Bridge Investment Group Holdings Inc (BRDG) 2022 Q1 法說會逐字稿

Greetings. Welcome to the Bridge Investment Group's First Quarter 2020 Earnings Call and Webcast. (Operator Instructions) Please note, this conference is being recorded.

I will now turn the conference over to your host, Bonni Rosen, Head of Shareholder Relations. You may begin.

Good morning, everyone. We appreciate you joining us for the Bridge Investment Group First Quarter 2022 Financial Results Conference Call. Our prepared remarks will include comments from our Executive Chairman, Robert Morse; Chief Executive Officer, Jonathan Slager; and Chief Accounting Officer, Katie Elsnab. We will hold a Q&A session following the prepared remarks, where we will have Dean Allara, Vice Chairman and Head of our Client Solutions Group join.

As a quick housekeeping item, please note the new format of our supplemental earnings presentation, which is designed to complement our prepared remarks and provide our shareholders and constituencies with comprehensive data and full transparency. As always, we welcome feedback on our materials and hope you find the new layout helpful.

During the call today, we will discuss certain non-GAAP financial metrics. The reconciliation of the non-GAAP metrics are provided in the appendix of our supplemental slides. The supplemental materials are accessible on our IR website at ir.bridgeig.com. These slides can be found under the Presentations portion of the site along with the first quarter earnings call event link. They are also available live during the webcast.

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

Thank you, Bonni. We're excited to announce another solid quarter for Bridge. Momentum through year-end 2021 continued and in 1Q 2022, Bridge again produced strong growth across each of our key metrics. First quarter of 2022 was the best first quarter in our history. Distributable earnings per share more than doubled year-over-year to $0.28 a share, driven by a healthy combination of management and performance fee revenues across a broad and growing set of fund strategies.

Fee-related earnings to the operating company more than tripled to $45.4 million year-over-year, and fee-earning AUM now stands at $14.7 billion, which is up 43% year-over-year. These results continue the track record of strong and consistent growth Bridge has delivered for many years. As of the end of first quarter, our fee-related earnings and AUM have grown at respective compound annual growth rates of 43% and 40% over the past 5 years.

Jonathan and Katie will give more detail in a moment, but my key takeaway from our first quarter is that Bridge continues to execute and scale our differentiated fundraising and investment approach focused on some of the most attractive sectors within real estate that aggregate to a large and growing total addressable market. Macroeconomic and geopolitical events are dominating headlines and impacting markets worldwide. In the context of increased public market volatility, higher interest rates and the broad-based expectation that rates will continue to rise as the Fed raises the Fed funds rate and sales investment holdings instead of purchasing additional securities on a monthly basis, we continue to believe that the U.S. remains an attractive market in which to invest and in fact, in our view, is the preeminent investment destination globally.

Strong relative economic growth, healthy consumer and corporate balance sheets, high household formation, low unemployment and high wage growth are just some of the positive characteristics that define the U.S. economy. Fiscal and monetary stimulus supported strong growth during the COVID pandemic, but also exacerbated supply side challenges and contributed in part to the elevated levels of inflation across sectors today. Of course, we are acutely aware of the inflationary pressures buffeting the U.S. economy currently and the impact of inflation on our investment verticals, especially as we develop new assets and repair and rehabilitate the value-add assets that we typically invest in.

We have navigated well through supply chain issues and cost pressure in the past and hope we can continue to do so looking forward. Centralized procurement and careful planning have served our projects well. In addition, higher rates have affected projected returns for new investments, and we have adjusted our acquisition and development pro formas appropriately. We believe that the tailwinds across our verticals, high household formation, strong rent growth, strong consumer balance sheets in residential, the continuing and dire need for added infrastructure investment in logistics and the ever-present hunt for yield in the fixed income sector counterbalance many of the macro headwinds.

To date, we have not observed a significant change in the underlying fundamentals for our core real estate investment sectors in the U.S. and observed tailwinds across most, if not all, of our specialized strategies. While the macro and geopolitical stresses will likely continue, our investment strategies have historically remained resilient in a wide range of market outcomes.

Bridge recently published our comprehensive 2022 real estate market outlook co-authored by Jack Robinson, Managing Director of Research and our various sector heads. Our views of the current investment environment are summarized by the following observations. First, the U.S. remains the preeminent investment destination. In our areas of focus, capital inflows into U.S. real estate climbed to a record in 2021 of nearly $250 billion and early returns in 2020 suggest a continuation of these trends. Second, housing is critically undersupplied, particularly for the underserved middle class and workforce cohorts in the U.S. and will remain undersupplied for years to come. Third, the U.S. has a dire ongoing and substantial need for infrastructure to facilitate the continuing growth of e-commerce and onshoring.

Fourth, notwithstanding recent and expected increases in interest rates, there's a global hunt for sustainable yield, which is increasingly satisfied via alternative credit vehicles, like those in our debt strategies, AMBF and net lease income strategies. With the 10-year treasury approximating 3%, the opportunity to achieve resilient, sustainable double-digit yields without a huge amount of financial engineering and backed by solid real estate collateral is very attractive. This ability to provide yield in combination with commercial real estate as an inflation hedge position Bridge well in the current environment.

Since our founding, Bridge is focused on fundraising and investment in markets and properties underpinned by long-tailed secular demand drivers like the ones I just described. We have purpose-built Bridge as a specialized investment manager, forward integrated into property management to capture alpha at the asset level as we optimize the value-add assets we acquire or develop. Our nationwide teams, which now total 1,980 people provide us with local nuance and knowledge, which allows us to identify and intimately understand our target markets and assets. More than many, we acquire assets one at a time, are selective in what we buy, develop bespoke individual renovation and rehabilitation plans for each asset and aggregate at scale. We don't have to pay a portfolio premium to efficiently deploy over $4.6 billion per year as we did in 2021, and therefore, can deliver best-in-class performance.

Our outperformance is a key driver to fundraising success, resulting in $1.1 billion of inflows during the quarter, which is typically the slowest quarter of the calendar year. In 1Q 2021, for example, we raised $175 million. 74% of our investors are repeat investors and 58% of our investors invest across multiple strategies. Additionally, each quarter, we add new investors, both institutional and in retail as our relationships with wirehouses and local, regional and national registered investment advisers expand. We added 9 new institutional investors in 1Q 2022 and have continued to expand our relationships with global wirehouses, RIAs and other wealth managers. In 1Q 2022, 54% of new funds raised were institutional in nature.

Lastly, we have just begun to scratch the surface of our opportunity to raise international capital. With continued momentum from our recent fundraising team expansion in Europe and Asia, 45% of capital raised in the quarter came from international clients. In my experience, a full calendar for investor meetings is a good sign in our business. And thus far, in 2022, we are busier than we ever have been across the investor universe and across our real estate verticals. Next week, for example, our expanded fundraising team will be actively engaged in meetings in the U.S., Europe, Asia and elsewhere.

With that, let me turn the call over to Jonathan to further detail our results and strategy. Jonathan?

Thank you, Bob, and good morning, everyone. Bridge delivered another strong quarter, and we are proud of how broad the success was from fundraising to investment performance, to integrating our entry into single-family rental, Bridge excels on all counts. Over the quarter, fee-earning AUM grew 10% sequentially from the prior quarter, which is up 43% compared to a year ago. Our pipeline for continued growth with both existing and new investors is deep and growing.

Over the first quarter, Bridge had successful closings in 8 funds, including multifamily, workforce and affordable housing, seniors housing, single-family rental, opportunity zone, net lease income, debt and agency mortgage-backed securities. We will have our final close in the fourth vintage of our debt strategies fund during Q2.

We had a stronger Q1 than anticipated due primarily to stronger transaction fee activity in connection with Q1 deployment and a large multifamily Fund V closing ahead of schedule. This effectively pulls forward some of the revenue and earnings we planned for later in 2022. Our funds also continued to perform well with realized performance fees totaling $8.9 million, which was 37% up compared to a year ago. Similarly, unrealized performance fees increased 148% compared to a year ago.

We have now crossed a milestone, achieving over $0.5 billion in unrealized performance fees providing the potential for $189 million in future distributable earnings for the operating company, up 145% to a year ago. While we are very pleased with our performance fees, I'm most proud of the continued track record of growth in our recurring fund management fees, which grew from $36.7 million to $44.3 million quarter-over-quarter and from $30.4 million a year ago, which represents a 41% compounded annual growth over the last 5 years.

We also had an active quarter on the transaction side of the business with more than $639 million deployed across all of our funds. More importantly, we have continued to deploy into high-performing assets and operate them well, providing top quartile performance. In fact, our Multifamily IV and our Workforce Affordable Housing I were both ranked #1 by Preqin as the top-performing real estate funds by net IRR for their respective fund sizes across all categories.

Even in the face of geopolitical turmoil, by inflation and rising interest rates, Bridge continues to see strong performance in the fundamentals across all of our verticals, but particularly in our residential and logistics verticals. According to a study commissioned by the National Association of REALTORS, the U.S. housing market has been underbuilt for the past 2 decades. Today, they estimate the gap to be at least 5 million units across single-family and multifamily product. In the fourth quarter, multifamily absorption surged to 673,000 units, more than double the previous decades average, pushing vacancy to an all-time low at 2.6% and rents up by 13.8% year-over-year in all classes.

Similarly, industrial demand drivers related to e-commerce in the United States continue to accelerate. According to a study by JLL, the U.S. is expected to grow its e-commerce revenue by $900 billion in 2025, which would equate to 1 billion square feet of industrial real estate demand.

Before I turn the call over to Katie to review our financials, let me provide an update on our newest investment strategies. First, in January, Bridge acquired majority ownership of the management platform of Gorelick Brothers Capital, which operates in the attractive single-family rental housing market. We have successfully raised $240 million, including co-investment capital in our first single-family residential fund. In conjunction with the launch of that strategy, in the first quarter, we have already begun acquiring individual homes, small portfolios and expanding build-to-rent relationships.

Since launching our logistics strategy in November 2021, we've been growing the business and are in a terrific position to invest at scale and through multiple deployment strategies focused on infill U.S. global gateway markets. Our regional organization structure is in place with boots on the ground in our key target locations, and we have deployed or are under agreement for approximately $1.5 billion in logistics assets, which equates to 8.3 million square feet of acquisition and development opportunities. We are already seeing the potential scale of this opportunity.

Bridge remains well positioned with over 85% of our current AUM in residential-related strategies. And moving forward, the largest growth part of our business is in logistics, which is experiencing unprecedented demand, which is expected to continue for the foreseeable future.

Our specialized vertically integrated teams due diligence process allows us to react dynamically to changes in the market. Bridge's core business is well suited to perform in inflationary times. And with our strong operating platform, we believe we can continue to drive alpha for our investors. As we begin to see the impact of higher interest rates on our market, we have started to see a transition from a seller's market to a buyer's market. Sellers have begun to eliminate weaker buyers from consideration and buyers have become more selective about asset end markets. But Bridge remains confident and optimistic about its strong portfolios and the opportunity the markets are presenting us.

Now over to you, Katie.

Thanks, Jonathan, and good morning. Despite the more volatile macroeconomic environment, we achieved strong year-over-year growth in management and transaction fees, fee-related earnings, investment income and distributable earnings. And as Bob noted, this was the best first quarter in our history as the fundraising platform continued to drive AUM growth, and the class of our 2019 profit interest program proved to be accretive to our public shareholders. Our total revenue for the 3 months ended March 31, 2022 was $104.1 million compared to $58.5 million in the same period for the prior year. This is primarily due to a 71% increase in fund management fees, which was driven by an increase of 43% of the earning AUM year-over-year and $8 million year-over-year increase of catch-up fees, which will increase our recurring fund management fees. On an absolute basis, catch-up fees during the first quarter were $8.4 million, which was mainly due to a larger closing in our multifamily Fund V.

As we mentioned on our last call, we have successfully internalized fund administration and you will now see a recurring revenue stream as a result. This was $3.6 million in the first quarter, and we expect a similar amount each quarter, which could increase over time as we scale. This is driving better reporting overall to our LPs with cost and operational efficiencies.

Additionally, our transaction fees are up 313% over the prior year, which is driven by $639 million of deployment during the quarter versus $212 million in Q1 2021. The higher activity was driven by multifamily, workforce and affordable housing and single-family rental strategy. While we had an impressive start to Q1, this amount was still off from the highs from the fourth quarter and as we noted on our last call, that is difficult to see with real estate transaction seasonality.

While Jonathan and Bob have focused on the opportunities and growth in the business in these less certain times, I want to spend a moment emphasizing the stability of our core business. We have included additional information about our recurring fund management fees, which are up 21% compared to the prior quarter. These are long-duration fees with an average tenure of 8 years.

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 first quarter increased 253% year-over-year, driven mostly by unrealized carried interest of $65.9 million and realized carried interest incentive fees of $9 million. The performance fees were driven by realizations in multifamily and debt strategy vertical. We have now hit the $0.5 billion mark in unrealized carry.

The runway for future performance driven distributable earnings is significant, although quarterly realization pace will vary based upon timing of disposition. We've also had a significant increase in employee compensation and benefits year-over-year, which was largely due to our increase in investment professionals and corporate employee head count related to our growth in total AUM and new strategies. This includes the addition of our single-family rental platform, which is partially reflected in Q1 with the acquisition at the end of January.

Additionally, during the first quarter, we incurred over $1 million in costs related to being a public company, which we did not incur in 2021. Overall, it was a strong quarter with GAAP net income to the operating company of $97.5 million versus $40.7 million in the prior year, and our GAAP earnings per share was $0.35. Our total fund level fees for the quarter increased 106% over last year to $74.7 million, driven by strong growth in our contractually recurring fund management fees powered by the continued AUM growth. Our transaction fee growth was also strong as previously discussed.

Total fee-related revenues grew by 110% over last year to end the quarter at $84.5 million. The performance was driven by continued strong fundraising, [BAA] loan growth and effective deployment. As we have said many times, we believe our vertical integration drives differentiated results for our LPs as well as direct savings. This integration also results in our transaction fees and net earnings from property operators becoming an extension of our management fees. Based upon the growth in our fee-earning AUM and the elevated deployment during the quarter, we once again generated strong fee-related margins of 54%. This was also higher than expected due to the larger close on multifamily side, which pulled forward additional fees, including catch-up fees. These margins include the expense we bear for our vertical integration and property management functions. Our margins will vary quarter-by-quarter and as we indicated last quarter, the building and scaling of our new strategies can have an impact on these ratios.

Total fee-related earnings for the operating company was an impressive $45.4 million, up 203% compared to the first quarter last year. This includes the impact of the class of the 2019 profit interest in the amount of 14 million shares. Additionally, there was a positive impact from the remaining noncontrolling interest in the amount of approximately $150,000 due to the loss in the newer verticals as they build to scale.

Lastly, our pretax distributable earnings to the operating company for the quarter were $47.9 million, up 183% compared to a year ago on a pro forma basis. Our after-tax distributable earnings per share increased 133% to $0.28 per share compared to $0.12 a year ago on a pro forma basis. This was driven by all the components of our business we've detailed, including our strong fee-earning AUM growth, fee-related earnings and realized performance allocation. Bridge declared a dividend of $0.26 per share, in line with our goal to distribute substantially all of our distributable earnings to our shareholders.

In closing, despite rising interest rates and inflation, we believe that we are well positioned with our strong balance sheet, carefully curated investment sectors and growing long duration fee-earning AUM.

Finally, I want to end by thanking our investors for their support of the company and all of our employees who work tirelessly to be best-in-class.

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

(Operator Instructions) Our first question is from Michael Cyprus with Morgan Stanley.

I wanted to circle back on the retail platform that you guys have. Clearly, a lot of your AUM already embedded in the retail channel. But I believe a lot of it is sold to QP. So I was hoping you could talk a little bit about the products on your road map that could help broaden access to the mass affluent space within retail. Maybe you could talk a little bit about what this requires from a distribution organization standpoint as you think about pushing those sort of products out to a wider audience and how you're thinking about this opportunity and the time frame there.

Thanks, Michael, for your question. This is Bob Morse speaking, and I'll address that. You're correct in saying that we have a really strong position with wirehouses. We do business with most of the major wirehouses perhaps, and hopefully, soon all of the major wirehouses in the U.S. offering our funds at the $250,000 and above level of commitment, so qualified purchasers in that respect. And our funds, we think have a broad appeal to that part of the market, generally speaking, high yield, really good returns, leading returns for, as Jonathan said, for many of our funds. And so a good track record and a good brand in the retail market at that ultra-high net worth level, if you will.

We've been, as we've messaged before, actively exploring opportunities to market, to the more mass affluent part of the market as well. Our early discussions have indicated that it should be a seamless transition. There are structural and organizational elements that have to be put in place to be able to offer an effective structure and vehicle that would be both appropriate for the mass affluent market and attractive. We think that we invest in some, if not all, of the really attractive areas within U.S. real estate and believe that as and when we launch a retail vehicle, we could do so with a differentiated structure and differentiated investment thesis that would help to really define the Bridge advantage in that area.

The retail space is -- although it's highly competitive at this point and there are a lot of entrants, it's underpenetrated in a lot of respects. So it's one of the areas that we have a great deal of focus on at this point. We don't have a particular timetable that we can share at this point, but it's an area of focus for us.

Great. And just a follow-up question, if I could. Just on fundraising. We're hearing some concerns around crowdedness and congestion in the institutional fundraising market. I'm just curious to hear your perspectives around that. To what extent are you seeing any sort of impact there in the marketplace? What impact that might have as you kind of roll forward from here over the next couple of months? And how the broader macro environment, inflation, geopolitical concerns may impact the ability to raise capital? Maybe you could just update us on sort of some of the strategies that you still have in the marketplace that you're raising here and what your perspective is on the time frame for those raise.

Thanks again for that following question, and I'll take a first crack at that as well. It's fantastic that the world is reopening and that people are taking meetings, and we're able to get out and meet people. Bridge is a -- not a new participant but a participant in the markets where we're creating new relationships on an ongoing basis. And it's harder to create new relationships by Zoom, not impossible, as we showed last year, and it's easier to create new relationships when you can show up.

We have an extraordinarily busy capital-raising calendar as we look forward. I mentioned in my prepared remarks, we have senior teams of people who are literally all over the world as well as the U.S. over the course of the coming months, and that's sort of the norm at this point as we reach out and we continue to expand our investor base on the institutional side as well as on the retail side. So we think we have some wind at our backs at this point.

We have some strategies that we -- that have been very well received in the market and are continuing to show a great deal of traction, notwithstanding the volatility in the public markets at this point. One of the values we think of investing in U.S. real estate and particularly one of the values of investing in often value-add U.S. real estate is that the current environment is supportive of the fundamentals for U.S. real estate and able to drive alpha at the asset level in terms of being able to offer yield that's competitive and in many respects, inflation protected at this point.

So there's some tailwinds around the strategies that we have. We are continuing to market our fifth multifamily fund with great effect. We're completing the marketing of our second Workforce & Affordable Housing fund, critical given the dire need for affordable housing in the U.S. and the great way in which we offer quality housing and community and social programming for our residents. We're marketing our single-family for rent fourth vehicle, and that's been well received as well. We have a logistics value-add offering. We have a net lease offering. We're just completing successfully our fourth debt strategies fund, and we have a very competitive fund in agency mortgage-backed securities as well. It's a long list, but each one of those is really attractive.

I think we're really excited as well that on the slightly more opportunistic side, we're seeing great traction in both our Seniors Housing Fund III and soon to be launched Office Fund III as well. So a lot of specialized offerings that cover what we think are some of the most attractive parts of U.S. real estate. That's specialization, which perhaps makes for a complicated venue of offerings, that specialization I think we've shown in the past really drives superior returns, particularly when coupled with the forward integration that's an integral part of our strategy.

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

I think you just touched on some of this in the previous question, but I was curious if you could expand on the market in real time, the turbulence we're seeing as it impacts market volume for what you're seeing in your pipeline. Are the cap rates and pricing changing? And is the volume changing as you look forward?

Jonathan, do you want to handle that question?

Sure. Happy to, and thanks for the question. It's interesting. I think you heard in my prepared remarks that we're definitely seeing some things shift in the winds. And one of the things that we are seeing is the, let's call it, less well-heeled investment investors and market participants are starting to lose ground. And so sellers are no longer as focused on getting, let's call it, the last dollar out of the investment and more focused on surety of close and execution when they're looking at transactions.

I think that we're starting to see a little bit of a shift toward more -- a little bit more of a buyer's market -- I'm sorry, a little bit more -- yes, a little bit more of a buyer's market. The seller's market is still -- the attractive assets are still getting great play, and there's still lots of energy around them. We are seeing a little, let's call it, being able to acquire things on more traditional terms, right, where we were seeing times when -- if you wanted to buy an attractive asset, you had to put up a lot of nonrefundable money and close very quickly.

We're starting to see this go back to more normal due diligence periods and more normal terms. But again, there's such a deep -- if you think about the secular demand for most of the sectors, especially multifamily and industrial, we haven't seen the transaction volume get significantly lower. We have had seen some sellers say, maybe I'm going to wait a little bit longer, but the deal flow right now that we're seeing is pretty robust. The difference is we're seeing a lot less competitors on the acquisition side. And we're in the midst of doing several dispositions, and we're still seeing really attractive pricing on those. I would say that kind of overall there's a bit of a win shift though. So that's kind of how I would describe the period we're in.

And again, one of the things that's happened is there's more -- I would say, when you look at the underwriting for these investments, there's more emphasis on the growth that we're seeing in rents and in revenues. We have tremendous rent lag because of the supply-demand imbalance and less -- a little bit less cash flow because interest rates have moved up. And so some of -- as cap rates continue to stay relatively low and in short-term interest rates move up a little bit more, we're seeing a little less cash flow, but we're still seeing a lot of growth. So still attractive, I would say, risk-adjusted returns in the sector and still, I think, a solid amount of investment capital from well-heeled institutional and private investors.

Great. That's helpful. And just, Jon, a small follow-up. You mentioned a couple of times, you're very constructive on logistics. Can you talk about the Amazon comments that seem to throw some of these names?

Yes. I was hoping you would ask about those. Yes, I guess everybody is focused on Amazon. They sort of dominate our universe, don't they? What's interesting is, I think -- and you've seen this response from multiple players that are extremely focused in the sector. There is so much demand. I think the overall view is that there's still a massive shift taking place to online and digital. And as we see that shift take place, and we're behind the curve relative to places like the U.K. and China and a lot of places in the world. We haven't nearly had the penetration that those places have. And I don't know anyone who doesn't see that trend continuing in terms of that penetration and that consumes a lot of industrial real estate. And I think the estimate over the next few years is like 1 billion square feet of industrial real estate. So it's a lot -- it's exactly might be 1.5 billion even. It's a big amount of demand and not all of that demand is from Amazon.

So the other thing that's happening is, as you saw the supply chain scare from most retailers, they've all decided that they're going to need to hold a little bit more inventory to make sure that they're prepared in the event of supply chain interruptions, which I think even today, given what's going on in China and everything, people are very concerned with, right? So when they can get inventory, they're getting inventory that they know they're going to need, which means there's an increase in the demand for warehousing space.

So again, across all of what we call logistics, the demand just continues to be greater than the supply and Amazon, although a very important player, they're not saying they're not going to participate anymore. They're just saying we're going to slow down the insane rate of growth that we had before, and we're going to take a little bit of a beat before we kind of start doing a lot more. And I don't think most of the participants in the market are super concerned.

(Operator Instructions) Our next question is from Ken Worthington with JPMorgan.

Would love to dig into the outlook for transaction revenue and transaction volumes. So with inflation, equity and credit market volatility, how do you see levels of activity that drive these transaction revenues over the next few quarters? You mentioned a couple of times this migration from a seller's market to a buyer's market. Will that have an impact? And then maybe lastly, the transaction fee revenue seemed robust to me given the level of deployed equity. So I assume there's something maybe on mix here either on due diligence fees or mortgage brokerage fees that drove what at least we thought was high transaction revenue given deployment. So what's happening in the mix there?

Jonathan?

Yes. Yes, I'm happy to -- I'm going to have Katie do the second part of the question. And I'm going to do -- I'll do the first part of the question about kind of volumes. And candidly, I think I said it in my remarks, our investment teams were getting candidly a little bit concerned about I don't know what the right term is, but the overall energy in the market. And we were passing on a lot of transactions that we loved because we felt like the numbers just weren't making sense. And we were holding to what we thought was the right value for the assets. And we used to be back in the days of Fund III, we call ourselves the greatest rebounder in the league, which meant that a lot of deals passes by went to a high bidder and then came back to us.

Well, it looks like our rebounding skills are getting put to work again now. We're starting to see transactions where more aggressive players are just not able to execute, and they're even walking away from relatively sizable nonrefundable deposits because their financing is just coming in below where they wanted it to and they're just -- they're having to tap out. And we're able to hold values in the levels where we think they make more sense and starting to see things.

So I think right now, we look at this and say, we're not expecting an acceleration of our transaction volume, but we are expecting to be able to continue to deploy, and we're actually very excited about at least the opportunity set that we're seeing and the pricing that we're seeing in that opportunity set across most of our portfolio. So our teams, I think, remain confident. I'm going to let Katie address the mix piece.

Sure. And a lot of the development fees that we recorded during Q1 were related to our development funds. And so there is a part of the revenue rec...

And transaction fees, yes.

Yes. Yes. Thank you. As part of the transaction fees, there is a revenue recognition criteria where a portion of it is deferred. And so about 75% is related to those developments.

Right. What you're seeing is a spillover effectively related to our opportunity zone funds. Does that make sense?

Yes, yes. That's great. Okay. And then I think you guys touched on this, but not directly. In terms of funds that are going to commence fundraising and make their way into fee-paying AUM in the next 2 quarters. Like what are the new funds or new vintages that are going to start to ramp up here again in calendar 2Q or calendar 3Q that we should make sure we're aware of?

Thanks, Ken. Remember, we have 2 open-ended funds, net lease income and agency mortgage-backed securities. So they are in the market and available on an ongoing basis to investors. And so those will remain as open-ended offerings for us, both focused on delivering high and resilient current income to investors. We are at the stage where we will launch our logistics value-add Fund II to follow on the very significant SMA that we announced with Townsend earlier in this year. And so that fund is launching imminently. Number one, we are at the point where we're about to pull the trigger on our Office Fund III with some early momentum in that fund.

We are in the early stages of marketing our single-family for rent fund, denominated Fund IV that builds on the prior track record of Gorelick Brothers. We've had a first founders class closing for that fund at about $250 million, and we're actively marketing that fund as well. So those are the -- and Jonathan or Katie, correct me if I've missed anything. Those are the funds that we have on the docket as new entrants. We're finalizing the final closes in the either second quarter or third quarter for debt strategies Fund IV and Workforce & Affordable Housing Fund II. Those successful fundraisings will have their final close in the second quarter for debt and the third quarter for Workforce & Affordable Housing too, respectively. And so that's really the docket as it is. I think...

Follow -- I don't know -- did you mention follow-on for OZ, of course?

No. Thank you, Jonathan, for adding that. We have a successful series of opportunity zone, tax-motivated investment funds, 2 in 2019, 1 in 2020, 1 in 2021, and we've launched opportunity zone Fund V earlier this year that we'll be raising capital through, I think, November of this year. The last fund was sized at about $1.5 billion of equity. This fund has a $1 billion target. The opportunity zone funds, broadly speaking, invest predominantly in built to core, very needed multifamily with a significant component of Workforce & Affordable Housing in selected opportunity zones around the country.

And I think to date, we have circa 70 developments that we're pursuing in those opportunity zones around the country. The earliest projects in Fund I after a construction period are entering some of them and more to follow are entering the lease-up period and those developments have basically been characterized by a tough environment in which to develop, but through which we've successfully navigated and stronger than certainly pro forma lease-up and rental rates and leasing velocity. So we feel pretty good about those funds as well.

Our next question is a follow-up from Michael Cyprus with Morgan Stanley.

I'd just be curious to hear your latest thoughts on M&A. Just how is the current market backdrop impacting the number of deals that are crossing your desk? And maybe you could talk a little bit about how private valuations have evolved given the pullback and public valuations and have seller expectations adjusted enough? And just maybe more broadly, what sort of acquisition opportunities would you guys be looking at and make the most sense. I think in the past, you've mentioned a European platform possibly or even infrastructure.

Thanks, Michael. That's a big and complex question that encompasses a lot of things. I'd like to think that we are aware of many of, if not most of the opportunities that are available in the market. There appears to be a continuing desire of private alternative asset investment managers to consider M&A, whether it be for growth, whether it be for transition and succession or just access to infrastructure or capital raising capabilities, et cetera. So I think that there's a continuation of enthusiasm to consider M&A across the markets. And I think that everybody recognizes that values have come down, at least temporarily, in line with public markets. Look at our results and look at our stock price versus what our stock price was at the end of the year.

I think somebody sent some information to us a couple of days ago that of the class of 2021 IPOs, the average IPO in 2021 is down like 60% or so. Don't take that as gospel, but it's been a tough public market. And we think that those valuations have translated to the private market as well. What's most important to us is finding opportunities that fit well with our strategy looking forward. And remember, we've grown by acquisition, AKA Gorelick Brothers. And we've grown by seating teams as we've done in net lease income, as we've done in logistics value add most recently, but as we've done throughout our history.

As we look at opportunities going forward, we think continuing to focus on real estate is a good focus. We think that being cognizant of opportunities to expand as I believe you asked earlier into the mass affluent retail is potentially attractive if there was the right opportunity. We have a long-stated initiative to find an opportunity to participate in the core plus side of the business, maybe core and core plus side of the business. I think given what's happening in Europe today, there's an interest, but it's perhaps a bit more of an academic interest today than a tangible interest, and we'll see how things develop there as well.

And I think the other thing I would characterize about us as a company and our operating philosophy, as we grown either through acquisition or as we've grown by bringing on teams of people, they've learned a lot from us in how we do business. We've learned a lot from them and how they have done business and do business either at their former firms or in their vision going forward. And I think that Bridge today is a really strong and powerful aggregation of best practices from a number of other parts of the business as we've all come together and put on the same jerseys and get on the field together.

So we think that M&A should be and hopefully will be an important part of our growth going forward. We want to be very deliberate and very strategic in what we do. We think that Bridge represents a great platform for others to sort of manifest what they can do. And I think that that's reflected in a lot of the inquiry, both outbound and inbound that we see today.

We have reached the end of the question-and-answer session. And I'll now turn the call over to Robert Morse for closing remarks.

Thank you, operator. To everybody who participated with us today, thanks for your time and attention. We're delighted to be able to announce strong results for the first quarter. We -- as a management team and as a company, we continue to work very hard in this environment to progress our businesses going forward. We're encouraged by a lot of the opportunities that we see both on the capital raising side as well as on the deployment side.

We continue to invest in our company. One of the things that we didn't really mention today was the successful conversion to in-house fund administration, which took place as of January 1 of this year. And that's a big deal for us as well. We think we will be able to provide comprehensive and transparent communications to our investors at a better price and lower cost, and we think that, that's representative of some of the continued evolution of Bridge as well. So we look forward to our continued dialogue. And again, thank you for your participation. Bye-bye.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.