Bert Crouch on aligning real estate opportunities with insurance portfolios

Invesco Real Estate is proud to be recognized as Real Asset Manager of the Year by Insurance Asset Risk’s 2024 North Americas Awards.¹ In light of this win, Bert Crouch, Head of North America for Invesco Real Estate, recently sat down to discuss where he’s seeing opportunities in the space and how the firm is helping insurers take advantage.

Q: You’ve won real asset manager of the year at our awards. I know Invesco Real Estate is one of the largest real estate investment management firms globally.² Some readers may not be familiar with the breadth and depth of your platform, though, so I’d like to press you for some more details there.

Bert: We’ve just celebrated our fortieth anniversary, which means that we’ve been in the real-estate investment management space for longer than most. We’ve got just under $90 billion of assets under management.³ That’s been largely organic, and I attribute it to a couple of things. We have a performance-plus mindset, where we work to create bespoke investment approaches that are tailored to our clients’ needs. Insurance is a case in point. Given the sensitivities around capital charges, risk ratings, volatility, current income, it's a great example of an area where we've been able to partner with a segment of our client base and really grow it. We've also done the same on an international basis. We have over 400 clients around the world, with over 75 mandates, so we want to be truly full service - a one stop solution to our clients.

Q: To what else do you attribute your growth and success?

Bert: There are really five main areas that we feel differentiate our platform. We have capabilities in both public and private markets as well as institutional and private wealth. We’re also global. Outside the US, we have 16 offices, half in APAC, half in EMEA, which allows us to be boots on the ground. Third and fourth is that we play across the entire risk-return spectrum, and we strive to be leaders when it comes to creating meeting points between client needs and opportunities. The most recent example being credit. We leaned in starting in 2011. Since then, we've done over $20 billion of originations and have built out a 30 person dedicated team. And, lastly, we’re data driven in addition to being partnership led.

Q: You’ve picked up on data there, which I’d like to explore more of. What is its importance to Invesco?

Bert: Data today has never been more important. Just in the US, in the team that I lead, we have over 350 real-estate properties, 140 million square feet in over 100 different markets. Five years ago, we hired a team of data scientists, focused on performance and data analytics. With this, we’re able to harness trends we’re seeing in both fundamentals and the capital markets, boil it down, and then get it in the hands of our portfolio managers and our investment professionals in the field. All of that has allowed us to navigate the relative value spectrum, public and private, international, core to opportunistic, and then debt to equity.

Q: Speaking of trends, what is your current outlook on the real-estate markets? How are they holding up at the moment and what trends do you see in them?

Bert: The short answer is, it's looking up. Sentiment is improving markedly and quickly for several reasons. First, no one wants to buy as values are going down, and, by most measures, commercial real estate values in most sectors that we are invested in have bottomed. Public REITs are up 16% off their lows for the year, outpacing the S&P 500 by 11% in the third quarter,⁴ and are now trading above net asset value. That's a positive forward indicator for private values. There are also a couple different indices, one pricing based, another appraisal based, that have either hit their trough or are starting to rise.

Second, the recent 50 basis point⁵ cut by the Federal Reserve is a really positive indicator. While rates are still high, the psychological shift towards declining rates makes real estate more attractive from a relative value standpoint and makes financing less dilutive.

Lastly, fundamentals have held up well. Single-family rentals, build-to-rent, and manufactured housing have held up well from a vacancy perspective. Multifamily, traditional apartments less so because so much was developed, but the supply demand imbalance in domestic housing will drive fundamentals back in the right direction. Industrial, e-commerce, and data centers also remain strong, and retail has seen significant improvements in vacancy. The outlier is office. It’s as bad as you read, but it’s getting better. The only real headwind today is financing because most buyers have used some sort of leverage. But, for us, it’s created a real opportunity.

Q: Tell me a little more about where you’re seeing this opportunity.

Bert: For the last two years, we have been most highly convicted in real estate credit. Historically, the commercial mortgage universe in the US is about $5.7 trillion. The banks have had about 50% market share,⁶ but they’ve been pulling back given the heightened regulatory scrutiny. With that, we’re expecting to see the insurance segment start to lean in more in the next year as relative value swings back. Fixed income spreads have tightened, with the 10-year yield down about 70 basis points over the last few months.⁷ This makes the relative value of commercial mortgages, especially on a capital charge-adjusted basis, very attractive. We’re finding the best opportunities on the floating-rate side, so anything that’s a bridge loan. It’s not fully stabilized, but it’s institutional-quality collateral It's well capitalized, strong track record sponsors, and it's moderate leverage. We’re leaning into that. In the last 12 months, Invesco Real Estate has done over $2.5 billion in loans and are able to generate low double-digit, cash-on-cash. It’s a very attractive absolute return, current income inflation adjusted.

I’d also add that we're starting to see opportunities in core plus equity. So, buying industrial property that trading wide from a cap rate perspective. It's got good weighted average lease term, strong credit tenancy, good lease bumps with inflation coming down. We're seeing opportunities in manufactured housing, in single family rental areas. There’s a void of capital flows there, and when there’s a dearth, we like to lean in.