BIG raises largest workforce housing fund ever

Bridge Investment Group has closed its second workforce housing fund, garnering $1.74 billion in capital commitments from high-net-worth investors, family offices and institutions, PERE has learned.

Bridge Workforce and Affordable Housing Fund II is almost three times the size of its $619 million predecessor fund. It is also the largest dedicated workforce housing fund ever raised, according to PERE data. The new vehicle easily exceeded the size of the previous largest fund dedicated to the strategy, Avanath Capital Management’s Affordable Housing IV, which closed on $760 million in commitments in 2020. The most recent workforce housing fund to close was TruAmerica Multifamily’s $580 million Workforce Housing Fund in December last year.

The scale of the fund allows the Salt Lake City-based manager to expand the purview of its workforce housing strategy to include other types of residential assets, Rachel Diller, senior managing director of acquisitions and co-chief investment officer of the fund, told PERE.

The broader purview includes manufactured housing, which has lacked institutional ownership, Diller said. She noted that the property type often caters to larger families with more than three bedrooms. By contrast, more traditional multifamily assets typically do not exceed two- or three-bedroom units. Another new housing strategy in this fund would be hotel-to-residential conversions.

“There’s older, out-of-fashion hotel assets, mainly extended stay, that already have a lot of the plumbing and kitchens in place that are ripe for conversion at a lower basis than you could build new or acquire,” Diller said.

The firm has already committed to investing in 34 assets, Diller confirmed. Bridge is still focused on investing the capital in the ‘smile states’ of the US, with a specific focus on California, Texas, the Pacific Northwest and Mountain West regions.

Larger investor base

Investors representing 82 percent of the capital in Fund I reinvested, contributing $730 million. Almost 90 percent of those investors either maintained or upsized their commitments. Bridge raised 90 percent of the capital from US investors.

The success of the fundraise was buoyed by the firm’s broader track record in multifamily, Robert Morse, executive chairman at Bridge, said. At the end of the second quarter, Bridge Workforce and Affordable Housing Fund had a net IRR of 29.9 percent, according to the firm’s earnings presentation.

That fund is only bested in performance by the firm’s latest traditional multifamily vehicle, Bridge Multifamily IV, which had produced a 33.6 percent net IRR since its 2018 inception. The firm did not disclose target details for this fund but value-add funds typically target between 14 percent and 16 percent net IRRs.

The performance proved the thesis that the firm could “do well by doing good.” Morse said that initially the fund series targeted investors that focused on impact investing, but with the new fund the investor base has broadened to include those that primarily focus on returns.

“There were a lot of investors in the US and non-US who felt this was a good idea and that it was a trend that had a lot of longevity to it,” Morse said. “It met with some of their investment objectives, so we were able to pretty dramatically expand the list of LPs with whom we do business within this particular strategy.”