In early 2016 we invested in the Spire USA ROC III Fund (“Spire ROC III”), which was established to invest directly into the assets of the Bridge Multifamily & Commercial Office Fund III (BMF III). BMF III is managed by Bridge Investment Group (“Bridge”) and is a private equity real estate fund investing in multifamily apartment communities (80%) and commercial office properties (20%) across the USA.
BMF III has a term of 5-8 years and was closed to new investors in June 2016.
What is the investment strategy?
In short, this is a buy, fix and sell strategy. Bridge acquire properties at below replacement cost (cost of construction) with unrealised potential and then undertake value add improvements. The improvements stabilise the asset and increase the rental income, which makes it more attractive to passive institutional investors delivering above-market returns for a profit on the sale.
How has it been going?
The fund reached a turning point with the “investment period” concluding in January 2018. A total of 62 multifamily and commercial office assets were acquired at gross value of circa US$3.28 billion (including joint venture partnerships). It is exciting to see that BMF III has now transitioned to its “harvest period” as stabilised assets are being sold.
A case study and overview of how Bridge add value to their multifamily investments can be found here.
With the fund entering the harvest phase a generous distribution equivalent to over 26% on the unit price at inception was declared for 30 June 2019. Investors can expect more in the years ahead as every asset is eventually sold with capital and profits being distributed.
What is the performance outlook?
Bridge’s two predecessor funds have achieved the following returns:
- Bridge Multifamily I (vintage 2009): 15.2% net IRR (per annum)
- Bridge Multifamily II (vintage 2012): 23.3% net IRR (per annum)
The target USD return for BMF III is an 18.7% net IRR, with recent assets sales indicating this target will be exceeded. Furthermore, the tailwinds of recent cuts to US interest rates and a lower Australian dollar means the outlook for investors is very encouraging.
This is a good example of patient capital at work and then bearing fruit. It also highlights the importance of choosing the right manager with a rigorous process and track record. Bridge was a stand out performer when weighing them up against other managers to access the US property market. This also provides a good backdrop for things to come on other Bridge investments we hold such as the US Seniors Housing and Medical Property Fund II and the US Commercial Office Find I.
The information provided should not be considered personal financial advice as it is intended to provide general advice only. The content has been prepared without taking into account your personal objectives, financial situations or needs. You should seek personal financial advice before making any financial or investment decisions.