Blue Vault’s FIRST PERSON: Jeffrey Schwaber, CEO of Bluerock Capital Markets

Blue Vault recently had the opportunity to speak with Jeffrey Schwaber, CEO of Bluerock Capital Markets, the dealer manager for offerings sponsored by Bluerock Real Estate, to find out more about the company’s parabolic success at capital raising, what it takes to be an effective leader, and what the future may look like for Bluerock’s sales distribution.

Capital Raise Success
Schwaber believes that, aside from many contributing components of buildout and execution, Bluerock has done exceptionally well in raising capital as a result of quality investment products that have performed well. “Capital tends to follow performance, and we have delivered attractive risk-adjusted returns to our investors for extended periods of time. You have to deliver what you say you will deliver to earn the trust and business of the financial advisory community,” he says.

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In fact, the net asset value (NAV) for Bluerock’s Total Income+ Real Estate Fund has increased by approximately 20% since inception, not including the payment of consistent distributions. When asked how this was achieved, Schwaber says that a combination of the Fund’s hard-working senior management and portfolio management teams, as well as the strength of its sub-advisory partnerships have resulted in significant peer fund group outperformance. “We’ve been successful in our public and private holdings weightings, manager selection, manager weighting, sector weighting, and tilts toward outperforming sectors. As a result, we’ve experienced lower volatility, highest Sharpe ratio, very low drawdown and correlation, and industry leading absolute and risk adjusted returns,” he says.

Schwaber notes that a capital preservation approach is a common thread through all of Bluerock’s products, which is attractive to investors. A focus on quality and properly managing risk is key.

Talent at the Table
With an extensive background in successfully raising capital at three well-known sponsors, Schwaber is considered by many to be the leading industry veteran with more than $14 billion of capital raised just since 2003 when he returned to a head of distribution role. When asked what he considered to be the keys to success, he is clear that fostering a people-oriented environment and having management-level people who are accessible is very important. “First, you cannot hide in an ivory tower if you’re a CEO, President, or Head of Distribution. I have always been highly engaged with my teams and that ‘vertical interaction turned horizontal’ has helped us build strong teams and a culture of respect, new ideas, decisiveness, and positive synergy,” he explains. “I think it’s critical in my position to be an informational conduit between the Main Street and Wall Street sides of our business.”

Bluerock’s securities professionals are expected to be more than just product salespeople. They must have a consummate understanding of the real estate and general capital markets. “Successful distribution is a highly intensive and complicated process that requires a clear plan of execution,” Schwaber says. “When you have the total engagement of senior management, an all-star veteran distribution team, and great product solutions, capital tends to follow.” He notes that the most successful sponsors are great partners who bring a ‘value-add’ component to the advisor relationship that stretches far beyond products.

Bluerock’s Unique Investment Products
Bluerock was among the first sponsors to bring interval funds, preferred stock offerings, and other innovations to market.

Schwaber says launching an interval fund was an important step because, “having a true institutional solution in a ‘40 Act structure was long overdue. It provided an answer for virtually every relevant investor concern including load, share class optionality, frequency of mark to market, a fee-based advisory solution, and others,” he explains. “With the advent of FINRA Notice to Members 15-02, the consideration of the DOL fiduciary rule, and industry and investor sentiment towards the vagaries and structural deficiencies of direct investments, our timing was perfect.”

Bluerock is one of the few sponsors providing a non-traded preferred stock option to its NYSE American-listed REIT. Schwaber noted several reasons for this product including offering investors a senior position within the REIT’s capital stack and enhanced liquidity options resulting from shareholders’ ability to redeem for cash or publicly listed common shares. “Investors are starving for stable income but more importantly, in the wake of inevitable rising interest rates, an income solution that is not affected by the negative pricing impact that occurs with a traditional fixed income product in a rising rate environment”, Schwaber said. “We believe the preferred stock product further addresses many of the perceived negative features of classic DPPs, including a large existing portfolio of Class A apartment properties, dividend coverage and access to immediate liquidity”, Schwaber notes.

Schwaber says that having a multi-product platform for broker-dealers is a huge advantage. “Independent and wealth advisors are asset allocators. An institutional sponsor provides a variety of solutions to meet the needs of today’s investors whereas syndicators tend to be one-trick ponies. Some clients are just seeking an income solution insulated from the inevitability of rising rates, while others are seeking a total return in order to fight purchasing power risk,” he says. “Our founders were hyper-dedicated to providing advisors access to highly institutional strategies previously only available to the largest pension funds, endowments, and sovereign funds. The slow death of defined benefit plans and the steep rise of defined contribution plans took that away from the average investor.”

Growth on the Horizon
Schwaber says that Bluerock will continue to expand its reach into different channels as the company remains malleable to the ever-changing distribution environment. “We recently completed the buildout of a dedicated Private Wealth, RIA/Family Office division with professionals who have lived, eaten, and breathed that space for many years with great capital raise success. We are expecting substantial growth in that channel,” he says. “We also will soon be announcing partnerships with multiple regional member firms, and we are currently working our expansion into the major wirehouses. We also have a dedicated bank channel distribution platform that is resulting in solid flows. We expect that to expand significantly in the next one to two years.”

When asked how the 1031 industry is doing today, Schwaber paints a vibrant picture given that a lot of highly appreciated real estate is trading. “We have consistently fully subscribed our offerings in very short order. We generally bring to market Class-A institutional quality multifamily assets in high-growth stabilized markets. I see a pretty substantial runway for strength in the 1031 business for the foreseeable future,” he says.

Schwaber concludes by saying that Bluerock’s corporate culture is his favorite attribute about the company. “There is a ‘Tiffany’ pedigree about Bluerock that is very rare in the investment management business. We are steadfast and intense protectors of the capital that has been entrusted to us and strive to deliver stability and performance to our clients and the industry. At Bluerock we place a very high value on intellectual capital. We are both tacticians and strategists with an investor-first mentality. One of my favorite expressions is that ‘in business, you either have a strategy or you have a bet.’ If advisors were privy to the intensive closed-door management strategy meetings we host frequently, their confidence in Bluerock would escalate even higher than that which we’ve earned to date,” he notes.

BLUEROCK’S TOTAL INCOME+ REAL ESTATE FUND
The Bluerock’s Total Income+ Real Estate Fund (“the Fund”) is a non-diversified, closed-end internal investment company that operates as an interval fund.

The value of the Fund’s investments will increase or decrease based on changes in the prices of the investments it holds. Limited liquidity is provided to shareholders only through the Fund’s quarterly repurchase offers for no less than 5% of the Fund’s shares outstanding at net asset value. There is no guarantee that shareholders will be able to sell all of the shares they desire in a quarterly repurchase offer. The Fund intends to make investments in multiple real estate investment funds (i.e. “fund-of-funds approach) which may subject the Fund to additional fees and expenses, including management and performance fees, which could negatively affect returns and could expose the Fund to additional risk, including lack of control, as further described in the prospectus.

Investing in the Total Income+ Real Estate Fund involves risks, including the loss of principal. The ability of the Fund to achieve its investment objective depends, in part, on the ability of the Advisor to allocate effectively the Fund’s assets in which it invests. There can be no assurance that the actual allocations will be effective in achieving the Fund’s investment objective or delivering positive returns.

The Fund’s distribution policy is to make quarterly distributions to shareholders. The Fund’s inception date is 10/22/12; however, its first distribution was made 3/27/13. The level of quarterly distributions (including any return of capital) is not fixed. However, this distribution policy is subject to change. The Fund’s distribution amounts were calculated based on the ordinary income received from the underlying investments, including short-term capital gains realized from the disposition of such investments. Shareholders should not assume that the source of a distribution from the Fund is net profit. A portion of the distributions consist of a return of capital based on the character of the distributions received from the underlying holdings, primarily Real Estate Investment Trusts. The final determination of the source and tax characteristics of all distributions will be made after the end of the year. Shareholders should note that return of capital will reduce the tax basis of their shares and potentially increase the taxable gain, if any, upon disposition of their shares. There is no assurance that the Company will continue to declare distributions or that they will continue at these rates.

Total Income+ Real Estate Fund Historical Performance: bluerockfunds.com/performance. Past performance does not guarantee future results.

Investors should carefully consider the investment objectives, risks, charges and expenses of the Total Income+ Real Estate Fund. This and other important information about the Fund is contained in the prospectus, which can be obtained by calling toll free 844-819-8287, or online to www.bluerockfunds.com. The prospectus should be read carefully before investing. The Total Income+ Real Estate Fund is distributed by ALPS Distributors, Inc (ALPS). Bluerock Fund Advisor, LLC is not affiliated with ALPS, Mercer Investment Management, or DWS.

BLUEROCK RESIDENTIAL GROWTH REIT (BRG)
An investment in Bluerock Residential Growth REIT, Inc. (“BRG”) involves a high degree of risk. You should purchase our securities only if you can afford a complete loss of your investment. See the “Risk Factors” sections of the Prospectus Supplement and the accompanying Prospectus for a discussion of material risks related to an investment in our Series B Redeemable Preferred Stock and Warrants. A copy of the Prospectus Supplement and the accompanying Prospectus must be made available to you in connection with the offering of the Series B Redeemable Preferred Stock and the Warrants, and must be read in conjunction with these materials in order fully understand the risks of an investment in the offering.

BLUEROCK VALUE EXCHANGE
For Accredited Investors Only. This is neither an offer to sell nor a solicitation of an offer to buy any securities, which can be made only by a Confidential Private Placement Memorandum (the “Memorandum”). This material must be reviewed in conjunction with the Memorandum to fully understand all of the implications and risks of the offering of securities to which it relates. A copy of the Memorandum must be made available to you in connection with this offering. Prospective investors should carefully read the Memorandum and review any additional information they desire prior to making an investment and should be able to bear the complete loss of their investment. It is strongly recommended that investors seek competent, independent tax and legal counsel prior to initiating, and while performing, transactions involving Internal Revenue Code Section §1031

SECURITIES OFFERED THROUGH BLUEROCK CAPITAL MARKETS, LLC | MEMBER FINRA/SIPC