Seeing an opportunity in the commercial real estate space, Invesco Real Estate has launched a new real estate investment trust fund focused on private real estate credit for accredited investors.
The new vehicle, called the Invesco Commercial Real Estate Finance Trust (INCREF), will go live in the coming weeks. The fund will originate, acquire and manage a portfolio of loans and preferred equity interests with debt-like characteristics, Invesco said.
“This is a newly formed vehicle which is specifically bringing this same strategy which we have successfully executed for institutional investors to the high-net-worth channel for the first time,” said Charlie Rose, president and lead portfolio manager of the new fund and the global head of credit for Invesco Real Estate. “This is part of our broader firm strategy to bring multiple product offerings to the high-net-worth channel following on our offering of the product which was our first large-scale offering to high-net-worth investors.”
The new fund launches against a changing real estate landscape, with the backdrop of the Federal Reserve’s higher interest rate regime that has a powerful effect on mortgages.
In the wake of the 2008 financial crisis, many of the traditional institutions pulled out of providing financial backing for housing loans. Those included banks and government-sponsored institutions Freddie Mac and Fannie Mae.
“Coming out of the global financial crisis 15 years ago, we saw for the first time alternative lenders start to gain significant market share as a result of the Dodd-Frank regulations and the pertinent pullback from banks and the government-sponsored enterprises,” said Rose. “That created an opportunity for the first time for institutional investors to gain access to this fixed-income asset class at scale.”
While Invesco was already active in the institutional channel, the firm said it accelerated its time frame for launching the new fund when it saw banks and other government-sponsored intuitions backing away from this market, which gave new investors an opportunity.
The INCREF fund, an open-ended perpetual life vehicle, is designed to provide returns similar to core real estate equity with fewer risks, Rose said.
“We believe that real estate credit should be a part of a broadly diversified portfolio throughout market cycles,” he said. “Historically, real estate credit has delivered returns similar to core real estate equity with much lower volatility.”
The firm is negotiating with broker-dealers, RIAs and other platforms to bring the fund to accredited investors. The new fund will charge a management fee, which is 1.0% of the fund’s net asset value per year. There will also be a performance fee that is 10% of the company’s overall performance fee income for the calendar year. (The management and performance fees will not commence until March 1, 2024, or the date the fund is registered under the Securities Exchange Act, whichever comes later.) There is no performance fee payable in any calendar year when the fund posts a negative total return.
The fund joins the Invesco Real Estate Income Trust Inc. (INREIT) as the latest product for the high-net-worth community. The firm is open to additional products for this class in the future, but has not made any decisions on it yet. However, in the interim, Invesco is making a significant financial commitment to a successful launch of INCREF.
“This is a high conviction strategy for us, and as evidence of that, we've committed as a firm $150 million of balance sheet capital to develop our seed portfolio and [launch] this product,” Rose said. “So we are investing substantial resources bringing this product to market.”
Invesco is optimistic that INCREF will bring much needed stability to a high-net-worth client’s portfolio while at the same time giving the client access to an asset class they could not access before.
“Commercial real estate debt is the fourth-largest fixed-income cost in the United States, and private real estate debt has historically not been accessible to high-net-worth investors at scale,” Rose said. “This is an income-oriented product that targets minimizing volatility and should be a complement to both existing fixed-income and real estate allocations within investors’ portfolios.”
(Clarification: This updated version of the story clarified Invesco's thoughts on future additional products for this asset class.)