Bailard's Tess Gruenstein Honored with Prestigious Industry Award
San Francisco — September 14, 2023 —Bailard, a values-driven asset and wealth management firm, is delighted to announce that Tess Gruenstein (Senior Vice President, Acquisitions & Portfolio Management, Real Estate) has been honored as one of Pensions & Investments’ Influential Women in Institutional Investing.
The inaugural 2023 class of P&I’s Influential Women in Institutional Investing recognized 65 industry leaders. P&I assembled an advisory board of leading investors and key industry executives to determine focus areas—including leadership and contributions to the advancement of women—and evaluate candidates on their ability to demonstrate measurable effects and results within one’s own workplace and within the industry.
Having joined Bailard in 2015, Tess is a highly skilled and effective leader who has made significant contributions to the success of Bailard’s real estate efforts, and the company at large. As a testament to Tess’s exceptional achievements, Preston Sargent, Executive Vice President of Bailard Real Estate noted, “Tess has a very special blend of skills and qualities that make her an extraordinary leader, manager, partner, co-worker, and friend. She has an unyielding commitment to fairness, quality, and doing the right thing.”
With her early experiences and support from professionals in the institutional real estate industry, Tess has dedicated herself to providing similar opportunities for others. As a woman in commercial real estate, Tess works to serve as a spokesperson, role model, and advocate, consistently promoting her team’s work. Tess seeks to drive positive change and create a more equitable and inclusive workplace culture for women in real estate.
“It is a mixture of very good luck, great colleagues and mentors, and hard work that gave me the kind of exposure and career growth to get here,” said Gruenstein. “The recognition that diversity of perspective, gender, and economic and educational backgrounds leads to more dynamic, forward-thinking workplaces is still new and so essential. I benefited from this perspective at multiple points in my career, and I cannot stress enough how it made all the difference for me. I will proudly pay this forward as we support the next wave of women in the business.”
Bailard extends its heartfelt congratulations to Tess Gruenstein for this well-deserved recognition. Her contributions have driven much success, and we look forward to her continued leadership.
About Bailard, Inc.
Founded in 1969, Bailard is an independent asset and wealth management firm serving individuals, families, and institutions alike. Bailard has built a long‐term asset management track record across domestic and international equities, fixed income, and private real estate, as well as robust, in-house sustainable, responsible and impact investing expertise. Through it all, Bailard works with clients to align their financial goals with their values. With $5.5 billion in assets under management as of 6/30/2023, Bailard is a majority employee-owned and women-led firm, and a Principles of Responsible Investing (PRI) signatory. A values-driven firm based in the San Francisco Bay Area, Bailard is deeply committed to its core values of accountability, compassion, courage, excellence, fairness, and independence.
About P&I’s Influential Women in Institutional Investing
Pensions & Investments, owned by Crain Communications Inc., is the 50-year-old global news source of money management. It released this inaugural list of Influential Women in Institutional Investing in September 2023, with 65 honorees. To be eligible, women must be currently employed in institutional investing, have a minimum of 7 years of experience in the industry and demonstrate a measurable effect and results within one’s own workplace and within the industry. Women across the institutional investment industry are eligible (allocators, asset managers, consultants, service providers, etc.) and should ideally demonstrate a commitment to attract, retain, support and promote women into the industry. This award does not evaluate the quality of services provided to clients and is not indicative of Bailard’s future performance. There was no cost for Bailard to enter.
Bailard Real Estate Fund Accepted into NCREIF’s NFI-ODCE Index
SAN FRANCISCO – May 25, 2021 – Bailard, Inc. announced today that the Bailard Real Estate Fund (the “Fund”) has been added to the National Council of Real Estate Investment Fiduciaries’ (NCREIF) Open-end Diversified Core Equity Index (NFI-ODCE) as of March 31, 2021. Bailard’s Fund joins as the NFI-ODCE’s 27th active fund.
The Fund’s Chief Accounting Officer, Dipika Shull, CPA, remarked that Bailard began benchmarking its Fund against NFI-ODCE in 2015 and, “it is only fair to become part of the body to which we compare ourselves. By joining the Index, we have cemented our Fund’s position as a core real estate investment option for a range of institutional and sophisticated investors.”
The Bailard Real Estate Fund was launched in 1990 and served as an innovative and early offering for institutional private equity real estate. As of March 31, 2021, the Fund had a gross market value exceeding $1.1 billion. The Bailard Real Estate Fund’s investment strategy focuses on value-enhancement acquisition opportunities while adhering to a diversified core portfolio construction approach, with the goal to deliver attractive risk-adjusted returns through varying market environments. The Fund seeks to outperform the NFI-ODCE (EW) Index – an objective that has been achieved for 25 of 26 quarters since Bailard began benchmarking against the Index.*
Preston Sargent, the Fund’s President and CEO, noted that broadening, deepening, and diversifying the Fund’s investor base has been an important initiative for the real estate team. Sargent said, “Joining the NFI-ODCE is an important recognition of Bailard’s intent to compete on a bigger stage.” Further, he added, “Going toe-to-toe with marquee private equity real estate fund sponsors is a privilege and will be an additional motivator to sharpen our skills, focus, and stay on our game.”
About the Bailard Real Estate Fund
The Fund is an actively-managed open-end diversified core equity real estate vehicle with a strategy to maintain and grow a portfolio of high-quality assets diversified across property types, major metro areas, and investment life cycles. As of March 31, 2021, the Fund’s Gross Asset Value was $1.1 billion, invested in 31 properties across 18 U.S. markets. An investor in the Bailard Real Estate Fund must be an “accredited investor” as defined in Regulation D and provide documentation verifying such status as requested by the Fund.
About the NFI-ODCE
The NFI-ODCE is a capitalization-weighted, gross of fee, time-weighted return index with an inception date of December 31, 1977. As of March 31, 2021, the NFI-ODCE consisted of 27 funds, totaling $212 billion of net real estate assets. Open-end funds are generally defined as infinite-life vehicles consisting of multiple investors who have the ability to enter or exit the fund on a periodic basis, subject to contribution and/or redemption requests, thereby providing a degree of potential investment liquidity. The term Diversified Core Equity style typically reflects lower risk investment strategies utilizing low leverage and generally represented by equity ownership positions in stable U.S. operating properties diversified across regions and property types. For more information on the Index, please visit https://www.ncreif.org/data-products/funds/.
* Important Disclosures
Bailard, Inc. (“Bailard”) is the investment and operating manager of the Bailard Real Estate Investment Trust, Inc. (the “Bailard Real Estate Fund” or the “Fund”). While the Bailard Real Estate Fund began benchmarking itself to the NFI-ODCE as of 3/31/2015, please note that the Fund was accepted into the Index as of 3/31/2021 after meeting the eligibility requirements for four consecutive quarters. For the period ending 3/31/2021, the Fund outperformed the Index 25 of 26 quarters on both a gross and net basis. The Fund’s full performance history is available upon request.
The underlying performance results of the Fund are calculated using National Council of Real Estate Investment Fiduciaries’ (NCREIF) methodology and reflect the impact of leverage, interest, and dividend income from short-term cash investments and publicly-traded real estate investments, as applicable. Capital expenditures, tenant improvements, and lease commissions are capitalized and included in the cost of the property; are not amortized; and are reconciled through the valuation process and reflected in the appreciation return component. The performance results do not reflect Fund-level expenses, such as audit, tax, legal, operating management fee, and accounting expenses. The Fund’s income return is not the distributed income to the investor, and the Income Return is presented gross-of-fee and before Fund expenses. The NCREIF gross return methodology is as follows: the total gross return is equal to net investment income plus appreciation divided by weighted average equity. With respect to income and appreciation, the NCREIF methodology for net income return is equal to net investment income divided by weighted average equity, and net appreciation return is equal to appreciation divided by weighted average equity. Performance results are calculated on an asset-weighted average basis using beginning of period values adjusted for time-weighted external cash flows. All properties have been appraised quarterly since the third quarter of 2009. The Fund’s Board of Directors determines the value of properties based on input from independent appraisers and all levels of the Fund management. Securities, derivatives, and cash and cash-equivalent investments held by the properties and Fund are marked to market on each valuation date. The Fund’s Inception Date is April 20, 1990. The NCREIF Fund Index – Open End Diversified Core Equity (NFI-ODCE) is a fund-level, time weighted return index reporting the returns of various open-end commingled funds pursuing a core private real estate investment strategy and qualifying for inclusion in the NFI-ODCE based upon certain pre-defined index policy inclusion characteristics. Historical data is available from 1978. Like the Fund, the NFI-ODCE returns reflect leverage and the impact of cash holdings and joint ventures (i.e., returns reflect each contributing fund’s actual asset ownership positions and financing strategy). The use of leverage varies among the funds included in the NFI-ODCE. The NFI-ODCE is unmanaged and uninvestable. Past performance is no indication of future results. All investments have the risk of loss.
Bailard receives annual fees from the Fund, which are based on the Net Asset Value. The Fund invests primarily in real estate and, as a result, an investment in the Fund entails significant risks that are customarily associated with the development and ownership of income-producing real estate, including illiquidity, changes in supply and demand, and inexact valuation. The Fund’s shares fluctuate in value and may be illiquid due to a lack of redemption, the lack of a secondary market and restrictions on transfer. Fees and expenses may offset the return on the investment. The Fund may be leveraged. Projections are based on assumptions that Bailard believes are reasonable under the circumstances, they are subject to uncertainties, changes (e.g., changes in public health, economic, operational, political, legal, tax, and other circumstances), and other risks including, but not limited to, future operating results including rents, occupancy, and other property cash flows, and other expenses. Investors may lose all or a substantial portion of their investment. For a more thorough discussion of the fees and the risks involved in making an investment in the Fund, please refer to its Offering Memorandum.
About Bailard, Inc.
With 50 years of experience, Bailard proudly serves as a trusted partner focused on achieving long-term results aligned with client goals. An independent firm since its founding in 1969, Bailard stands committed to its values and, most importantly, its clients. With $5 billion AUM as of March 31, 2021, Bailard’s high-touch client service and proven track record are grounded in the firm’s core values of accountability, compassion, courage, excellence, fairness, and independence.
The Demand for "Attainable A" Multifamily Housing
Jamil Harkness, Research and Performance Associate, offers a broad introduction to the potential for attractive investment opportunities in a segment of the multifamily property type that Bailard defines as “Attainable A.”
The Bailard real estate team has long believed in the advantages of investing in multifamily properties, mainly for the consistent cash flow, manageable volatility, lower capital intensity, and the asset type’s ability to adjust to broader economic conditions more quickly.
Supply & Demand
In the largest 40 U.S. metropolitan areas, roughly one-third or 4.5 million units of the multifamily housing inventory (defined as apartment complexes of 20 or more units) comprise Class A units. Within this category, the more expensive “trophy luxury A” and “luxury A” tiers represent 11% and 52%, respectively. The lower-cost end of the Class A spectrum, the remaining 37%, represents what the Bailard team defines as “Attainable A” properties.
According to CoStar, multifamily supply and demand dynamics at the end of 2022 favored Attainable A properties. As a result, despite a general slowdown in demand across all segments and geographies in the past year, the vacancy rate for Attainable A only increased by 1%, reaching 6.4% by year-end 2022. In contrast, the vacancy rate for trophy luxury A and luxury A properties increased by 1.2% and 1.1%, respectively, ending the year at 8.7% and 9.2%.
Rents for Attainable A increased 3% year-over-year in 2022, with the average asking rent for all unit types within this segment reaching $1,726 per month. Comparatively, average asking rents for trophy luxury A and luxury A reached $3,425 and $2,250 per month, respectively: rent growth of 2.6% and 2.3%, substantially lagging Attainable A.
Defining Attainable A
The Bailard Real Estate team defines Attainable A as high-quality, well-amenitized, recent-vintage, moderately priced multifamily properties generally located in close-in and first-ring suburban markets. Attainable A differs from trophy luxury A and luxury A in several respects, including design, materials, finishes, amenities, and locational attributes. Exhibit 1 enumerates a variety of features that help frame the similarities and differences of the three Class A apartment segments.
Middle-income renters account for 54.3% of U.S. renters and the majority fall within the 22 to 45 age group, which comprises Gen Z, Millennials, and Gen X. Almost half, 49.6%, either live alone or with roommates. A sample of the kinds of occupations that provide the foregoing levels of compensation are as follows: carpenters, plumbers, firefighters, police officers, office managers, nurses, teachers, sales associates, marketing managers, surgical technologists, IT professionals, project managers, and real estate agents.
Data obtained from Costar indicates trophy luxury A and luxury A one-bedroom apartments in urban or in-fill neighborhoods average $3,000 and $2,100 per month, respectively, making them unaffordable for most middle-income individuals. However, an Attainable A one-bedroom apartment in a first-ring suburban market rents for approximately $1,440 per month. To qualify using the traditional “35% of salary” rent affordability metric, a $49,000 annual income is needed for Attainable A, while $102,000 and $75,000 per year is the baseline for trophy luxury A and luxury A properties.
The Case for Attainable A
Over the past decade, the 40 largest metropolitan areas have seen completed construction of 2.9 million multifamily units. Class A apartments, across all segments, accounted for 86% of these new deliveries. However, only 587,000 Attainable A apartments were constructed, only a quarter of that large Class A pie slice. Many middle-income Americans are experiencing limited affordable housing options.
Despite the modest number of Attainable A apartments completed in the last ten years, the middle-income renter pool remains sizable. In fact, the proportion of middle-income earners in the U.S. has remained stable at around 51% of all workers, versus 52% in 2012. However, due to employment and population growth, the absolute number of full-time working earners has substantially increased in that same period. According to data from the Census Bureau and Pew Research, across the 40 largest metropolitan areas, 3.5 million new middle-income earners were added to the workforce over the past decade. Given the sheer size of the pool of working adults in the middle-income bracket—which is growing and constantly being refreshed by new (and younger) workers entering the labor force—Attainable A product is an attractive and affordable option.
Another crucial factor that has recently expanded the growing renter pool, especially for those in the middle, is the declining affordability of single-family homes. Due to the recent increases in interest rates, the average 30-year mortgage rate reached 6.5% in Q4 2022, up from 2.7% in 2020.1 Average home prices have also increased dramatically (33%) over that same two-year period, from $403,900 to $535,800. Assuming a 90% loan-to-cost, 30-year amortizing mortgage, the average monthly mortgage payment is $1,570 higher than average multifamily rents. The widening rent-to-own gap is illustrated in Exhibit 2; the pool of renters is expanding beyond middle-income earners to higher-income earners who may have previously considered buying a home, but can no longer afford to do so.
Beyond that, local zoning regulations remain resistant to new multifamily projects in favor of single-family housing in nearly every state nationwide. And, last but not least, labor availability has the potential to curtail housing development generally, particularly multifamily construction, as the workforce is not expanding at the rate necessary to meet demand.
Conclusion
Attainable A multifamily properties offer good value within the Class A universe, providing high-quality residential options to millions of renters who either cannot afford, or do not wish to live in, trophy luxury A or luxury A apartments. The Attainable A product segment is well positioned to continue to be a strong performer due to population/demographic trends, favorable supply/demand dynamics, and the unfavorable affordability challenges for single-family home ownership. And, given the expected growth of the target renter pool across the country for the foreseeable future, the need for housing, especially affordable housing, is more acute than ever.
1 https://fred.stlouisfed.org/series/ASPNHSUS , https://fred.stlouisfed.org/series/MORTGAGE30US, CBRE-EA
2 CBRE-EA: Construction Costs Trends, Released November 2022