Bridge Investment Group Holdings Inc. (BRDG) Q1 2023 Earnings Call Transcript

Bridge Investment Group Holdings Inc. (NYSE:BRDG) Q1 2023 Earnings Conference Call May 9, 2023 9:30 AM ET

Company Participants

Bonni Rosen - Head, Shareholder Relations

Robert Morse - Executive Chairman

Jonathan Slager - Chief Executive Officer

Katie Elsnab - Chief Financial Officer

Conference Call Participants

Michael Cyprys - Morgan Stanley

Alex Bernstein - JPMorgan

Bill Katz - Credit Suisse

Operator

Greetings. And welcome to the Bridge Investments Group First Quarter 2023 Earnings Call and Webcast. At this time, all participant are in listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bonni Rosen, Head of Shareholder Relations. Thank you, madam. You may begin.

Bonni Rosen

Good morning, everyone. Welcome to the Bridge Investment Group conference call to review first quarter 2023 financial results. Our prepared remarks include comments from our Executive Chairman, Robert Morse; Chief Executive Officer, Jonathan Slager; and Chief Financial Officer, Katie Elsnab. We will hold a Q&A session following the prepared remarks.

I’d like to remind you that today’s call may include forward-looking statements, which are uncertain outside the firm’s control and may differ materially from actual results. We do not undertake any duty to update these statements. For a discussion of some of the risks that could affect results, please see the Risk Factors section of our Form 10-K.

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

I will present our GAAP metrics and Katie will review and analyze our non-GAAP data. We reported a GAAP net loss to the operating company for the first quarter of 2023 of $67 million. The net loss was driven by an unrealized loss of $107 million related to our accrued performance allocation due to valuation reductions to selected real estate assets. Basic GAAP income per share for the first quarter of 2023 was $0.03 with a loss of $0.13 on a diluted basis.

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

Robert Morse

Thank you, Bonni, and good morning all. In the three months since our last earnings update, market volatility has continued across a number of fronts. Three bank failures, continued interest rate increases by the Fed, coupled with substantial quantitative tightening, ongoing concerns about GDP growth, the state of the labor markets in the context of numerous layoff announcements and the possibility of a hard landing.

That’s a long list of domestic issues and added to the list are accelerating global tensions centered around the U.S., China, Taiwan and Russia-Ukraine situations and the implications for global peace growth and prosperity.

These macro themes have both chilled short-term investment appetites in a risk off environment and prompted a reset in asset values across many of the markets in which Bridge operates. We believe this has set the stage for a rebound in activity and attractive investment opportunities in the current environment.

Through these volatile times, Bridge remains focused on the central theme of conviction highlighted earlier this year in our 2023 market outlook. We believe that investing with conviction requires the acknowledgment of the facts in today’s turbulent markets, while focusing on both long-term secular trends and tactical opportunities created by ongoing market dislocation to create value for Bridge’s investors.

Our perspective is informed by extensive research, deep analysis of both public and proprietary data sources, and ongoing dialogue with investors, banks and other constituencies with whom we act on a regular basis.

Importantly, we believe that in a volatile economic environment, specialization is more important than ever, as it relates to strong deal flow and careful selection of opportunities, and in the case of more operationally intensive real estate strategies forward integration into property management to drive alpha at the asset level.

In addition, the benefits from the use of leverage in the current environment is neutral at best negative in many cases. A different paradigm is required to invest successfully going forward, one that focuses on the investment merits of selected asset classes and creating alpha at the asset level to drive return premiums for equity investing.

Our conviction is promised on the resilience of the U.S. economy across many metrics, growth, strength in the labor markets, onshoring/reshoring and a manufacturing renaissance. The unemployment rate has been below 4% for over a year now and wage growth by many measures has been strong, accelerating throughout 2022 and holding near 5% year-over-year.

These wage increases have disproportionately benefited those in the lower half of the income band with low and middle skilled occupations actually outpacing higher skilled occupations. These U.S. residents are the cohort Bridge serves in much of our leading residential rental investments.

We have seen such resilience play out in past cycles. As one point of reference, we compared unlevered NCREIF investment returns for the Multifamily sector against U.S. equities and fixed income indices over the last several decades, which can be found in our investor presentation on slide 15.

Key findings from our analysis include. First, the intrinsic value of commercial real estate investments withstands even the deepest recessionary periods, including the 2008 recession better than these major indices. For Multifamily, specifically, we believe this speaks to the persistent need for housing and consistent rental income as well as the enduring value of commercial real estate assets.

Second, although this Multifamily index isn’t a perfect representation for the entire real estate industry, it is one of the largest real estate asset classes and serves as a robust benchmark for the industry, and in our view, our own portfolio, given the high concentration of residential rental assets, we believe the same principles of durable value applied to our logistics investments and all of our residential rental strategies.

Our fixed income strategies have been a bright spot in an otherwise difficult investment landscape. We have and continued to raise and deploy meaningful capital across our fixed income strategies at targeted returns that often mirror and sometimes exceed projected equity returns.

Each of our debt strategies Fund IV, AMBS and net lease industrial income vehicles has deployed meaningful capital. As banks and other balance sheet lenders reduce CRE exposure, we believe these opportunities will continue to multiply in the short to intermediate term at least.

We expect to report strong performance for each of these vehicles to our investors and continue to see solid demand for performing credit products. Credit represents about 23% of our fee-earning AUM and should continue to grow in importance.

Bridge’s highly experienced management team has navigated prior cycles and we are well positioned with cycle tested specialized leaders in each strategy to make the most of opportunities and navigate the challenges of the current market.

During the first quarter, we continued to build momentum in our business with fee-earning AUM increasing 51% year-over-year, recurring management fee revenue increasing 15% and we completed a record close for Multifamily V at $2.3 billion. We also completed the acquisition of Newbury Partners on March 31, 2023, a leader in the secondaries market.

Including the record close of Multifamily Fund V during the quarter, we raised a total of $674 million across our investment vehicles, with most of that capital oriented towards our credit strategies.

Importantly, we did not have any outflows in the first quarter. We continue to enjoy the benefits of long-term stable capital, which we manage on behalf of our limited partners. Our capital base has an average duration of 7.4 years and is comprised almost entirely of closed end vehicles with no redemption features.

During the quarter, we continued to execute on our strategic vision to combine organic growth with carefully curated acquisitions. The acquisition of Newbury Partners closed on March 31st and integration efforts have been seamless by all accounts.

We acquired Newbury at a price that projects to immediate substantial accretion in earnings and at a value that compares well to precedent transactions. We created a transaction structure that aligns encourages and incentivizes management performance and embraces the ONE Bridge philosophy by which we guide our efforts. We have assigned some of our best and brightest at Bridge to manage the integration along with our partners at Newbury.

The acquisition of Newbury further diversifies our investment platform builds on our highly specialized focus and provide some modest countercyclicality in our revenue base. Newbury is a leader in the secondaries market, with a focus on acquiring limited partnership interests in established buyout, growth equity and venture capital funds.

Consistent with the way Bridge operates in its real estate investment funds, Newbury’s focus has been on small and middle market transactions where there is less competition and more attractive pricing.

We are excited about the growth potential for Newbury over both the near- and long-term as we scale the platform’s existing product offering, while developing plans for expanding into adjacent strategies.

The outlook for the secondary sector has never been brighter with limited partners seeking liquidity solutions to achieve their goals. And specific to our business, we are already seeing great dialogue from Newbury’s and Bridge’s LP basis, which have less than 3% overlap at the time of transaction. The opportunity for cross-sell is enormous. We expect to report more on these revenue synergies and other initiatives as we make further progress.

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

Jonathan Slager

Thank you, Bob, and good morning. I will walk through what we are seeing in the broader commercial real estate transaction market, Bridge’s deployment efforts and performance, and our investment outlook and opportunities in 2023.

2022 was a year in which U.S. real estate transaction volume started very strong, but finished slow, down just 13% overall for the year, but Q4 was down more than 60% from Q4 2021, as interest rates rose and debt markets tightened. Thus far in 2023, we have seen the continuation of depressed transaction volumes.

For the latest Real Capital Analytics data, Q1 industry transaction volume is down 56% year-over-year. And in the Multifamily sector, which is typically the highest volume sector, transactions were off 64%, representing one of the largest drops since Q1 2009, following the great financial crisis.

Low transaction activity has led to a wide dispersion of cap rates and values, with huge swings in reported cap rates among data providers and between various private market participants and public REITs.

We believe this reflects the dislocation in capital markets at this moment in time rather than a fundamental shift in the long-term value of assets. The lack of trade makes valuation a much more challenging exercise.

With that backdrop, Bridge deployed $866 million in Q1 2023. As mentioned, most of this deployment has been in our credit strategies. We have been patient and continue to be disciplined in our underwriting, but we are cautious about trying to be market timers.

Opportunistically, we bought $368 million of floating rate investment-grade real estate CLO and CMBS bonds at a weighted average of SOFR plus 506 basis points. In addition, we bought a small amount of fixed rate investment-grade CMBS bonds at a weighted average yield of 9.3%.

These highly risk-mitigated investment grade bonds have significant equity cushions and subordinate debt below that, but have exhibited outsized yields due to continuing illiquidity in the securitization markets.

We have also started to see a slight pickup in the transactions on the equity side. These are coming from investors who are harvesting older vintage funds that have performed well and a handful of assets with broken capital structures.

With $4.4 billion of dry powder, of which the majority is related to Multifamily, Workforce and Affordable and Debt strategies, we are well positioned and expect deployments done in 2023 to generate positive outcomes for these strategies.

On the operating side, the underlying fundamentals of our portfolio investments remain healthy. For example, our Multifamily and Workforce assets, which represents 39% of our real estate fee-earning AUM are 93% occupied. Our same-store effective rent growth for Q1 increased 7.4%.

While the sector is experiencing supply issues in some markets and slowing rent growth across the Board, demand remains strong and collections are recovering toward pre-pandemic levels, resulting in NOI growth across the portfolio of 6.5%. Fundamentals in our Single-Family Rental portfolio are similarly strong, with 10.25% year-over-year rent growth and in Q1 occupancy at 95%.

Logistics, which is a growing component of our AUM continues to experience historically low vacancy rates. The infill coastal gateway markets in which we primarily invest have less than 2% vacancy and much of that availability is functionally obsolete product. With these pressures on availability, our leasing performance over the last 12 months has exceeded original acquisition underwriting by 24% on a net effective rent basis.

Now turning to investment performance. Despite strong operating performance and NOI growth across our equity real estate funds, our values depreciated slightly by 1.6% in the quarter as higher current income was offset by slightly more conservative terminal values and cap rates. We have the ability to hold assets through market volatility and believe our funds are conservatively and appropriately capitalized.

Bridge mostly employs a single layer of leverage at the property level for our real estate equity funds and does not employ additional leverage at the fund level other than short-term operating and subscription lines.

Over 83% of the asset level debt is either fixed or hedged, with more in process of being hedged while evaluating the return on cost and benefits given where the property is in its life cycle. This helps insulate the funds from higher interest rates.

Further, these hedges have appreciated over $24.3 million in the last 12 months, providing additional portfolio value, even when factoring in a decrease of $4.7 million during Q1 as benchmark interest rates declined during the quarter.

We also seek to ensure each fund operates with plenty of liquidity, which we constantly monitor. The strength of our lender relationships combined with generally cautious leverage levels puts us in a solid position to hold and continue to operate our assets, while the debt and transaction markets recover.

Longer term, we have strong conviction in the select thematic areas which serve as the backbone for the majority of our AUM. Housing is critically undersupplied and propelled by demographic tailwinds. Near-term supply pipelines are likely to wane due to higher rates, limited availability of construction debt and equity, as well as continued inflationary cost pressures.

Logistics and manufacturing demand remains robust, particularly in infill locations as onshoring, e-commerce and supply chain resiliency are durable demand drivers with staying power. Private credit strategies are positioned to take market share as conventional lenders are sidelined due to deposit funding issues and regulatory constraints.

Secondary strategies are poised to grow rapidly, as private markets become increasingly dynamic and complex, driving LP demand for sophisticated liquidity solutions. We believe any deployment we execute in 2023 will be highly attractive as we navigate illiquid markets ahead of the recovery.

As we work through a slow and choppy transaction market, which has historically originated some of its best investments during the most challenging times and we remain well-positioned to do so again.

I will now hand the call over to Katie to discuss our financial results and the stability of our business.

Katie Elsnab

Thank you, Jonathan. We continue to advance our efforts of steadily building durable recurring fund management fees even in the face of a more dynamic macro environment. In the first quarter of 2023, recurring funding management fees totaled $51.1 million, up 2.4% from last quarter and 15% year-over-year. The Newbury acquisition will further add to this beginning in the second quarter. On a pro forma basis for Q1, including Newbury fund management fee revenue, all of which is occurring, would push the total to $61.6 million, up 28% year-over-year.

Fee-earning AUM, which represents most closely the true underlying growth and stability of our business, increased 51% year-over-year to $22.2 billion, including the acquisition of Newbury. This represents tremendous growth of 115% in the short period of time since our IPO, when our fee-earning AUM stood at $10.3 billion.

Over 98% of our fee-earning AUM is in long-term closed-end funds that have no redemption features and a weighted average duration of 7.4 years adding to the foundational stability of our business.

This purposeful mass of long-duration capital with our long-term investment strategy significantly insulate spreads from the redemption risk, we are still seeing in open-end and retail vehicles in the market today.

Approximately 90% of our real estate related to fee-earning AUM is invested in high conviction themes, which includes residential rental in the U.S. across Multifamily, Workhorse and Affordable Housing, Single-Family Rental, Senior Housing and in our private credit strategies where the majority of the collateral is Multifamily related.

19% of our fee-earning AUM is in our newest secondary vertical. Office represents a small portion at 4%. Our central theme of the year is conviction, and we have thoughtfully positioned our investor capital to benefit from or to be resilient to a down turning economy.

Fee-related earnings for the operating company were $30.9 million in the quarter, slightly down from Q4, mostly driven by a $2.8 million decrease in catch-up fee revenue, along with lower transaction and development fees resulting from the broader market slowdown. These were partially offset by higher recurring fund management fees and positive attribution from fee-related earnings attributable to non-controlling interests.

The non-controlling interest in FRE relates to investment team profit interest in verticals, which tends to be seasonal and that they are more likely to keep profitability hurdles as time passes over the course of the year.

Additionally, our more nascent strategies are not driving positive FRE, but have tremendous built-in growth drivers that will be well-positioned as they grow in scale. The year-over-year FRE comparison was impacted by the $20 million decrease in transaction fees.

Operating expenses were relatively stable compared to Q4 and down year-over-year, as we have maintained cost discipline on employee compensation and other expenses. This also helped protect margins, which have been impacted by lower cash-out fees and transaction-related revenue.

Real estate transaction volumes will likely remain depressed in the short-term and this will continue to impact FRE margins. As transaction markets rebound, our record dry powder will be put to work and that revenue will push up margins. This is simply a timing element.

We have always cautioned investors on the quarterly move. Instead, we recommend focusing on the margins long-term, which tend to average 50% plus or minus. For example, the margin in Q1 was 43%, up 49% on a trailing 12 months.

Distributable earnings to the operating company for the quarter were $33.4 million, with after-tax DE per share of $0.19. Net realizations declined to $1 million in the quarter, reflecting the general market pause and our prudent management and the protection of fund performance.

We expect to remain selective on monetizations in the near-term. Unrealized carry decreased to $447.7 million, which represents a 19% decline after adjusting for realizations. As a reminder, accrued carry on the balance sheet is recorded one quarter in arrears. The decrease was driven by more conservative asset value assumptions that were disclosed in the previous quarter. Accrued carry is up 82% since our IPO in 2021 and we are well position when markets ultimately stabilized.

Our Board of Directors declared a dividend of $0.15 per share, which will be paid to shareholders of record as of June 2nd. This amount is based on distributable earnings adjusted for transaction and non-recurring costs incurred during the quarter, mostly related to the acquisition of Newbury Partners, which represents $4.1 million.

While Jonathan discussed the conservative nature of how we employ leverage within our funds, we also maintain that same mentality with a corporate balance sheet. Bridge employs a prudent risk management process and our banking relationships are highly diversified. We are an asset light manager with low leverage and an investment grade rating.

As discussed last quarter, we funded the Newbury acquisition using existing balance sheet resources, including $150 million of proceeds from our recent private placement of debt. The private placement was priced in January and included the issuance of $120 million of seven-year notes and $30 million of 10-year notes, with a weighted average interest rate of approximately 6%. The notes funded with the closing of Newbury on March 31st and Q2 will be the first quarter reflecting the resulting interest expense.

We also expanded our revolving credit facility to $225 million with $80 million drawn. The duration of our outstanding private placement is in excess of seven years and is well staggered with no maturities until 2025. We are well-positioned to navigate the current environment and are confident in Bridge’s long-term vision and strategy for success.

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

Question-and-Answer Session

Operator

[Operator Instructions] The first question is from Michael Cyprys from Morgan Stanley. Please go ahead.

Michael Cyprys

Hey. Good morning. Thanks for taking the question. Just given the -- what we are hearing around banks pulling back, given some of the challenges that they are facing, banks pulling back from financing of the real estate market. Can you talk about what you are seeing on that front? How do you expect that to play out over the next couple of years and what does this mean for Bridge as you access leverage across your business? How do you navigate that? What are some of the levers, maybe you can remind us how much in financing you access from the GSEs versus different other funding sources, including the banks and then what’s the opportunity set in catalyst that this could help with on your credit business? Thank you.

Robert Morse

Thanks, Michael, for the question. And it’s a very topical question, of course, I think, everybody knows that the banking sector has become much more conservative and commercial real estate has been an area of focus for bank exposures.

We think it’s a double-edged sword in some respects. There are a number of sectors of investment where banks are still either willing to lend, and in some cases, enthusiastic to lend. We think that residential rental and logistics are two of those sectors where there’s a willingness to land. Some sectors are out of favor, offices, the poster child of a sector that currently is out of favor.

We do some borrowing from banks. We do a lot of borrowing from the federal agencies, particularly as it relates to our Multifamily and Workforce strategies. We -- I characterize -- we characterize the tightness in the bank markets as a double-edged sword, because it, of course, opens up significant opportunities for private credit and we have a significant business in the private credit sector.

I can give you an example of how the market has changed in our favor in private credit. A year or so ago, if we were to look at a loan against a transitional Multifamily asset, it probably would be at a spread of 325 basis points plus/minus over so for at a leverage point of 70% to 75%.

Today, those same metrics would be changed. The spread would be higher at probably 375 basis points over SOFR and the leverage point would be lower. So more conservative, less risk, higher spread that translates to really positive opportunities as it relates to private credit, and I think that that’s indicative of some of the opportunity that’s out there.

Thanks, at the end of the day, will review their portfolio of loans. They will -- and their balance sheet, and at some point, presumably start lending again. But right now, it’s a bit more difficult to navigate through.

Credit, of course, is an important part of the overall capital stack, and with some very modest exceptions, mostly focused on the office sector, we have been able to adequately access debt, whether it be from banks, agencies or elsewhere in order to fund our activities.

Michael Cyprys

Great. And just a follow-up question on the deployment backdrop. You mentioned seeing a potential slight pickup here and transactional activity on the equity side, maybe you could elaborate a bit on that. And as you think about the constraints on putting capital to work, how does that differ across the different strategies that you operate and how much of that would you say is just from the lack of financing versus the actual higher absolute cost of financing versus the lack of sellers?

Robert Morse

Jonathan, do you want to address that?

Jonathan Slager

Yeah. I mean, we are starting to see a little bit more, I guess, we call it green shoots of activity in our broader equity business. And there’s still -- it’s still a very spotty market, right, because there are sellers who are going out, sellers who have owned assets for a while and have, by definition, made money on those assets, because even at the reduced valuations are still going to have great returns and they are evaluating whether or not they want to sell. So they will put stuff out, sometimes they sell, sometimes they don’t and so it’s kind of a little choppy in that sense.

And then we are beginning to see what we have been expecting to see for a long time, which is some of the stress that’s been put on to, call it, regional sponsors who can be very sizable regional sponsors who have co-invest from equity allocators and they simply don’t have the capital to take and support a debt service level that has gone on an IO basis up 3 times, and then in addition, they have had to put reserves for rate caps that have now exceeded the price of the underlying loan. So the cash flow demands of those assets, even though the underlying assets are good, are really challenging.

So we are starting to see a little bit of that start to break our way and one of the great things about Bridge is that we have such deep relationships we are such an active buyer in the markets that we are in that we sort of get this kind of very clear look into what it’s going to take to do the transaction.

So, again, broadly speaking, yes, we are starting to see a little bit of opportunity coming from a moment when things have been super closed. But before the market really starts to fully recover, we are -- we need to see the Fed stop raising rates. We need to see a little bit more stability in the underlying debt markets. We need to start to see the securitization markets open back up.

And our view is that the fundamentals around the sectors that we are in, which we enumerated in our talking points are so strong and continue to be -- have unchanged and there’s not so much kind of demand in, call it, dry powder beyond just our own dry powder in the sectors that we will see values recover both, because of just the underlying growth in net operating incomes and operations, but also because of the supply-demand in favor of demand for the product.

So, again, between now and then, we are going to be looking at anything -- we said at anything we think we can find that we deploy, we are going to be very excited about, and we will have, we think, good values. The underlying unleveraged returns we are starting to see are incredibly attractive. So we just stay active, we stay busy, we do what we do and we think things will start to start to populate.

Michael Cyprys

Great. Thank you.

Operator

The next question…

Robert Morse

Thanks, Mike.

Operator

Yeah. Sorry.

Robert Morse

Please, Operator, go ahead.

Operator

Thank you. The next question is from Ken Worthington from JPMorgan. Please go ahead.

Alex Bernstein

Hi, Bridge team. This is Alex Bernstein on for Ken. Thanks for taking my question. Great to speak with you again. I wanted to double futon deployment in 1Q of 2023, we saw $866 million, which was a modest step down from the $90 million we saw in Q4. It was actually both Q3 and Q1 levels of last year. You noted several times now that deployment was mostly driven by credit strategies. Can you elaborate around what parts of the credit you are seeing the most opportunities in going forward and do you expect a change in equity versus credit shift going forward? Just going through the broader alternative asset management earnings. It sounds like that’s been seen happening more broadly in the market. So I wanted to check that if that was the case for you as well and how do you look at the funding going forward? Thank you.

Robert Morse

Thanks for the question. And I think your observations are spot on in a lot of respects. Credit products have been very attractive, both from the perspective of investors committing capital, as well as deployment opportunities.

Our deployment in credit has been reasonably broad-based. We -- in our flagship debt strategies suite of vehicles, we were able to complete the deployment of that vehicle pretty ahead of schedule in a lot of respects. We have also been able to find opportunities for deployment in AMBS, as well as net lease.

The deployment that you referenced in the first quarter was in part done in the public markets with -- in public securities that we are trading at levels that we thought offered very good value and in part represented more of our core direct lending business and buying K Series B pieces as well.

The -- I think going forward, of course, we would expect that in addition to the continued opportunities to deploy in credit. As Jonathan said, we will see opportunities on the equity side as well. We have frankly tried to and have been quite patient over the course of the fourth quarter and the first quarter in terms of looking at equity opportunities.

We always try to employ a great deal of price discipline. I believe on average, we buy one out of every 20 deals that we carefully due diligence and examine. So we have something around a 5% hit rate. We have continued that selectivity.

We think that we have been paid. Our investors have been paid for that patience as asset values on the equity side have reset a bit, continuing to reset a bit in the first quarter and we think we are well poised to assess and hopefully execute on opportunities as the second quarters and third quarters unfold.

Alex Bernstein

Thank you, Robert. Very helpful. And if I could hit on one more topic quickly. Just talking about fundraising, we noticed that 72% of the capital you raised this past quarter came from international investors. But if we look at your total AUM, it’s only comprised of 41% international versus 58% for the U.S. Does this look like another trend that’s happening in the market more broadly and looks like one that you are experiencing as well, where it sounds like there’s more available capital from an LP perspective to deploy in areas such as MENA and APAC rather than North America and EMEA. Is this part of a broader trend or are there sort of one-off type instances that drove that shift in this past quarter? Thanks again.

Robert Morse

I think, in general, having a global presence in terms of fundraising is very valuable, because capital is more or less available in different areas, depending on who’s investing and who’s taking a pause and we have worked hard over the last several years to meaningfully diversify our fundraising efforts.

We have opened and staffed offices in Europe. We have now for several years, had an office in Korea. I am actually taking this call from Korea today. We continue to have a broad coverage effort across both the U.S., as well as other parts of the world across both institutions, as well as the wealth management channels.

It’s interesting. We have -- I would characterize our dialogue today with our both existing LP investors and prospective LP investors as stronger than it’s ever been. Investors are looking for guidance. They are looking for clarity. They are looking for interpretations of the market.

We have hosted a number of events, including recently our LP Annual Meeting, which was held for the first time in a couple of years as a physical meeting with record attendance and the dialogue has been really strong, really powerful and we hope and expect that it will continue to produce very strong results from a capital raising perspective.

The percentages that you quote are a bit a function of what happened in these past three months versus what happens long-term. We do think whether a U.S. investor, a North American investor offshore investors, a lot of folks believe that the U.S. is a preeminent investment destination and many investors think that the thematic and specialized approach that we take will pay dividends in the short-term and long-term. So we are seeing some really positive traction in that regard.

The other thing I can’t help but mention, and we mentioned this in our talking points, there’s very little overlap between the Newbury investor base and the Bridge investor base. And we think the cross-sell of providing solutions to those investors, whether it be real estate equity, real estate debt, secondaries exposure, that cross-sell opportunity will continue to be really substantial going forward. We are already seeing some evidence of that and we think that that will snowball over the coming months.

Alex Bernstein

Thanks so much. Really appreciate, Robert.

Robert Morse

Thanks for the question.

Operator

The next question is from Bill Katz from Credit Suisse. Please go ahead.

Bill Katz

Hey. Thank you very much for taking the questions. First, maybe move around a little bit, just to focus on Newbury, so congrats again on that transaction. Could you give us a sense of where you stand in terms of deployment on Fund V and when the timing might take place for Fund VI and I think about successor sizing relative to Fund V? thank you.

Robert Morse

We can’t really comment on specific funds in the market, but we can certainly talk about some of the themes that we are seeing. Jonathan, do you want to handle that? Do you want me to handle that?

Jonathan Slager

Sure. Yeah. I mean, I think, today we are still well under 50% deployed on that fund. So there’s still some run rate, but -- and that’s a positive. But candidly we are -- I think I mentioned it just a little bit earlier, but we are really starting to see some attractively priced assets from the standpoint of the underlying unlevered returns as a kind of, call it, a consistent benchmark over time in terms of valuation.

And I think that we do continue to believe in the sector, as I think we have talked about, we see a tremendous amount of growth -- continued growth in our underlying net operating income. Our rents continue to grow, although, again, at a sort of more mean reverting level than the craziness during the pandemic.

And our belief is that we are significantly undersupplied in the sector. So, and of course, last but not least, we kind of look at it as being an area where the ability to operate at the property level is a huge differentiator and a huge value creator. So for all those reasons, we remain optimistic there.

But the volumes when I read that statistics that said, we are kind of down, this quarter, we were down more than any quarter since the quarter right after the global financial crisis. Again, to the point that Bob made earlier about continuing to be selective in investing and not trying to be market timers, the volume being down means our volumes are down for a little while.

And I think that we expect two things. One, we expect to see a little bit more capital distress, not necessarily asset level distress, because the fundamentals, as I said, are kind of solid across the sector. And then, so we hope we will start to be able to take advantage of some of those opportunities and we are starting to see some now for -- it takes a little while. There’s a delay in that actually coming to market.

And again, the belief is that hopefully, the Fed is nearing the end of their raising period and we will start to see some stability in interest rates, which will open up the opportunity for the broader debt markets to create more liquidity into the space.

And candidly, I think, Bob, you mentioned it as well, we are starting to look at every single deal on an unlevered and levered basis. On an unlevered basis, in theory, we can go out when debt markets get better and place debt on and recycle that capital then.

But for now, we are seeing the opportunity perhaps to just take some of that dry powder and just deploy it into assets without applying leverage and our returns are equal at this moment in time with a reasonable assumption about putting financing on the assets at a later time and recycling that capital. So some really interesting opportunities.

In terms of how long it will take. I don’t think that’s something that we are able to kind of give you a hard number on right now. But we have initially set up a four-year deployment period for Fund V, and hopefully, we make it in order ahead of what’s been put forward.

Robert Morse

Bill, I would add as it relates specifically to Newbury, that we spent the better part of two years looking carefully at the secondary space. We met, if not every player in the secondary space, we met an awful lot of them.

And from that time that we spent analyzing the sector, we came away with the view that the Newbury team, the professionals, the culture, the sense of partnership, the middle market approach to investing fit really hand in glove with how we have found success at Bridge in deploying investor capital as well.

So we are really excited about that partnership. We think that Newbury will make us better, that we will make Newbury better. We have had a really intensive and comprehensive integration program since we closed the transaction just a little bit more than a month or so ago.

We have certainly seen as we have traveled the world talking to investors that demand for secondaries is very strong in the markets today and as the private markets become increasingly dynamic and complex, there is expected to be more not less LP demand for sophisticated liquidity solutions of the kind that Newbury and others, but we think Newbury provides in a really comprehensive way.

So as part of our overall arsenal of products in our solution set, we think that Newbury will create meaningful additional capability at Bridge. We think that our infrastructure will allow Newbury to service the investors who choose to invest in Newbury vehicles better than ever and so we think that there’s a bright future there as well.

Bill Katz

Okay. Thank you for that and then maybe one quick one for Katie and I apologize…

Jonathan Slager

Hey. Sorry, Bill. I -- sorry, Bill. I just wanted to apologize. I somehow misunderstood that the question was about Fund V on our Multifamily side. And so that’s why you got the confusing answer. So I do you want to apologize for that. So thanks for jumping in there, Bob.

Bill Katz

All good with the extra commentary. So I appreciate that. Maybe one for Katie. Just very quickly and I apologize if I should know this already. Can you sort of review the seasonal dynamics under the NCI? I was just a little puzzled by what you are saying wasn’t tracking exactly, it looks like you had a loss or version about a year or so ago. I just want to make sure I understand the cadence of how that rolls through the P&L? thank you.

Katie Elsnab

Sure. There’s two things that you need to think about when you are looking at our NCI. First is our profit interest program, which as we previously announced the last profit interest program will collapse this year on July 1, 2023. So we won’t see that seasonality that you have historically seen.

But the way that works is there’s an earnings threshold, and so normally, we don’t have an NCI allocated to those profits interest programs until Q3, Q4. You won’t see that trend during 2023 because of the final collapse, as well as some of our newer fund managers have not yet reached profitability yet and so instead of seeing net income attributable to non-controlling interest you are seeing a net loss and that’s what causes the results.

Bill Katz

Okay. That’s helpful. Thank you.

Operator

We have a follow-up question from Michael Cyprys from Morgan Stanley. Please go ahead.

Michael Cyprys

Great. Thanks for taking the follow. Just a question on fundraising. I was hoping you might be able to update us on which funds you have in the market raising capital today, any sort of expectations there? How you are seeing -- what many are seeing to be a tougher backdrop for raising capital impacting the timing and magnitude of your capital raising? And then what sort of strategies could we see start to come into the marketplace for raising capital in the coming quarters, I think you mentioned, your debt strategy flagship, you finished deploying that. So can we expect that to come back in? And then any thoughts on sizing of that expectation given a tougher backdrop for rating capital or is it because it’s debt a little bit more in favor? Thank you.

Robert Morse

Thanks, Michael, for the question. It’s hard given some of the limitations we have to talk about specific fund vehicles. But I would -- I think we can say that we have the themes that we are emphasizing at this point include residential rental in all its different manifestations.

As I think we have announced before, we had a record close for Workforce and Affordable Housing Fund II. We had a record close for Multifamily Fund V and we are busy deploying capital in those areas or we expect to deploy capital in those areas better said.

Credit products remain strong and now that we are finished with the deployment of the previous vehicle, we hope and expect that there will be continued demand for a new vehicle, new version of that strategy. The markets that remain really attractive to investors include logistics, where we have built up very strong teams in logistics, both on the equity side, as well as on the net lease side.

And as I think folks know, we have tried to certainly communicate. We have a long and abiding commitment to all things ESG. It’s really an integral part of our DNA and so finding opportunities to reduce hours and other carbon footprint through renewable energy is a strong initiative of ours as well.

And Bridge is a -- unlike many alternative asset investment managers. We think it’s important. It’s important from a performance perspective. It’s important from an execution perspective to deploy specialized teams of investment professionals against all these areas of focus.

So we may -- if one were to array everything that we are doing have a broader menu of opportunities available, but we think that the challenges of raising capital for that broader menu is more than offset by the advantages that specialization and high touch bring in terms of deploying that capital and so that’s an approach to the markets that were -- that is deeply embedded within Bridge and we are wedded to that going forward.

Michael Cyprys

Great. Thank you.

Operator

There are no further questions at this time. I would like to turn the floor back to Robert Morse to Executive Chairman for closing comments.

Robert Morse

Thank you, Operator. And I would only add on behalf of all of us at Bridge, thank you for everybody who’s participated today, who’s taking an interest in our quarterly update. We strive to have transparent and comprehensive dialogue and communications with all our constituencies, particularly our shareholder constituencies. We appreciate your interest. We as a management team are always available for additional dialogue as questions arise and we look forward to our continued work together. Thanks so much.

Operator

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.