Invesco launches hotel fund with €180m seed portfolio

The global real estate investment manager’s latest fund offering will target European, but not UK, assets and is aiming to provide its investors with a return of 6% to 7%.

Invesco Real Estate, the global real estate investment manager, has launched its third dedicated pan-European hotel fund after receiving commitments totaling €179.5 million from ten institutional investors. 

The open-ended fund will target hotels on the continent but not in the UK.

Invesco said it would be targeting returns in the 6 percent to 7 percent region through the vehicle, placing its projected returns in mid-range core territory. Its previous hotel-focused vehicle outperformed its target net internal rate of return of 12 percent, the firm said.

The firm said its latest fund offering was a response to market appetite from institutional investors for open-ended funds. This format, Invesco said, also suited hotels because of their longer leases, lower volatility and long-term income and return characteristics compared to commercial property.

The vehicle will focus on acquiring high-quality, mid-market hotels in city centers that operate as “seven-day markets”, by catering to business travelers in the week and tourists on the weekends.

Invesco said it was seeding the fund with a €200 million portfolio of four hotels in Germany and the Netherlands. The firm said it was planning to grow the fund to around €500 million over the first two years.

“We continue to see growing interest in this sector, particularly from investors who find the long leases and strong cash flows generated by hotels very attractive,” said Marc Socker, managing director, hotel fund management at Invesco.

“Investors also noticed the way hotels continued to provide a positive total return compared to commercial property during the financial crisis, and this gives them an additional degree of confidence today. The fund will target an income return which provides a premium to the long-run average income return from pan-European commercial real estate,” added Socker.

Invesco has a long track-record of investing institutional money into hotels, stretching back more than a decade, when it was one of the first to launch a dedicated hotels strategy for the European real estate market. Since then, it has has transacted around €2 billion in the sector on behalf of its dedicated hotel funds, close-ended pooled funds and separate accounts.