Case study by Bridge Investment Group

In the spirit of showcasing leadership and raising standards of responsible investment among all our signatories, we are pleased to publish case studies of all the winning and shortlisted entries for the PRI Awards 2020.

Give a brief overview of your project, its objectives, and why you decided to undertake it. 

Bridge Investment Group launched the Bridge Workforce and Affordable Housing Fund (Bridge Workforce I) in 2017 to provide a private, scalable solution and that could build thriving communities far beyond ‘four walls and a roof’. 

Rising construction and regulatory costs, persistent labour shortages, NIMBYism and a government-subsidised housing deficit have stymied investment in affordable housing for the two-thirds of US renters earning under 80% Area Median Income (AMI). These people represent the core of the U.S. workforce but are largely ineligible to receive government subsidies, and are priced out of market-rate housing.  

The fund was created to support these people. With nearly 50% of US renters facing rising rents, falling vacancies, and lagging wage growth, the affordable housing crisis is more pronounced than ever. 

Bridge Workforce I targets the preservation, rehabilitation and/or building of affordable housing communities where at least 51% of residents earn at or below 80% AMI at acquisition. And throughout the firm’s ownership, meeting the needs of the growing and priced-out ‘missing middle’.  

In addition to direct investment in affordable housing, Bridge has lowered its management fee by 25 basis points a year and works with a not-for-profit partner, Project Access, so that it can provide extra funds for onsite community, environmental and social programming. These programmes include on-site resident resource centres, youth and adult education, credit scores, and childcare programmes. 

Bridge has also adopted metrics that allow investors to compare the impact performance of Bridge Workforce I to industry targets and benchmarks.  

In addition, the firm created the Bridge Community Enhancement Initiative to commit $30 million to support its firm-wide pillars of connecting, educating, and empowering its residents. 

Please describe the scale of the project, financially and in impact terms. 

Bridge Workforce I raised $619 million in equity commitments from investors through its final close in August 2019. As of March 31, 2020, 8,700+ workforce and affordable housing units have been preserved and/or rehabilitated across 25 communities and 22 U.S. cities. Communities in San Francisco, CA and West Valley, UT will enjoy a combined 670+ newly built units, exemplifying Bridge’s commitment to areas most needed. 

The Fund requires that rents remain at affordable levels for at least 51% of tenants earning less than 80% AMI throughout the firm’s ownership, although Bridge actually manages to more affordable rent thresholds.  

Attractive financing was another key component for Bridge to achieve success with its efforts. Thanks to a long-tenured relationship with Freddie Mac, Bridge secured a first-of-a-kind single-sponsor Social Impact facility, which has grown to $750 million. It provides best-in-class financing rates, terms, and execution. This has helped make projects financially feasible and drive substantial cost-effective renovations to improve resident quality of life, while enhancing investor returns and promoting a joint mission of affordability. 

Describe the process of delivering the project, including any challenges and how these were overcome 

Bridge’s experience with affordable housing began in 1995 with its acquisition and rehabilitation of 500-unit Warwick Square in Santa Ana, CA, a large LIHTC community that Bridge principals still own today.  

During its first year of ownership, Bridge faced a harsh 100% residential turnover rate. By 2016, through building renovations and the creation of playgrounds, a solar system, and a dedicated onsite resource centre, in partnership with Project Access, Warwick achieved a remarkable 9% turnover rate, doubled net operating income, and helped 1,200+ residents with health, education, and employment services.  

Bridge has grown this partnership to 25 active property operations, spanning 19 resource centres and six under construction, and supported tens of thousands of residents along the way. 

With the current assets, typical challenges have included building temporary resource centres while renovations and facility improvements are completed.  

In addition, Project Access and Bridge’s property management teams actively engage with residents through surveys to tailor services to suit residents. This has proved to be especially valuable during the COVID-19 pandemic.  

In short order, Project Access adapted its programme model and made significant contributions to residents, including meal distributions, wellness checks, and referrals to critical services numbering in the thousands, along with continued virtual employment and homework assistance. 

Bridge has also brought new affordable housing to San Francisco, where, like other high-density cities, it is notoriously difficult to secure zoning approvals and new construction permits. In partnership with affiliates, Bridge achieved an expedited process for not relying on local subsidies to begin developing TL 361, the only non-government subsidised, affordable housing project in SF.  

Another project, TL 361, located in the Tenderloin District, is expected to deliver 240 units and utilize high-rise prefab technology, thanks to a partnership with Panasonic, to drive 35% lower costs and 40% faster completion times than competing projects. 

How successful has the project been and how have you measured this? What have you learned from this project that can be applied more broadly? 

The successful $619 million equity raise for Bridge Workforce I has led to the preservation and rehabilitation of affordable housing across high-growth cities such as Denver, Atlanta, Nashville, Sacramento, Chicago, Dallas, Salt Lake City, and Las Vegas, to name a few. Investors of Bridge Workforce I subscribed to a risk-adjusted market return target of 9%-11% net IRR, with a true double bottom line benefiting investors and community. As of March 31, 2020, the Fund is currently in its investment period though is already outperforming with a projected net return of 12.5%. 

The Bridge Community Enhancement Initiative plans to commit $30 million over the lives of Bridge Workforce I and its successor, Bridge Workforce and Affordable Housing Fund II, launching in Q2 of 2020, to support its firm-wide pillars of connecting, educating, and empowering its residents. Bridge targets a minimum of 30% resident population participation in social and community programmes as well as 75%+ youth participation improvement in report card performance year-over-year.  

Building upon Project Access’s existing offerings, the Bridge Community Enhancement Initiative plans to: 

  • provide college scholarships
  • fund grant competition for community enhancement projects 
  • host quarterly Bridge Community Days to link residential communities. 

Bridge is also focused on green Initiatives at its communities, helping to promote efficiency, cost savings, and environmental stability through Freddie Mac’s “Green Advantage” programme participation, appliance replacements, xeriscaping, energy-efficient lighting and low-flow replacements, renewable plant-based carpet material, and usage of zero-VOC paint. 

For impact measurement, Bridges uses an independent third party, Global Impact Investing Network’s Impact Reporting and Investment Standards (“IRIS”), that provides an objective and nationally relied upon framework and are aligned with United Nations Sustainable Development Goals. This IRIS report is produced semi-annually and focuses on reporting across affordability, environment, and social and community metrics. 

As of Q3 2019, across Bridge Workforce I has: 

  • conserved 2,601,750 kWh of power since H1 2018  
  • made 508,854 square feet of energy efficiency improvements since H1 2018  
  • made 21.8% cost savings relative to average market rents between Q2 and Q3 2019  
  • financed 44 community facilities   
  • offered 274 Health & Wellness, 221 Education for Youth, and 259 Economic Stability programmes.