Transcript

Aaron Strauss  0:04 

You’re listening to The Dealmakers’ Edge with A.Y. Strauss – diving deep into stories behind commercial real estate leaders.

Inna, thank you so much for joining the podcast! Before we get going, just want to say your bio is very extensive, but just briefly: she is a partner in the Client Solutions Group for Bridge Investment Group, which is a globally trusted real estate investment firm with over $28 billion in assets under management and has over 1600 employees. She is a prominent voice in the industry regarding a private sector solution to the US affordable housing crisis, and she most recently helped Bridge Investment Group win ESG Private Equity Impact Fund of the Year in 2021. And she is chairwoman of Bridge Gives, Bridge’s charitable giving arm.

So. you’ve had a remarkable career, we’re excited to have you on, and I’d love to kick it off by sharing your background briefly, if you wouldn’t mind giving people an overview of where you’re from, where you went to school and how you got started in commercial real estate.

Inna Khidekel  1:00 

Thank you, Aaron, very much for having me. I’m thrilled to be here on this podcast. I’ve spent my whole career in finance and, specifically, on the relationship building side within finance, always serving clients and building relationships with a wide swath of investors, which I continue to do today as my principal day job at Bridge Investment Group.

I was born in Russia, so I’m a first-generation immigrant, grew up in California, moved to the San Francisco Bay area as a child, and then went to the east coast for college. I went to the Wharton School at the University of Pennsylvania studied finance and legal studies, and then decided to move straight out of college to London, where I joined Lehman Brothers in an Emerging Markets Team at that time.

I’ve always been lucky to be thrown into the deep end, so to speak, from the very beginning of my career. I’ve always been in very entrepreneurial roles where I was in that sweet spot where I could both help build a business as well as rely on my skills to build and monetize client relationships. And that was no different at Lehman Brothers. I was young, I had no idea what I was doing or what I was talking about, but I had to go and bring in clients and monetize those clients. As a result, I had quite a bit of visibility when Lehman Brothers went bankrupt in 2008. I was there, but because I was a pretty active participant within this, this new high profile startup team, I managed to keep my job through that process, which was good because I was on a work permit, and I otherwise would have had to leave London, which I really didn’t want to do.

I managed to keep my job. I then stayed with Nomura who took over Lehman Brothers operations in Europe and Asia, and I joined the high yield credit team, because you could tell that at the Nomura emerging markets were not quite their principal focus, but fixed income was and I had the opportunity to go launch a new team. They’re focused on a high yield and distressed credit, exciting time to be in the industry. I was working with a number of hedge fund clients during the Eurozone sovereign debt crisis, as they were trading credit default swaps on Portugal or Ireland or Greece going bankrupt, really interesting time to be in the markets and on the trading side.

But you could also tell that that business institutional sales and trading was structurally and fundamentally changed post the GFC. I decided that it was a good time for me, personally, to revisit, to see what else was out there. I decided to apply to business school. So, I left London after five years, I was a vice president of time, and went to Harvard Business School, got my MBA, a lot of fun. Of course, business school is always a lot of fun, met some great people and from there joined Goldman Sachs in the Investment Management Division, where I once again was in an entrepreneurial role focused on both family office high net worth and institutional investors.

While I was at Goldman, I actually met the chairman of Bridge Investment Group who I developed a relationship with well at Goldman, and one day, he called me up and he said, what do you think about leaving Goldman and coming to work for me at Bridge? We’re a fast-growing real estate investment firm; if you manage to bring me on as a client, you can probably do that with others at Bridge , and we need someone with your hustle, so to speak. At the time, it was kind of a difficult decision, you know, leaving a brand name firm for a less at the time, a less well-known firm.

And, of course, now Bridge is a prolific real estate manager with a terrific brand. We just went public this past summer on the New York Stock Exchange, but at the time, it was kind of a risk. And it was absolutely the best decision I’ve ever made extremely fulfilling a career at Bridge. I’ve been there now for six years and have never had more fun building a business contributing to the strategy, working with a fantastic team and getting to do what I love every day. It doesn’t feel like work.

Aaron Strauss  4:45 

And it seems like you’re actively involved in many levels at the firm, you are senior management and deal with the investors, winning awards. I know you’re super passionate about workforce housing and the affordable housing crisis, which is real. You want to talk broadly about that market and your passion for it and some of the things done in that space?

Inna Khidekel  5:00 

Workforce and affordable housing is a passion of Bridge Investment Group dating back 30 years now, since we were founded in the early 90s. We think that we were among the first investment managers, if not the first, to recognize that when you integrate social community programming on site for residents, when you can do more for residents that just provide four walls and a roof, they don’t want to leave your property. They’re getting a lot more intrinsic value than just affordable rent. And so, we’ve been focused on delivering value for residents to building vibrant, thriving communities to the advancement of social economic mobility really early on. We always talk about how we’ve been at the forefront of revitalizing communities in 2017.

After a long time, history, and track record of preserving and rehabilitating old workforce and affordable housing as well as value add multifamily, we saw what was happening in the affordable housing crisis, how it’s getting worse each year, and how especially the government subsidized solutions out there – low-capacity tax credit, Section 8 – were really imperfect. Returns were shrinking, there was less and less supply, and, unfortunately, they only addressed a tiny fragment of the need for high quality affordable housing, You have to earn less than 50% of area median income, typically more like 30 to 40, to qualify. And even if you do qualify, only one in five renters can actually tap into it. Meanwhile, in the industry, we were building only as an industry Class A luxury housing.

And so, this created a disconnect and a big void in the market for a large, underserved segment of the renter base. Almost two-thirds of U.S. renters today earn less than 80% of area median income. This represents teachers, policemen, firemen, public city workers, health care workers and their needs were not being met at the core of the U.S. workforce. Not met by government subsidized housing, not met by what’s being built in the market. And we saw this and we said, you know, we can really make a difference on the level that doesn’t otherwise exist in the marketplace because we are a nationwide operator, because of our nonprofit partnerships in the investment of social economic mobility, because of a mandate where we can create a strategy that will specifically focus on this. No one else in the market is doing this.

And it’s been a tremendous success. We now operate the leading private sector solution to affordable housing crisis in the U.S., we’ve won a tremendous amount of industry recognition. Just a couple weeks ago, we actually won Pension’s ESG Fund of the Year and the ESG awards in 2021 Social Fund of the Year of the Environmental Finance Stability Awards. We won recognition from UN principles for responsible investment for real-world impact. And the reason that we are winning all these awards, in our view, is because we’ve been able to show that you can do well by doing good, that the two are not mutually exclusive, but rather that when you provide more than four walls and a roof to residents, you can at the same time generate commercial success, as well as true community revitalization that the two reinforce one another.

And we’ve done it enough in a way that is differentiated. We have a strict mandate where the majority of our units at every property have to be rented to the missing middle earning less than 80% of AMI. We put our money where our mouth is, we have alignment, we take 25 basis points of our management fee, which is about $40 million over the lives of our workforce, affordable housing vehicles to fund on site, dedicated social community programming at every single property. And we report on our impact in a way that we think continues to lead the industry by using the Global Impact Investing Networks Iris framework. And so, as an investor, you can see how you’re not just generating strong cash flows and attractive returns, but you’re also truly revitalizing communities. And you can see that at a granular asset level basis. And that’s really powerful.

Aaron Strauss  8:45 

That’s amazing. And obviously workforce is a major part of what you’re doing. But I mean, you’re in the market in so many different ways. We talked last time about where we are, you know, we’ve been through a couple of cycles. Now you’ve seen a lot of different things. What about the fundamentals you’re seeing today? I mean, there’s so much capital moving. There’s so much at work, there’s so much on your plate and the firm’s plate in general, where do you see the market moving next one or two, three years? Are you just going to sort of continue going down the road? Are you thinking about things differently, perhaps today than you were six to 12 months ago, or the fundamentals are strong and just keep on trucking?

Inna Khidekel  9:16 

I think it’s an extremely exciting time to be in the commercial real estate market. And I also think the flows of capital are continuing to be supportive of the real estate market. There are nonstop studies and reports out there about how the pension plans and other large institutional investors are struggling to meet their obligations to beneficiaries and target returns because they need to pay out quite a lot of money. Returns are compressing in many asset classes around the globe and real estate provides an opportunity to generate strong current yield capital appreciation. It remains a place of strong relative value and also a place where you can generate above market returns especially, In our view, if you are partnering with an operator. We’ve always talked about how there’s a difference between being a capital allocator, where you have to rely on third parties, where you are not connected to your assets, where you have to oftentimes pay portfolio level premiums, and being an owner-operator where you have resident productivity, where you can be nimble during good times, and particularly during bad times, like COVID-19, or the GFC, where you can demonstrate operational efficiencies and cut costs.

And so, from our perspective, in this efficient market, being an operator continues to have an edge, probably an even greater edge than it did previously. And we’re seeing that particularly play out in some of the more niche sectors that have become a favorite of late – whether it’s logistics, or you know, data centers or warehouses where cap rates have continued to compress and where your ability to drive operational alpha and to create extra efficiencies out of the management of those assets will make all the difference in the world in terms of generating returns versus not generally where we are seeing interest right now.

And long term tailwinds are demographic driven sectors where you can create operational alpha that includes workforce and affordable housing, which we just spoke about. It includes generally essential housing Class B multifamily, which is in short supply, senior housing, which has been battered by the COVID 19 pandemic because of illness, because of the inability to have movements. But yet, as a result represents some attractive entry points and some distressed opportunities. At this point, it includes certain pockets of office where there is the ability to buy at a discount from undercapitalized owners, and where you can drive value and monetization and take advantage of the inflow of human capital into certain pockets around the US. It includes certain types of logistics properties as well.

I’ll just say that, in general, real estate right now is growing in many investor portfolios in terms of the allocation because if there is going to be in inflationary environments, real estate often does quite well. It’s considered to be an inflation hedge. If your taxable investments, of course tax efficient if you’re an institutional investor, then you have so inflation protection, and also the continued ability to drive returns when many other asset classes are compressing. So, a lot of different opportunities out there.

Aaron Strauss  12:28 

It’s great. And you mentioned your edge and, on an institutional level, you obviously have to seek those alpha returns to get the edge for your investors to grow the business. But I’m curious on a personal level, I mean, you’ve had a remarkable career doing so much. You’re managing a broad team; you’re interfacing with so many different investors. I mean, how are you personally driving day to day without burning out? And what are the things you’re telling yourself as you’re managing day to day, I mean, your personal edge, kind of curious to hear about to how you find balance with everything you have going on.

Inna Khidekel  13:00 

No one is perfect at managing all the stress that comes with a demanding job. What makes it all doable is loving what you do. I do spend a lot of hours on Bridge and on bringing in clients; I’m thinking strategically about how we continue to grow our business, on interfacing with our investors or with colleagues. But I love that, and it energizes me, and it gives me enough energy then to do the other things in my life that I also want to do, whether that’s you know, spending time with my son or with my husband. I think it’s important to be organized. I start every day with a very long to-do list of all the things that I have to accomplish in that particular day.

And of course, sometimes you get derailed. But it’s a helpful framework that includes usually both short term, you know, what needs to be done that day, as well as longer term strategic vision items that I get to if I have time. So I’m reminded, you know, not to forget about important longer duration items as well. I think the general, maybe edge, that I have is by nature, I love spending time with people; I am an extrovert and I’m in the right seat. I think that when you are in that so called sweet spot –  which is the intersection of what you’re good at doing and what you love doing – you’re just naturally going to be more successful.

I spent enough time in my career to recognize what my strengths are, and also what my weaknesses are. You can hire around weaknesses; you can build on those weaknesses. You can have a great team to help support the weaknesses and then you can capitalize on your strengths. I really tried to do that. I do think that I am good at figuring out what investors need and want, at building relationships with those investors, negotiating deals that bring in capital and telling the story, but I also love doing those things and that makes it all easy. And also when you like people that you’re doing it with, it makes your job much easier as well. It’s all about hustle and it’s all about being in the right seat.

Aaron Strauss  15:01 

And all that hard work pays off incrementally over time and sometimes exponentially. On the adversity side, anything you’ve seen the last several years that was sort of a setback for you that you learned from?

Inna Khidekel  15:12 

I think that there’s always some adversity when you start in a new position. For me, you know, joining Bridge, I was new to the real estate sector. I had spent my whole career in finance, and, of course, knew real estate somewhat, but I didn’t know real estate that well. That’s not quite adversity, it’s more like just being in a position where you, you have to learn something very quickly, you’re expected to perform, especially at the time; we were quite a lean, entrepreneurial, almost startup like organization. And so, there’s no time to sit on my laurels and learn the industry, I just had to learn by doing. And by getting thrown into that deep end, what I learned is that, first of all, you can learn anything, if you are a capable person who is not afraid of a challenge and who is not afraid to, you know, be humble and to recognize what you don’t know.

You can really learn anything with practice, and with being surrounded by smart, educated people that you can learn from. And so, I was actually surprised at how quickly I managed to grasp the industry, who the key players are, how it all works, how one drives value. In real estate, you know, what the models look like, what the numbers look like, what the terms mean. Now, I think that I consider myself an expert in real estate. And I think that it just shows that you should not be afraid to take on new challenges. And just because you may not know something or you’re new to a role or you’re new to an industry doesn’t mean that you can’t be wildly successful at it. Again, provided that you’re in the right seat and you’re surrounded by the right people.

Aaron Strauss  16:48 

Yeah, I think also having the drive you have doesn’t hurt either. I think a lot of people understate how hard they work and what they put in. I know you put in a lot and that that also helped propel you dramatically.

Inna Khidekel  16:59 

Drive helps.

Aaron Strauss  17:03 

Ambition helps; hard work helps

Inna Khidekel  17:05 

That yes, no substitute.

Aaron Strauss  17:07 

Let me ask you this, somebody who’s graduating school: they managed to squeeze into your calendar and meet you for coffee, and they’re looking for advice. How do I have a successful career in institutional commercial real estate? How do I get started? What would you tell me from a macro perspective?

Inna Khidekel  17:25 

The most important thing is to be in a fast-growing firm. I think Sheryl Sandberg said this, you want to join a fast-growing firm and a fast growing industry. The good news about real estate is it continues to grow in a number of ways from a macro perspective and from an allocation perspective. So, you’re good, they’re good choices, the industry, firstly, but the growing firm is really important. Because there are a lot of real estate firms out there, and some of them have maybe too specialized of a focus. And different parts of real estate are in flavor one year and out of favor the next because, you know,  tailwinds shift.

And so, I think you really want to look for a firm that has an edge, ideally, with operating capabilities. Because again, as we spoke about, I think that the owner-operator approach is superior; in real estate, I think it does drive incremental alpha. But you also want to be in a firm where you see growth, and that could be geographic growth, or it could be sector growth, where you’ve seen a trajectory of them being able to raise incremental capital over time. One of the great things about Bridge is that we’ve been one of the fastest growing, if not the fastest real estate, private equity firms globally, over the past number of years. We started our discretionary fund business and that makes it really fun. It creates opportunity. You want to be in a place where you have that trajectory. And then also great people where you can wear multiple hats. When I look at my career, the best gift that I was given is having an entrepreneurial seat on an entrepreneurial team where I got to do many different things and not just deliver coffee.

Aaron Strauss  19:02 

I think there are a lot of major real estate firms that are major because they’ve bought the assets a long time ago, and they may buy an asset once every couple of years. You’re not going to learn much – maybe property management, asset management. But you’re right, go for the growth and be around great people. You’ve helped the firm win all these different awards, the ESG Private Equity Impact Fund of the Year award, can you talk about that, what went into winning that award? How does one win such an award? ESG is a hot topic, maybe explain a little bit about that topic, generally, for those who may not understand it.

Inna Khidekel  19:34 

ESG is exploding, and you just can’t ignore it. It’s exploding at every single part of an organization, as it relates to investing, as it relates to management and corporate governance, as it relates to how different employers are giving back to their communities every day. Right now, we are getting inquiries from investors about our ESG practices, about how we’re prioritizing diversity, equity and inclusion, or climate change into our investment process. And so, in general, this has been a huge topic of interest and growth in the industry for a long time, and it’s not going away.

At Bridge, we have a dedicated head of ESG and an ESG Committee on which I sit. I actually helped to launch that committee; I think it was, technically, my idea. But it sounds silly to say, because it was so obvious at the time that we had to do it that really, it was really the idea of our investors and the world. It was perfect timing when we did it, in terms of taking that one step further.

One of the issues with ESG is reporting and transparency, and figuring out how you can create structure around something that sometimes is more nebulous. And so the reason that we keep winning these ESG awards is because that’s exactly what we have done in our workforce affordable housing strategy. It is an impact strategy, but it’s also a strategy that delivers, you know, above market returns in cash flows. We have taken a very hard look at measurement and tried to provide a level of actionable intelligence that doesn’t otherwise exist in the real estate industry, really looking at not just outputs like, you know, percentage of affordability or number of residents that are provided with after school academic programming, but longer term outcomes and impacts. How does that then inform college enrollment relative to that income bracket? How do credit scores change over time? And how does that change the community landscape?

That’s I think the missing element right now in the industry, making it more streamlined; a number of organizations have tried. And so frankly, I think that’s a great opportunity for someone new, you know, coming out of school to try to streamline ESG.

Aaron Strauss  21:53 

It’s amazing. You do well, by doing good, too. It’s not just about building super high-end luxury for someone who can afford max rent. If you can change the location, add value, give back and distribute income and return to your investors, it’s a wonderful place to be in life. I’ll wrap by saying, you know, it’s been absolutely amazing to have you on this podcast. Thank you so, so much for sharing. I think people can learn a lot from your career and what you’ve done and what you continue to do.

Inna Khidekel  22:18 

Thank you so much. I really enjoyed speaking with you and very much appreciate being part of this podcast.

Aaron Strauss  22:25 

Thank you for joining The Dealmakers’ Edge. Don’t forget to follow us on your favorite podcast platform, give us a five-star rating, so more people can follow the conversation.