Invesco Real Estate has closed its sixth value-add and opportunistic fund, Invesco Real Estate US Fund VI, with $1.98 billion in capital commitments. It is the firm’s largest-ever US non-core real estate fund.
The Dallas-based manager has increased the gross return expectations for this iteration of the fund to 13-16 percent, according to documents presented to Fresno County Employees’ Retirement System the past week. Invesco’s predecessor fund, US Value-Add Fund V, targeted gross returns of 11-14 percent, the same document stated.
“Our clients are interested in value-add and opportunistic strategies given where we are in the market today,” Max Swango, managing director and global head of client portfolio management at Invesco, told PERE. “We are seeing interesting opportunities to invest at the higher end of the risk-return spectrum.”
In fact, the firm is predicting it will exceed its return targets, with a projected 19 percent gross IRR, based on the FCERA presentation. Invesco currently has four investments in the pipeline for the fund – three in industrial and one in multifamily – with projected performance ranging from 18-33 percent gross IRRs and between 1.6x and 2x equity multiples, the documents showed.
Swango noted that this higher return projection is not the result of the firm taking on more risk. Discounted pricing, higher cap rates and more limited competition were all factors Swango cited for these higher return expectations.
Invesco Real Estate is avoiding higher levels of debt and sticking to its highest-conviction sectors. “We’ve never been the 75 to 80 percent leverage kind of investors,” Swango said. “We’ve always been in that 50 to 60 percent leverage [range], and that kind of financing is still available.” With over half of Fund VI now deployed, the firm currently holds 19 investments in the fund, with an average loan-to-value ratio of 62 percent, per the FCERA documents.
In terms of the firm’s highest-conviction sectors, they include industrial, multifamily, single-family rentals, life sciences and special situations like acquiring stressed or distressed legacy loans and originating preferred equity. “Those sectors are still where we’re seeing most of the opportunity today,” Swango said.
Old and new capital
The fund officially closed in February but the firm was waiting for one of its investors in a sidecar to finalize its commitment before announcing the final close. Swango declined to disclose how much of the $1.98 billion raised came from sidecar investments, but said the majority of the capital is in the main fund.
The fundraise consists of institutional investors from the US and Asia. The firm was able to attract capital from existing investors in the fund series, including FCERA, as well as existing clients that were first time investors in the series alongside brand-new investors to Invesco Real Estate, Swango said.
The firm was also able to raise new capital in the second half of last year despite the market volatility. However, some investors had to downsize their original commitments after the denominator effect left them overallocated to real estate, Swango said. In some cases, commitment sizes were halved, he said.
Despite this, Invesco Real Estate still raised over its initial hard-cap of $1.5 billion. The firm has exceeded its return expectations on Fund V so far, producing 15 percent gross IRRs, according to the FCERA documents. “Track record is a must-have,” Swango said of the success of the fundraise.
However, like many managers, Invesco Real Estate is being more cautious investing in the current environment, waiting for more certainty and price visibility. The firm is still confident it will be able to deploy the remainder of the fund’s capital before its investment period closes on December 2025.
“There’s a long runway to invest this capital,” Swango said.