge Investment Group's fourth quarter and full year 2021 financial results conference call. Our prepared remarks will include comments from our Executive Chairman, Robert Morse; Bridge's Chief Executive Officer, Jonathan Slager; Vice Chairman, Dean Allara; and our Chief Accounting Officer and soon-to-be CFO, Katie Elsnab. We will hold the Q&A session following the prepared remarks to my 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 IR website at ir.bridgeig.com. These slides can be found under the Events and Presentations portion of the site along with the fourth quarter and full year earnings call event link. They are also available live during the webcast.

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

Thank you, Bonni. And let me be the first to publicly welcome you to Bridge. Your impressive IR and real estate experience will undoubtedly augment our shareholder communications as we continue to share the Bridge story.

2021 was a watershed year for our company. As you can see on Slide 5, our financial results for the year achieved records across most key performance indicators. Jonathan and Katie will review our financial results in more detail, so I will be brief here. The second set of data metrics show over 50% growth across both our fee-related earnings and distributable earnings. This year-over-year growth reflects the upward trajectory of our company, the continued expansion of our mature strategies, the launch of new and exciting verticals, and the inorganic expansion into attractive sectors of U.S. real estate. As you will see, our structure and purpose-built organization has delivered outstanding returns, which performance has powered additional capital commitments from existing and new investors.

Please turn to Slide 6. Our successful IPO in July 2021 was a catalyst for Bridge in so many ways: visibility and profile enhancement, which has translated to record capital raising across both retail and institutional platforms; strong and continuing dialogue with our shareholders; and an enhanced competitive profile as an attractive consolidator in the selected verticals in which we have an interest to expand. It is also worth noting that of the 270-plus IPOs in 2021, the average return through year-end was negative 4%. In contrast, Bridge ended the year 56% above our initial offer price, making our company the 26th best-performing IPO in the U.S. Thank you to all who made this possible. The IPO amplified our ability to leverage our expertise and differentiated investment approach in new and adjacent verticals. We have communicated some of the areas of interest in the past, and we completed the acquisition of Gorelick Brothers and [Gol Property Management] as of January 31 to create what we believe will be one of the most competitive participants in the large, growing and still nascent single-family rental sector. In a short period of time, we feel validated in our decision to bring Bridge public and are excited about the wide opportunity set and potential for continued growth in 2022 and beyond.

Before we talk about the future, let me quickly summarize what we believe are impressive results for 2021. First, Bridge raised $5 billion of capital in 2021. Dean will provide more detail, but from my perspective, the most impressive aspect of the capital raise is how broad-based it was, both by investor type and fund strategy. We have grown our Client Solutions Group organization. We have dramatically expanded our stable of institutional investors. We have expanded the warehouse platforms with whom we do business, and we have deep penetration across the spectrum of sovereign wealth funds, pension plans, the insurance sector, endowments and foundations and family offices. Best of all, we are only scratching the surface, notwithstanding the record capital raising results for 2021. Our pipeline is as strong as ever. All CSG members are traveling again. We currently have in-person meetings confirmed with a literal who's who of institutional investors, and we've substantially invested in our CSG organization.

Moving down the page, investing capital at scale, both selectively and without sacrificing strategy or returns is critical. In 2021, Bridge deployed a record $4.6 billion. Bridge is able to do this due to our purpose-built structure, our focus on the U.S. on selected prime growth markets within the U.S., our specialized investment teams oriented towards the most high-growth sectors of U.S. real estate and our investment in and commitment to forward integration to generate alpha at the asset level. Not only does deep knowledge of our assets and markets drive alpha for fund investors, but it also allows us to be nimble in markets without marginalizing our differentiated and proven diligence. And this same concept also applies to fund realizations, wherein 2021, we realized $1.3 billion, which netted over $83 million in realized performance fees. First and foremost, we're thrilled to add to our track record of performance for our fund investors. But similarly, we believe our platform to drive both AUM growth and scaled investment and realizations of those funds offer a compelling value engine for our shareholders. In addition, our unrealized accrued carry, which Jonathan will discuss further, has increased to $440 million, demonstrating the pipeline for future performance-driven distributable earnings is significant.

Lastly, we are proud to say that Bridge got stronger as a company with key additions to our talented team of professionals and to the continued evolution of our funds management infrastructure. After several years of hard work, we expect to complete both SOC 1 and SOC 2 audits and have internalized fund administration, which we believe will allow us to be more accurate and more responsive.

If we turn to Slide 7, I'll wrap up my comments on 2021 by framing them against our history. As we noted on the IPO road show, we believe Bridge' unique approach to forward integration in property management and our focus on carefully selected commercial real estate sectors positions us very well to replicate strong and steady growth for years to come. As you can see here, the foundation of our most visible earnings streams has grown at an impressive rate over the past 5 years, including 2021, the 5-year compound average growth rates of our gross AUM and our fee paying revenues are 41% and 30%, respectively. We believe the drivers of these key performance indicators have only become stronger in the past year for Bridge. Many of our legacy fund strategies continue to rank in the top quartile. Our vertical integration continues to drive alpha and synergy across strategies and broadened the investment opportunity sets available to Bridge.

If we turn to Slide 8, let's talk a little bit about 2022 and beyond with our view of the environment and how we're structured to succeed. First, the backdrop for institutional investment in commercial real estate remains robust. According to Hodes Weill, the average institutional investor remains underweight commercial real estate as an asset class. Said another way, the average investor has a target allocation of 10.7% compared to current investment mix of just 9.3%. For reference, these small percentages represent very big dollars. Each percentage point of allocation shift represents approximately $134 billion. We believe this trend will likely accelerate given the global search for yield and commercial real estate's natural inflation hedge, especially in property sectors that we focus on like residential and logistics. Altogether, these factors provide a strong foundation for liquid commercial real estate markets in the coming years, and our platform is well positioned.

Next, I'd like to speak to how Bridge succeeds in what is a competitive commercial real estate investment market. As you may know, 2021 was an incredibly active year for asset transactions. According to Real Capital Analytics, total U.S. commercial real estate transaction volumes were $840 billion, nearly double 2020's total and exceeded the previous record of $600 billion in 2019, an impressive 42% of the volume transacted in the fourth quarter alone due to the typical seasonality of the business. In markets that are liquid and competitive, it's hard to overstate how important our approach is to our fund performance. We have purposely constructed fund strategies, investment teams focused on real estate markets with the best and most durable secular demand drivers. Specifically, Bridge' overweight the U.S. residential market because of the chronic undersupply of housing in the country since the great financial crisis. We are focused on logistics and infrastructure, and on multiple strategies that offer high-yielding returns in both open-end and closed-end structures. And our Opportunity Zone vertical was recently ranked #1 out of 613 opportunity fund vehicles that have been offered.

This is important context, especially when considered against our performance track record. Bridge does not drive alpha by participating in markets the same way that the broader herd does. Bridge instead is structured to drive better returns with superior local knowledge of markets, faster speed to market and a full set of capabilities across the capital stack to finance our investments. Our property management and development capabilities also serve a distinct advantage in our ability to source and execute value-add or redevelopment investments. The value-add market is inherently less competitive and as a result, Bridge wins often. It is for these reasons that our fund performance has been strong, as you can see on Slide 9. We are equally excited about our prospects and our new strategies in logistics, net lease income, single-family for rent, opportunities on development and Agency MBS.

We published our inaugural firm-wide ESG report last spring and will release our second annual ESG report later this quarter. As the United Nations PRI signatory, Bridge completed its first PRI report submission in 2021 for our equity strategies. Our commitment to sustainability reporting also included 2 first-time GRESB reporting submissions for the Bridge Workforce and Affordable Housing Fund and the Bridge Office Fund II. Bridge became a supporter of the Task Force on Climate-related Financial Disclosures, as well as completed a TCFD maturity assessment in 2021. In early '22, we launched a dedicated climate change task force comprised of senior leadership. Over the course of 2021, our Diversity, Equity and Inclusion Committee and passionate advocates drove company-wide programming that supported diverse hiring and retention, education and awareness building, a firm-wide diversity assessment and the launch of 6 additional employee resource groups, or ERGs, Bridge was also a leader in the real estate industry and recognizing Juneteenth as a paid company holiday.

We are also thrilled to share that 55 Bridge owned commercial office buildings earned the highly acclaimed WELL Health-Safety Rating in early 2022, an example of our commitment to implement evidence-based strategies that support the overall wellness of our properties. Furthermore, the Bridge Workforce and Affordable Housing strategy received multiple awards in 2021, including Best ESG Fund in Private Equity by ESG Investing, Social Funded the Year by Environmental Finance, and ESG Private Market Strategy of the Year by Pension Bridge.

Before I turn the call to Jonathan, I'd just like to reiterate the importance we place in serving all of our stakeholders. As I noted, we are proud of the returns we drive for our shareholders and fund investors, but we also view the value we create for our employees, partners and those that occupy our properties as imperative to our strategy and success, whether it be our commitment to investments in alternative energy such as solar or through our work with employee resource groups, we are proud of the difference that Bridge makes every day.

And with that, let me turn the call to Jonathan.

Thank you, Bob, and good to speak to you all again. Bridge had a great fourth quarter, which is a perfect way to cap off a momentous year for our company. As you can see on Slide 12, Bridge's total revenues for the fourth quarter grew 50% over the same quarter last year to $107 million. This is our highest quarter on record. And notably, 3 of our top 5 highest quarters have been reported in the last year. Our investment income of $148 million was nearly double the same period a year ago. For context, this exceeded last quarter by nearly 75%. Similarly, net income of $166 million was up 79% year-over-year. Fee-related earnings for the quarter increased 57% over the same quarter last year to $36 million. This growth has been driven by record deployment combined with record capital raising. Our realized performance fees for Q4 totaled $10 million, but most impressively, our unrealized accrued carry grew to $440 million. In line with Bob's comments on Bridge's strategic advantages, this performance is both from Bridge being in the right sectors, as well as our outperformance in these sectors, driven by our unique approach to our in-house management. Distributable earnings of $39 million for the quarter increased 12% from the same period in 2020. All of this helped drive impressive results for the full year of 2021. Total revenue increased 42% from 2020 to $330 million. Realized performance fees of $83.4 million were up 97% and unrealized carry of $440 million, which represents approximately $164 million of future distributable earnings to the company.

Turning to Slide 13. You can see in these graphs, the tremendous growth I just procured. I'd like to give some color on the drivers of these metrics relative to the business strategy and capabilities we spoke about at the top of the call. Our fee earning AUM grew 31% in 2021, largely by outstanding LP capital raising and deployment over the year. And as you can see in the lower right, distributable earnings grew by 57%. Dean will speak to our capital raising in a minute. What is important to understand is that, Bridge continues to be able to scale, both in capital raising and deployment while seeking top quartile returns.

We believe Bridge has a significant strategic advantage because we have local knowledge from our boots on the ground and our in-house management of our assets at a national scale. This helps our investment teams. These strategic advantages are really what drive returns and earnings for Bridge shareholders that you see on the remaining 3 charts on this page. Each of them, new records for our company. One thing I will highlight is that, there is seasonality to our business, particularly as it relates to first quarter of each year. Historically, Bridge has generated less than 15% of its annual fee-related earnings from Q1 and nearly 2/3 of the fee-related earnings have come in the last 2 quarters. In 2021, 66% of our fee-related earnings came from our last 2 quarters. Katie will elaborate on this, but we'd expect a similar pattern in 2022, where our earnings are stronger in the back half of the year.

On Slide 14, we can see the visibility and duration of Bridge's fee streams. Over the past 5 years, Bridge's fee-related revenues have grown at a compounded annual growth rate of 30%. More importantly, the growth of our recurring fund management fees has increased by a compounded annual growth rate of 44% over that same period. As noted, the macroeconomic demand drivers related to the shortage of residential housing, logistics real estate, combined with the deep and growing demand for commercial real estate exposure among institutional investors gives us confidence this growth will continue. Specifically, the trend towards more open-end capital, longer duration funds, combined with larger vehicles and new strategies, single strong visibility into more durable and stable fee-related revenue streams. In the fourth quarter, capital commitments had an average duration of 10.8 years. And as you can see on the chart on the right, as of year-end, over 76% of our fee-earning AUM had a duration over 5 years, and we increased our weighted average duration of our fee-earning AUM from 7.2 years in 2020 to 8 years at the end of 2021. In total, a deep market with strong demand drivers and long-dated capital is a powerful backdrop for our model, and we are excited about what lies ahead.

Turning to Slide 15. I'll take a minute on our performance fees for the quarter. As mentioned, we generated $10.3 million over Q4. That was driven mainly by realizations in multifamily and debt strategies. As we have noted in the past, realization of performance fees vary substantially from quarter-to-quarter, but the market conditions were strong in both Q4 and the full year of 2021. Rising interest rates and inflation have not materially impacted commercial real estate pricing or cap rates. Instead, we are seeing demand tailwinds for assets like residential and -- residential rental and logistics that have been so strong that we continue to see values rise and cap rates compress. As we introduced last quarter, we believe the best view of our performance pipeline can be seen in our accrued performance allocation.

We've updated on the upper right of this page, and you can see that the market remains very strong as evidenced by a 46% increase in that accrual to $440 million. Timing of realization of these performance fees will vary. But at the bottom right, we present unrealized performance allocation by fund vintage. While the majority is in funds that are less than 4 years old, nearly 22% are nearing their seventh year, which is a typical seasoning for the realizations. Again, the trend for larger, longer duration funds, combined with our ability to scale deployment presents a strong backdrop for performance fees to continue on a strong growth pattern. As previously noted, we have approximately $164 million of potential future distributable earnings in the operating company on the balance sheet.

Turning to Slide 16. It is my pleasure to present an exciting new growth driver for Bridge in the single-family rental sector. As you likely saw, we announced the launch of single-family residential strategy, along with the majority acquisition of the management platform of Gorelick Brothers Capital. In partnership with the principles of Gorelick, which can execute against another investment class with significant secular demand drivers. As we mentioned, the chronic undersupply of housing in the U.S. has driven our focus in the multifamily housing space for years of Bridge. While homebuilding has increased, it continues to lag and in many ways, has widened the affordability gap for many first-time homebuyers. Additionally, demographic tailwinds for young Americans beginning families and creating households is still in its early years. We also believe that the single-family residential sector offers a broad addressable market with lower institutional competition and our local approach, which we believe can be highly effective, will succeed in this area. For context, the market for institutionally managed single-family rental housing has grown substantially in the past decade, but remains highly fragmented and only 2% is institutionally owned. Better yet, our new partners from Gorelick share our passion and belief that value is driven through operations, and they are experienced, vertically integrated operators of single-family residential. So they bring breadth and capabilities that fit very well with Bridge's model and will be synergistic to our existing portfolio in multifamily.

On Page 17, you can see Bridge now has a significant presence across all residential for rent asset classes that cover the full cycle and can leverage our market knowledge and tenant base across the country, including our single-family residential investments and operations, as well as our other existing sectors. Bridge's portfolio currently includes over 47,000 multifamily units, with another almost 20,000 under construction in the Opportunity Zone platform. Adding a growing portfolio of single-family for rent and the almost 12,000 seniors housing unit allows us to leverage our relationship with our renter base throughout the life cycle of every household. Our procurement capabilities, our insurance services, our community service and other resident programs allow us to deliver better value to our residents and to our shareholders.

With that, let me turn the call to Dean to give you the highlights of a very successful year of capital raising in Bridge.

Thank you, Jonathan. As Bob and Jonathan mentioned, it was a great year for Bridge's fundraising honor. We raised $5 billion in LP capital, which is over $1 billion more than our previous peak in 2019. Our success was partially aided by the strong market backdrop that Bob detailed. That said, we believe Bridge benefited most from the continued evolution of our next-generation fund, as well as the launch of brand-new vertical strategies to 2021. In total, Bridge launched 4 funds in 2021 with 2 being next-generation funds. A typical Fund II has generally raised 2x the amount of capital from Fund I. Lastly to dovetail on Jonathan's last page, Bridge had a successful first investor closing of our single -- first single-family for rent fund at a size of $240 million to acquire an existing portfolio in connection with the launch of our single-family rental strategy in January 2022.

Before I speak to the pipeline demand, it's worth repeating the fundraising success that we had in 2021 is closely related to strategic advantages that Bob and Jonathan noted. Bridge's built to invest with better information at scale and commercial real estate. As a result, we can deploy capital efficiently and drive better returns. Those returns on track -- record track and retain our investors, which helps Bridge marks the new investors and launch new strategies. It really is symbiotic. And as a result, we've built a very efficient flywheel largely because we control each function.

As for uptake and distribution network and pipeline, first, I'll note that Bridge is making great early strides to expand internationally. Over the course of 2021, we have hired key personnel in our Client Solutions Group, with aesthetic focus on generating incremental investors in EMEA and Asia. Additionally, we had capabilities our in Luxembourg to better serve European investors. For context, the institutional investor universe outside of the U.S. has largely been untapped by Bridge historically. And given our ability to scale, we are very excited about the potential in the years ahead and have already put a strong number up in 2021 with over 27% of our capital being raised internationally.

Lastly, turning to demand. I believe Bob covered it well as -- in his remarks, but from our sheet is very clear, especially in light of recent inflation figures that investors from warehouses, the largest institutional investors in the world are all seeking to commit capital to alternative and specifically commercial real estate at an increasingly rapid rate as compared to historical allocation.

As Bob mentioned, performance of our funds led to successful next-generation fundraising and scale on our growth. The current post-COVID environment has enabled the expanded team to get back on the road with key domestic international investment meetings, including the sovereign wealth funds, pension plans, insurance investors, family offices and warehouses. Desire for meeting specific to our follow-on funds in multifamily, workforce, affordable, as well as new offerings in single-family rent, logistics and net lease has enabled us to forge new LP relationships and expand our existing LPs, firming our ability to cross-sell across all investor types. This has also proved out in the fourth quarter as due diligence meetings were at an all-time high across all of our offerings with further acceleration during meetings this year. This increase in investor due diligence, along with our continued strong returns, parallel with a broadening and more global investor universe. These conditions make for a compelling fundraising dynamic in 2022 and the years ahead.

Before I turn the call to Katie, I'd just like to highlight 1 figure on this page, which we think summarizes the scalability of our model well. If you look at the chart here, the $2.1 billion deployed in the fourth quarter was not just a record for the company, but as a [figure] that eclipses every quarter fundraise in our history, except this past one. The internal process and this deployment of capital starts with our top-down approach to prime growth markets with underlying supply-demand imbalances. Our teams literally see thousands of assets that are reviewed and curated down to a select few that match our ability to drive value. This process is embedded throughout the organization with formal to fund their approvals in our weekly investment management committee meetings. As Bob and Jonathan said, Bridge is uniquely well-built to execute at significant scale.

With that, I'll turn the call over to Katie.

Thank you, Dean. I'll start on slides 22 and 23. As everyone has noted, it was a record-breaking year and 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 the execution on our financial performance. I will mostly focus on our fourth quarter results for purposes of this presentation.

Our total revenue for the 3 months ended December 31, 2021, was $107.3 million compared to $71.7 million in the same period for the prior year. This is due to a 55% increase in fund management fees, which was primarily due to an increase of 31% of fee-earning AUM year-over-year and $5.2 million of catch-up fees, which will increase our recurring fund management fees. On an absolute basis, catch-up fees during the quarter were $13.3 million.

Additionally, our transaction fees are up 70% over the prior year, which is driven by $2.1 billion of deployment during the quarter. Bridge continues to trend very strong in the final quarter of the year with 33% of our revenue coming in the fourth quarter, consistent with the seasonality that we've historically observed within the commercial real estate space. We want to highlight for our analysts and investors that the first quarter of any year tends to be slower from a volume perspective, and as a result, we would expect to step down in our transaction-based fees in the first quarter of 2022 from the Q4 2021 levels.

If we turn to investment performance, you can see the value that has been created through our due diligence, focusing on value-add assets in high-growth markets. Our total investment income for the fourth quarter increased 87% year-over-year, driven mostly by unrealized carried interest of $137.6 million, offset by lower realized carried interest and incentive fees of $10.3 million versus $28.5 million in the prior period.

As Jonathan and Bob spoke to previously, the runway procedure performance-driven distributable earnings is significant, while the quarterly realization pace will vary based upon timing. We also have a corresponding increase in employee compensation invested, which was largely due to an increase in our investment professionals and corporate employee headcount related to our increase in fee-earning AUM and new strategies. Additionally, during the fourth quarter, we incurred approximately $1 million in costs related to being a public company and approximately $1 million of transaction costs related to the SFR acquisition. Overall, it was a strong quarter with GAAP net income to the operating company of $165.8 million versus $92.5 million in the prior year, and our earnings per share was $0.52.

Next, on to our non-GAAP measures, turning to Slide 23, please. First, our total fund level fees for the quarter grew at 61% over last year to $81.6 million, driven by strong growth in our contractually reoccurring fund management fees, powered by the continued AUM growth. Our transaction fee growth was also very strong as previously discussed. Total fee-related revenues grew by 63% over last year to end the quarter at $87.8 million. The performance was driven by continued strong fundraising, fee-earning AUM growth and effective deployment. As you've heard many times already, we believe that Bridge's performance is driven in large part by vertical integration. We drive value in our ability to make direct change at the operating level and to create alignment through a common vision with the entire team, and this starts with our deployment at acquisitions 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 fee.

Based upon the growth in our fee-earning AUM and elevated deployment during the quarter, we once again generated strong fee-related margins of 57% for the fourth quarter and 55% for the year. Our margins will vary quarter-to-quarter. However, on an annual basis, our margins have risen over time, and we are optimistic that they will continue to increase as we scale. The strong growth in fees drove total fee-related earnings to the operating company of $35.5 million, up 57% compared to the fourth quarter last year. As previously mentioned, realized performance in incentive fees for the fourth quarter drove $10.3 million. The performance fees were driven by realizations in the multifamily and debt strategy verticals.

Lastly, our distributable earnings for the quarter were $38.7 million or 12% higher compared to a year ago on a pro forma basis and an impressive $134.6 million for the full year 2021, an increase of 57% year-over-year.

Turning to Slide 24, our pretax distributable earnings for the fourth quarter to the operating company totaled $38.7 million or $0.35 per share, up 12% compared to a year ago on a pro forma basis, driven by all of the components of our business we detailed, including our strong fee-earning AUM growth, fee-related earnings and realized performance allocation.

As you saw from our earnings release, Bridge also declared a dividend of $0.21 per share. The share count includes the collapse of the 2019 profits interest program on January 1 of 14 million units, as well as the 2022 restricted awards of 2.2 million shares and 694,000 operating company units related to the acquisition of the SFR platform. We have laid this out for you on Slide 33. The class of the 2019 profits interest was accretive to public shareholders. The DE to the operating company for the fourth quarter and year-end would have been USD0.08 and USD0.19 higher per share, respectively, on a pro forma basis as the class of these grants had occurred on January 1, 2021. As the 2019 tranche was the largest portion of the profits interest, income allocated to non-controlling interest should decrease significantly, although we'll continue to break this out in the MD&A disclosure going forward.

Finally, I would like to note that Bridge continues to have significant available capital and relatively low debt. Among other opportunities to deploy our capital and grow our business, we're excited to announce that since we last talked, we have made $21 million of commitments directly into our funds through which our public shareholders can share directly in the value creation of these funds.

With that, I'll turn the call back to the operator so we can take your questions.

(Operator Instructions) Our first question today is coming from Bill Katz from Citigroup.

Maybe if we could sort of zero in on the retail opportunity. I was wondering if you could just give us a snapshot of what kind of volume you got from the retail channel in the fourth quarter, where the AUM are? And on one hand, it seems like a tremendous amount of momentum with new products. On the other hand, it seems to be rising competition. Can you talk a little bit about how you sort of see your positioning as you look into '22?

I'll make a couple of comments. This is Bob speaking, and then turn things over to Dean to detail some of the precise volumes. You're right in your assessment, the retail interest in real estate is very high, continues to be very high. I think premised on the fact that real estate provides good yield as an investment. The returns have been very strong. The tax profile of an investment in real estate is very favorable relative to many different investment alternatives. So we see strong continuing demand. As you know, Bridge has a number of relationships with a variety of warehouse distribution platforms across the U.S., as well as internationally. We've expanded those networks over the course of 2021 and in particular, in the fourth quarter, and we continue to see really great promise there. I think our overall retail focus is further supplemented and augmented by the fact that we have a strong direct family office and high net worth and ultra-high net worth coverage effort that's directed individually by our Client Solutions Group within Bridge as well. So a lot of momentum. We think a lot of demand going forward.

Dean, do you want to detail in a little more specifics what we've raised from the retail channel?

Yes. I mean, substantially last year. I think if you include, Bill, retail as well as family office, high net worth foundation, which some of that funds together from -- on the warehouse side, too, because there's -- because of these FAs kind of net that sector as well, probably about a good, call it, $3 billion or so, of our $5 billion came from that channel overall. So it's been good to us. I'd also comment, as we've gone to 2022 here, our -- we are now -- we're doing multiple products across the board with the warehouse in particular. So we've been able to, not only deepen our ability to have a project across the warehouses, but now we're having multiple products across multiple warehouses, too. So it really has been kind of great, not to oversell here a little bit, but it's been great. We've been able to have, whether it be Opportunity Zones, Workforce and Affordable Housing, Multifamily V, discussions about other products where we're sort of queuing them up. And the way that -- the warehouse in particular the way it works is sort of -- you got to kind of fight for your slots, for lack of better way to put it. And it feels like we're probably getting more than our share at this point in time. I hope I can keep saying that into the future quarters and years, but it feels pretty good overall.

Okay. And just as a follow-up, and I apologize you were sort of given some signaling on this. Could you sort of go through the seasonality of the platform just from an FRE perspective, maybe level set exit pace or entry pace for both base management fees, as well as maybe expenses as you look to the first quarter, how we should sort of think about the sort of the pacing of that as we look out for the full year? I certainly appreciate higher margins here and I just want to make sure I have it right on sort of a quarter-to-quarter basis.

Jonathan, do you want to address that?

Sure. Yes. I mean, I think that we've always guided you guys about margins that they are variable. And I think we had a strong margin quarter and year this year. Our margins historically have been kind of in the, call it, 50% range. And long-term, that's kind of the range that we expect them to be in. So, I think that we have, again, various products that drive different margins. But most importantly, it's really about the timing of catch-up fees and when we actually see those fees for various closed-end funds, as you know.

I think one of the other important things this year is that, we have a huge amount of growth in our company. So we were really excited because we've launched the logistics value team, that's going to generate a huge amount of highly profitable business for us going forward. But right now, we've invested in a really large team. It's scaled. We're deploying significant amounts of capital. We're raising significant amounts of capital, but we're in that ramp-up. So it's kind of a start-up. So right now, those -- for 2022, we expect to be sort of a drag on our overall earnings. Single-family for rent, even though we're launching with really good momentum, same thing, we're building that platform, and that's going to scale really substantially. So -- and even some of our less new but still newer strategies, logistics, net lease, AMBS, all of which in 2022 are really gaining significant momentum, as Bob and Dean can address on both the capital raising side and on the deployment side. But that's going to indicate some lower margins.

I think the other thing that everyone -- for 2022. The other thing that we talk about is, just the way the Bridge has always been, including 2021, where our margins or our total FRE is heavily back-end weighted. And so, we expect to see that again. Part of that is, again, the momentum we're actually building in those new strategies that I just described. So we're really excited. I think we're heading in the direction that we had originally focused everybody. But 2022 is going to be a building year, I think, still very profitable but a building year.

Our next question is coming from Ken Worthington from JPMorgan.

I wanted to further flesh out the acquisition of Gorelick and get a number of details around that transaction. Maybe part of that is, how do the economics of SFR IV work? What's the target size, fee rate, performance fee structure? Just give us some details about that, I think, probably flagship fund for them. And then in terms of the economics of Gorelick, can you tell us what fee-paying AUM ended the year? And what sort of fee rate we should expect on their business on their fee-paying AUM going forward? And, I guess, you hinted that the margins are lower. Is Gorelick making money? Should we expect that to be a little drag or a big drag? So anyway, all that wrapped into a question on Gorelick.

Sure. Remember, we closed that transaction on January 31 of this year. So, no 2021 impact. It will be a 2022 event. And as we indicated in our press release at the time of the closing, we acquired 60% of the operating platform, Gorelick Brothers, and we recapitalized an approximately $660 million portfolio of about 2,750 homes, plus/minus, as part of that transaction. In doing that, we -- that recapitalization, we launched the fourth fund on the Gorelick platform. We brought in about $230 million, plus/minus, of equity capital to both capitalize that recapitalization, as well as provide some dry powder to continue to grow the single-family for rent portfolio. We have a great pipeline of activities. There has been a flurry of early activity, which we think will continue as we integrate the Gorelick Brothers team and approach and platform with our extent multifamily and other residential, both investment and operating platform. We had a really productive series of meetings in our offices to identify areas of overlap, identify areas of coordination and efficiency, and in fact, the CIO of Gorelick is with a team in New York today, meeting with some investors as well. So lots of activity there, and the activity is quite robust in a lot of respects.

We're really excited about the outlook for the single-family for rent business. As Jonathan stated, it's just a nascent business from an institutional perspective. We think that Bridge in combination with Gorelick now named Bridge Homes has a highly differentiated competitive profile, particularly because of the 1,000-plus professionals that we have on the operating side in multifamily, which translates so directly to single-family for rent. So we think we will offer a really competitive profile in terms of both growing the portfolio and cost effectively and efficiently managing the portfolio.

We're raising up -- our objective is to raise a 10-year closed-end fund. Our capital objective for equity is about $1 billion. We had a strong first closing to affect that and a lot of dialogue going forward. The fees and other revenues related to growing and managing a single-family for rent portfolio or somewhat commensurate with what they are for multifamily, depending on the size of the investment we charge a management fee and performance incentive fee, along with various ancillary property management fees, et cetera, that -- for services that Bridge provides.

Okay. And is this the only Gorelick vertical? Or are there other growth verticals? And what did Gorelick sort of end the year at? So like I see what you've raised. Did they have any other fee-paying AUM outside of the money that was just raised in 1Q?

They have a modest legacy business with a couple of earlier portfolios that are still being managed and operated. The economics of the vertical, if you will, are pretty directly dependent on what our activities are going forward.

Makes sense. And to follow-up on Bill's question, maybe said differently, compensation was $31 million in 4Q. You did talk about the seasonality of activity, seasonality of the business. Of the $31 million in 4Q, what part of that should we think is being recurring as we start 1Q and 2Q of the year? Should we think about 1Q starting at $31 million as part of that? It was a great year and cash bonuses were big, and therefore, we were set lower for 1Q. Anyway, just need some help on what our starting point is as we start the new year for comp?

So I think Jonathan can provide or Katie can provide some more detail. I would maybe start off by saying that, of course, our business is highly dependent on attracting and retaining great people to execute on the business model. We pay semiannual bonuses and one of those semiannual periods ends at the end of the year. So there is some lumpiness in compensation going forward. We think that Bridge is a great employer. We've been able to attract and retain some -- retain a great number of fantastic people, and we've detailed the hiring that we did over the course of 2021 as well. So we think we're entering 2022 with a very fulsome team, very capable. There are, of course, wage pressures throughout the industry, and we're not immune to that, but we think we're growing revenues well in excess of how we're growing expenses.

Jonathan, do you want to -- any other details on?

I'm going to let Katie jump on this one. Okay, Bob?

Sure. And just to give you a little bit more specific guidance. A lot of our key hires did take place in Q4. So we would anticipate that for Q1, it would be relatively consistent with what you saw for Q4.

Our next question is coming from Michael Cyprys...

I think the one thing -- sorry, sorry. The one thing to note probably is that, we brought on the Gorelick platform, right? So the SFR platform will be layered into what you're going to see, right, for Q1?

Even with SFR, it should be relatively consistent.

Our next question is coming from Michael Cyprys from Morgan Stanley.

I wanted to circle back to some of the newer adjacent strategies with logistics, net lease and industrial. I was hoping you could update us on the progress there, the build-out, the headcount, are you guys still hiring there, talk about some of the initiatives and where you stand today in terms of AUM and how the fundraising is progressing with those newer strategies?

Sure. We're really excited about what we're doing in logistics, as well as in net lease income. Over the course of 2021, we went through a substantial team building in both of those areas. And we think we feel fully capable and very competitive teams across both of those sectors. We made an announcement about a joint venture with The Townsend organization to invest in a number of logistics value-add properties. We anticipate launching formally our logistics value-add fund later this year. We have a couple of other corollary initiatives to deploy capital into what is a really attractive space across the logistics value-add side of the business.

And as we detailed in the past, logistics today represents a pretty small percentage of our overall business, but we think it has enormous growth prospects going forward. The amount of both institutional and retail interest in logistics is running very, very high. And our -- the team that we've assembled brings literally decades of successful investing experience to that sector.

On the net lease side, we view our net lease business, which has a logistics and distribution primary orientation to it as a great opportunity to offer tax-advantaged yield-oriented products to investors. And so, it fits so well with what we're doing on the real estate-backed fixed income side, on the agency mortgage-backed security side with an open-ended fund format for net lease income that gives investors an exposure to yield with the confidence of collateral that hopefully will be rising in value over the lifetime of the [hold] there. We've had a couple of closings in that vertical. We continue to have a lot of dialogue around the net lease opportunity and we have some ambitious targets for the rest of the year as we continue to invest in and grow that vertical.

And just a quick follow-up on the new senior living co-investment venture that you guys announced with StepStone. Maybe you could just talk a little bit about your aspirations there? And what the economics could look like for Bridge?

Seniors housing is really one of the components of our overall suite of residential strategies. We feel coming out of the pandemic that seniors housing is poised to perform very well. The COVID lockdowns were not particularly kind of seniors housing. There was a significant diminution in occupancy, just given that the front door was closed and the back door was open in some respects. We're -- we see -- what -- I think we've characterized as record levels of inquiry and tours and expected growth in occupancy, as well as rents going forward.

The SMA that we announced with StepStone is a complement to our fund strategy. We're in the market with Seniors Housing Fund III following the successful deployment of capital in Funds I and II. We think that the macroeconomics around seniors housing are strong like they are in multifamily, a growing cohort of 75-year-old plus potential residents. The amount of activity is quite high. And there -- at least as we know -- as far as we know, no other firm that is as well positioned as we are in terms of having an integrated both investment team, as well as property management team to deliver great service and value and comfort to the seniors housing residents and their loved ones. So we believe that the StepStone SMA will help to accelerate the growth of exposure for Bridge in that sector sitting alongside the fund.

Our next question is coming from Adam Beatty from UBS.

I wanted to ask about the mix of fundraising. The momentum is obviously quite strong. Results were great last year. And you mentioned that maybe $3 billion out of the $5 billion raised was sort of retail and adjacent. I appreciate the point about endowments and others going through like warehouse FAs. Do you expect that sort of mix or proportion to remain similar this year? I know you're expanding internationally. Maybe there's a different mix overseas or what have you. But I just wanted to get your thoughts on sort of institutional versus retail and the mix of future fundraising.

Dean?

Yes, I'd say, it's going to -- the institutional is going to increase. We've got some deep dialogues going and some further than dialogue at this point in time. With a lot of institutions, I would anticipate on our target this year that we maybe get to 40-plus-percent, I would think, because of these dialogues are very chunky, both domestically and internationally right now. So I would think that would swing up the institutional rank overall, still a very strong presence overall. We have different goals for this year versus last year as we grow. But I would think we're going to definitely go up from 30% to -- just because of the chunky nature in EMEA, Korea, in particular, as well as dialogues in North America we're having today with -- you saw -- you're hearing names, Townsend and the StepStone, you can sort of start piecing them together kind of what's coming together across the offerings here.

You know what's interesting is, 2021 was a transitional year. There were a lot of, particularly institutional investors who still weren't taking meetings with people. We think that, that's changing at this point of the expanded Client Solutions Group team that we have. As far as I can tell, today, as just one data point, there's almost nobody in the office and there's nobody in the office because everybody is out seeing clients and potential investors at this point. So the level of activity has really, really ratcheted up in a lot of respects. The amount of dialogue, in-person meetings has ratcheted up as well.

As a relatively newer entrant in the markets, that's really important for us because so often, we are not the incumbent. We're winning based on how we performed, based on what our value proposition is going forward. And so, being able to have a robust often in-person dialogue around that is important. So we have some meaningful enthusiasm for 2022 in a revitalized environment.

A great sense of the -- kind of the trajectory and the pipeline. And I really appreciate that. And then just to kind of zoom out in a similar area, I guess, but I was captivated by the statistic around allocation, actual versus target, the 10.7% versus 9.3%. Just wanted to get your sense, maybe, Bob, over time, how you've seen that change? Is the target actually going up? And is the gap closing or just persisting a little bit? And then where, in terms of segments, maybe you see the greatest opportunity gap versus -- target versus actual?

We had a couple of data points in our prepared remarks that in the interest of time we deleted and we probably shouldn't have. I think that that target allocation has risen every year since 2013, if memory serves me well. And real estate, as an investment asset for a long time has been underallocated, that is projected by people who know about these things to continue to go up as a percentage of overall allocations. I think real estate as an asset class has performed very well also, particularly for taxable investors and there are some taxable and some tax-exempt investors, the tax efficiency of real estate is really strong as well. So we have a bullish outlook for what allocations will be going forward.

Our next question is coming from Finian O'Shea from Wells Fargo.

Back to the topic of inflation, understanding that's a positive on demand for your -- for demand for your products and strategies. How meaningful are the portfolio headwinds with cost inputs, for example, when we think about value-add strategy, senior housing and even generally on traditional multifamily? Any color you can provide?

Jonathan?

Okay. Just making sure I'm off mute. Can you hear me? Yes. So just -- can you clarify the question? You're concerned about -- your question is related to headwinds related to the costs that have moved up the expense and, call it, construction or replacement cost. Is that the question?

Well, yes, a lot of your strategies seem to have more OpEx stuff that's value-add, stuff like senior housing with a lot of labor input. If you see that...

Yes. Okay. Now I think I understand the question. Yes. I mean, there's no question that we'll take seniors since you grab that one. I mean, seniors, I think, is in a brief moment of where it may be the most challenging, right, because labor costs have gone up for everything everywhere. And I think Bridge's house view is that's a good thing for the world. So we're pretty constructive about people getting paid what they're worth at essential workers. So -- but that being said, it's going to take -- because Bob alluded to or not alluded to, but outright stated that, during the pandemic, the back door was open and the front door was closed. So we lost a lot of occupancy. We've gained back a good portion of that. But until we start to get back to a point where our occupancies are pushing the 90%, it's going to be difficult to do a lot with rate in terms of cost and pass-through some of those extra expenses. So it -- I think our teams have done an amazing job. That's one of the great things about being operationally, vertically integrated is, we've been able to drive some amazing cost savings and really make up for a lot of that ground in operational efficiencies and use of technology.

But that being said, it's going to take a little while until we kind of get to the point where that's rebalanced. But because of the strength of -- as we like to call it the silver tsunami and what we know the demand is going to be for the needs-based housing we provide, we're very optimistic that will happen. On the multifamily side, it's a whole other story because the revenue growth has been so strong because of the supply-demand imbalance that the top line is just if you take 100% of the expenses in a typical multifamily, the revenue is 2x the expense. So if they're both going at the exact same rate, that's great for your NOI, right? And the components of the expenses that are growing, there is a heavy component of payroll. But payroll really in the world of expenses of multifamily is a relatively smaller one. Property taxes are, for example, significantly higher. But there are a lot of expenses that are moving up on the expense side. It's just the revenue is just by far outpacing -- the revenue growth is outpacing the expense growth, and it's already, as we said, 2x larger. So it actually -- margins are really good. The forecast for operationally for multifamily and frankly, same story with single-family residential. All of this bodes, I think, extremely well.

As far as construction costs in development of multifamily and/or costs relative to rehab or renovation of our units, those are going up. But again, the value that you can drive is also going up. So the return on investment continues to be stronger. I mean, we looked at -- since we have like 20,000 units under construction in our Opportunity Zone funds, and we've had some -- as you can well imagine, when you underwrote those deals pre-pandemic, we've had some cost overruns. But when we look at the revised pro formas with very conservative revenue projections, our return on investment and our stabilized cap rate on costs keep going up. So overall, it's been constructive. Obviously, I think we'd all like to see the rate of everything kind of slow down to a more manageable pace, but so far so good in terms of how it's working in our world.

We reached the end of our question-and-answer session. I'd like to turn the floor back over to Mr. Morse for any further closing comments.

Great. Thank you. Thank you all for joining us today on this call. We hope that we adequately communicated the momentum that we experienced in the fourth quarter. Our positive outlook for 2022, I think as somebody said, we do work in a competitive environment. We think that Bridge is built to succeed in that competitive real estate investment environment. We continue to invest in our organization. We continue to invest in our people. And we continue to deliver really strong returns for our fund investors. And with those principles in mind, we hope that we can outperform in the public markets as well.

Thank you all for your interest, and we look forward to a continued dialogue. Have a great day.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time. And have a wonderful day. We thank you for your participation today.

Goodbye.