Please see the following update in respect of COVID-19 from Bridge Investment Group Vice Chairman Dean Allara.

Should you have any queries, please do not hesitate to contact our team at (+61) 2 9047 8800 or via email at info@spirecapital.com.au. We trust that you remain safe and in good health throughout these challenging times.

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Dear Investors,

I hope you are well and staying safe amid the uncertainty of the COVID-19 outbreak. In the context of today’s global disruption — around COVID-19, volatility in the public markets, collapse of oil prices and a structurally low interest rate environment—we at Bridge wanted to reach out to update you on operations at our assets, and precautions we are taking to protect our communities, residents, tenants, employees and partners around the country as a follow-up to last week’s email from Investor Relations on COVID-19.

First and foremost, we are meaningfully engaged with our employees, property managers, residents, tenants and other users at our properties and have implemented best practices suggested by the CDC and other governmental agencies, as well as relevant trade associations. These include increased sanitation and cleaning, communication and training around communicable disease and virus protocol and prevention, among other things.

As it relates to our investment activities across our specialized funds, there are some things we know and some we do not yet know.  The public markets have declined dramatically over the course of last week and early this week, and volatility (VIX) is at a level not seen since the collapse of Lehman Brothers in 2008. Whether and how these factors will affect the private equity real estate markets is not yet known.  We continue to believe that Bridge invests in recession-resistant verticals within the value-add sector of the U.S. real estate market, and we have been and will continue to be conservative in our use of leverage.  We continue to see active leasing activity across our portfolios, in that we strive to offer excellent value to our residents and tenants.  It seems too early to know if the impacts of COVID-19 and economic impacts will be short-lived or have longer-lasting consequences for the U.S. and global economies, but we are actively monitoring the markets and our operations daily.

As it relates to the verticals in which we operate, our CIOs have shared the observations below:

MULTIFAMILY (Jonathan Slager):  We have not yet seen a major impact on traffic or leasing in the past few weeks. Our pipeline remains active and deals are being bid competitively. As we look towards monetization of assets, we have seen buyer demand accelerate due to lower rates and the continued availability of debt. Low Treasury/LIBOR rates may have incentivized certain buyers to further increase their bids. Overall, fundamentals seem to be unaffected at this point. Despite the lack of tangible impacts to date, we believe that we will be impacted in some way, whether that be short-term reductions in leasing activity or absorption, a potential reduction in liquidity, costs, or supplies, or even potentially issues with delinquency or ability to pay rent among certain impacted individuals or companies. That said, Bridge strategies are proving resilient as expected, and we believe our strategies will continue to perform through challenging times.

OFFICE (John Ward): We are still seeing marketed deals progress, and they seem competitively bid, though market conviction has lessened given the volatility. Our buyers are still moving forward on deals under contract, though we are seeing stress this week. We are in the final stages of negotiation on several deals, and so we have had the opportunity to see real-time how lenders are pricing deals, and spreads are widening.  From an operational standpoint, we have not yet seen any changes in business activity on lease negotiations, as businesses are still working, and the anticipated disruption from “work from home” calls by businesses seems to be relatively short-term so far.

SENIORS HOUSING (Robb Chapin, Phil Anderson & Blake Peeper): While Bridge Seniors saw an increase in occupancy across the portfolio last week, we believe our industry will be impacted by COVID-19. As it relates to transactions, the market continues to actively bid on deals. However, due to the enhanced health concerns associated with the senior population, we anticipate that precautionary measures will result in reduced leasing activity and potentially a decline in transaction activity. For example, the ability to complete on-site due diligence may be impeded due to limitations on visitor access to seniors housing communities. From an operational standpoint, illnesses such as influenza pose a year-round risk to our residents. As a result, we are encouraged that many of the precautionary measures related to COVID-19 are strongly-rooted in existing protocols to prevent or delay the spread of a virus, whether influenza or COVID-19.

DEBT (Jim Chung): Overall, the rally in interest rates has made the current holdings of all of the BDS funds more attractive since they were originated in a much higher rate environment.  Credit spreads are wider and while the situation is fluid, it does not appear that the widening of credit spreads offsets the dramatic moves in the rates markets.  Credit risk in the portfolio is now heightened with the higher chance of a recession, but with the heavy multifamily concentrations in the BDS funds, we believe we are somewhat insulated from that risk.  We anticipate slower originations in the coming weeks as counterparties will be pausing naturally in the face of market volatility.  We expect the market to normalize after this adjustment period.

AGENCY MBS (Mohit Chandarana):  Agency MBS spreads have widened 8 to 10 basis points since the beginning of the COVID-19 crisis.  The wider spreads are a result of higher supply of new mortgages due to surge in refinance applications, higher volatility and overall risk-off tone.  Investing in Agency MBS at this time with wider spreads would be beneficial over the long term.  However, the turmoil has also increased funding spreads, primarily in form of wider bid/ask spread as borrowers and lenders are pricing different Fed policy paths.  This dislocation is expected to be transitory.  Agency MBS has outperformed other risky assets during turmoil and as market normalizes, Agency MBS will benefit from investor increasing allocation to the sector and away from corporate bonds.  Current returns remain within our target range.

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We will provide you with further updates as meaningful changes occur, and will distribute year-end 2019 fund updates before March 31, each with an enhanced “Recent Events” section providing any new information that we have at that time.

The principals of Bridge have been in the real estate market since 1991 and have seen good times and difficult times, and we believe we have the discipline and practices to work constructively through challenges, in the markets and at our assets, to deliver strong absolute and relative performance for our investors.

In the meantime, if you would like to discuss matters further, or share your views with us (which we would value very much), we would be happy to schedule a conference call or videoconference.

Yours faithfully,

Dean A. Allara
Vice Chairman | Bridge Investment Group LLC