Invesco Real Estate has launched its first property debt fund in Europe since acquiring the real estate financing business of Swiss asset manager GAM in 2020, with an open-end vehicle for which it is targeting an initial €1 billion of capital.
The US-based firm has already committed to €150 million of loans from the fund – Invesco Commercial Mortgage Income – Europe FCP RAIF (CMI Europe) – which includes financing a pipeline of six French and three Spanish logistics facilities that are pre-let to one of the world’s largest online retailers.
Invesco opted for the open-end structure – a relatively unusual structure in Europe for a real estate debt fund – in a bid to meet demand from institutional investors seeking to place their capital for an extended length of time, as opposed to a closed-end vehicle, where the money is returned relatively quickly.
The open-end structure also appeals to borrowers because it allows the lender to provide loans during each part of a given asset’s lifecycle, said Andrew Gordon, head of European real estate debt at Invesco Real Estate: “We can become relationship lenders to sponsors and continue that relationship over an extended period of time.”
Investors in the fund will only be able to redeem their investment if capital is available to meet the request, and Invesco cannot be forced to sell loans in order to meet any redemption request.
Invesco aims to raise €1 billion for CMI Europe by the second half of 2023 and expects to deploy significant further capital in the coming months. It will issue loans of several types – stretch senior, whole loans, junior loans and development finance – in lot sizes of between €25 million to €150 million and typically on a floating rate basis. Invesco did not not comment on target returns but Gordon said it would aim to offer “significant return premium” over equivalent corporate bonds.
Invesco Real Estate – which has $94.7 billion of global real estate assets under management – is seeking to issue loans against assets where rents can keep pace with inflation. Sectors such as self-storage are appealing, said Gordon, due to shorter leases and diversity of tenant base. But it is also prioritizing lending against sustainable assets with prime ESG profiles.
“We are not making green loans, but ESG considerations are a significant part of the underwriting process; they are front and center. We will incentivize borrowers to do the right thing through loan terms and we will pick borrowers that want to do the right thing to maximize the value – and resilience – of their assets,” said Gordon.
At the time of its acquisition of GAM’s real estate debt business, in October 2020, the European debt portfolio it acquired was mainly UK-focused, with $300 million of real estate debt assets held in a separate account and two active funds.
But Invesco has long intended to expand its debt capabilities and offerings in Europe, where the company has an established presence in the equity market with a $15 billion property portfolio. Fundraising began in September 2021.