Charlie Rose On Guiding Invesco Real Estate to New Lending Heights
Charlie Rose blossomed as a skier at Stanford prior to charting a professional path navigating the icy conditions of commercial real estate lending.
Today, Rose is thriving in his role as managing director and portfolio manager at Invesco Real Estate (IVZ) five years after arriving at the investment manager from Canyon Partners to lead Invesco’s push up the mountain into senior loans from mezzanine. The steep climb into a new debt business has exceeded expectations, originating more than $15 billion in senior loans with no realized losses since the platform was formed.
In 2021, Invesco executed $4.1 billion in volume, exceeding its previous yearly record in 2019 by 33 percent. Last year included a $240 million whole loan to finance the acquisition of five Houston-area apartment complexes by a joint venture between Partners Group and Knightvest Capital.
The journey to commercial real estate lending for Rose began with a passion for architecture and, later, development before ultimately deciding the credit side was his preferred destination. He spent nearly eight years as a managing director at Canyon leading the firm’s real estate direct investing strategy in the Western U.S before taking on his current position out of Invesco’s Newport Beach, Calif., office.
Rose spoke with Commercial Observer about Invesco’s increased push into the senior loan space, the advantages of offering flexible lending terms in a volatile market, and how being one of the few openly gay individuals in commercial real estate finance throughout his career has fueled his motivation to diversify the industry.
The interview has been edited for length and clarity.
Commercial Observer: Where did you grow up and what was your path to real estate?
Charlie Rose: I grew up in a small rural town called Fall City, Wash., about 25 miles east of Seattle, where, believe it or not, the annual rainfall is twice the total of that in downtown Seattle. My path from a very small, rainy, rural town to real estate was fairly circuitous. I ended up majoring in English following in my mother’s footsteps at Stanford; and, as someone who’s always loved architecture, I had this vague idea that commercial real estate could be an interesting and lucrative career.
So, when I realized that my English major wasn’t going to directly lead to a lucrative career after undergrad, I applied to any job that listed commercial real estate in the title, and the Bay Area was still recovering from the tech wreck at that time. I ultimately ended up landing a job working for Ken Rosen, a UC Berkeley professor, and then from there I went back to a more quant and finance-focused business school, as I realized my clients were the ones who were making all the decisions and I wanted to pivot to the principal investing side.
At what point did you know that the lending side was for you?
That too was a circuitous path. In grad school and for many years thereafter, I still clung to a dream of becoming a real estate developer because who doesn’t want to be able to point to a skyscraper and say, “I built that.” Ultimately, I worked for eight years at a multi-strategy hedge fund, where we invested up and down the capital stack, and I realized I really liked the pace of the credit side of the business. I loved the structuring nuances of the credit business and the relationship aspect of lending.
So, when I chose to leave that role, where I was investing in both debt and equity, I chose to join Invesco in a credit-focused role because of how scalable and relationship-oriented the Invesco platform is.
Since you arrived at Invesco in 2017 there’s been a big push to expand the debt platform from mezzanine to senior loans. How has this gone, and how did the pandemic impact the strategy?
To be entirely candid, the credit business has been successful beyond our wildest dreams here at Invesco. Since the inception of our modern-day credit initiative, we’ve originated $15 billion of loans with no realized losses on any of our investments in North America.
When we launched this business, we had a couple of key tenets in mind. First, we wanted the business to be an all-weather platform, which allows us to maintain performance in all stages of the credit and economic cycle, and to invest throughout those cycles. Second, we wanted to grow a truly scalable business, which we knew meant that we would need to double down on that relationship-based approach to lending. And, third, we knew that in the credit business, a single loss could be devastating to the platform so we focused on what we call a credit-over-yield mantra, which we really carry to this day in every investment and portfolio decision we make.
To be entirely candid, the pandemic really didn’t shift our focus. Those key tenets all still applied and the platform and the initiative were designed to thrive in periods of dislocation, no matter what happened to drive those periods of dislocation. We really simply doubled down on our focus on lending to our relationship borrowers, focusing on best-in-class institutional sponsors and institutional-quality real estate. Probably the biggest change if you were to pull one out is that we haven’t made any transitional office loans since the beginning of the pandemic.
What are some of the key advantages you have with being an integrated real estate investment management platform that also includes a significant equity investment?
As we think about our differentiators we think a lot about our relationship approach to lending; we think about our credit over yield focus. But we also think about our platform acumen and how we are able to leverage that for the benefit of the credit business, and that is only possible because of the collaborative culture that we have.
When any new loan opportunity comes in, our originators are benefiting from the proprietary information that we derive from our 140 million-square-foot equity portfolio of real estate here in the U.S. We believe that allows us to more efficiently and accurately underwrite risk and focus in long and hard on those opportunities that are the best fit for our credit box. This larger platform also has been highly beneficial. As we have focused on those relationships, we in many instances have made loans to groups who we’ve also partnered with on the equity side at different times in our business life cycle.
One of the differentiators that you’ve highlighted in the past is the flexible lending terms that you provide. How has this helped provide a competitive advantage during the current market challenges?
During a time of dislocation, a lot of lenders are caught on their heels, and our view has always been that we want to build a platform that is able to embrace the downturn. We think as a relationship-focused lender that being the steady hand throughout the market cycle is key to us continuing to scale our business and serve our best clients. So during a period like this we are able to take a much longer-term view so that we consistently can stay in the market. We’re certainly tightening up some of our credit standards and pricing models in a time like this, but we view this period just like we viewed the 2020 period.
In 2020, we originated loans in every month of the year after April. So once the lockdowns occurred we originated loans in every month of the year, and we really focused on those groups who were our most important borrower relationships, and that allowed us to just come back out as the market recovered that much more quickly. Getting market share on the other side of that period and being there for those borrowers during that period of time has resulted in a lot of goodwill that has been carried forward with us.
One of the sectors that has fared very well during the pandemic certainly has been multifamily. How do you see it shaping up in a higher interest rate environment?
It’s a really interesting question. We are investing today in a very high-velocity market and in an environment that many investment professionals today have never seen before in their careers.
When we think about sectors, we don’t believe that the current market environment has changed our fundamental convictions. We remain highly convicted on the residential sector overall as well as the industrial sector, and the fundamental reasons for that are clear: demographics support and continued demand for residential product. Rental residential product will benefit from a rising rate environment as the marginal homeowner makes the decision that homeownership is now not affordable for them. So that does provide a good fundamental table under the multifamily market.
The question now is which will rise faster: rents or debt service? For those borrowers who acquired multifamily at very low cap rates and underwrote very significant rent growth, that could become challenging. We focus on the institutional segment of the market and we believe that, even if there are some uncomfortably tight cash flow metrics in our multifamily portfolio over the coming years, our borrowers have sufficient liquidity to service their assets during that period.
When it comes to lending, where are you being most cautious today?
Our approach has always been a credit over yield approach. We’ve never been a group that stretches for that extra yield at the detriment of credit quality. For example, in our debt platform’s modern history, we’ve never made a retail loan in the United States, and we will likely remain consistent. In that regard, you won’t see us making any transitional office loans today.
But, outside of that, I would say that we really are just doubling down on our core principles starting with the focus on those borrowers who we know will do the right thing and have strong access to liquidity and doubling down on our focus on residential, industrial and some of the favored property types on the margins.
Structure has tightened for most lenders, and that’s certainly the case for us. During a period of dislocation, that will be our default, to focus on a better structure, better credit metrics, higher quality loans, rather than then searching for some yield.
You’ve been very active with life sciences the last couple of years. Where do you see growth opportunities in this sector? Has the focus on life sciences perhaps waned at all since the start of the pandemic from an investment standpoint?
The life science sector has been an amazing story over the past couple of years, and it’s been an important part of our business. About 15 percent of our portfolio today on the credit side is in the lab sector, but we’ve always had a very specific approach to investing in the life science sector.
First, we’ve been focused on the top three markets around the country: Boston, the Bay Area, and San Diego. Second, within those markets, we focused on the top three submarkets, so we’ve not followed the herd out into more pioneering locations within those markets. Third, we’ve focused on lending to a few key select relationship borrowers who have deep expertise in the lab sector, and have fully built-out teams who are capable of converting and operating lab buildings and have deep understanding of the tenants in the market.
Lastly, we’ve always avoided exposing ourselves to significant market risk from a leasing perspective in those deals. So we do think that the life science sector is going from an absolutely white-hot sector to something less than white hot today. How much that cooling trend continues remains a little bit to be seen, but we are very closely watching the future supply pipeline over the next couple of years and maintaining our focus on not having significant leasing exposure in the face of significant new waves of supply.
With a recession likely around the corner, how is your loan portfolio positioned to withstand a downturn?
We have always thought of the lending business as an all-weather strategy, and we’ve really thought about how do we embrace the downturn? How do we take market volatility and use that to create opportunity? So our weighted average last dollar loan to value within the portfolio is 63 percent today. If you look at how property values moved during the global financial crisis, the value fell peak to trough 30 to 35 percent depending on the asset class being measured, so on average our portfolio is well insulated from value decline, even at the scale which we saw during the global finance crisis, which, to be clear, we do not anticipate during this period of time.
I think the other really fundamental piece is having a borrower who is prepared to stand by an asset and take a longer-period, longer-term view toward those assets, as you might see the business plan taking longer than expected to achieve.
So we’re focused on being offensive during a period of time like this. We believe that we have a well-constructed portfolio and we have a full built-out asset management function that’s always focused on making sure there are no mistakes in the portfolio. But we’re very confident that we’ve built a portfolio that can withstand market volatility, and we’re positioned to take advantage of a period of time when some others may be on their back feet.
You said earlier this year that you were “accustomed to being the only gay person in the room throughout my entire career.” What has this experience been like for you, and what can the commercial real estate industry do to encourage more LGBTQ professionals to enter it?
I think there are a lot of people in the real estate industry who are accustomed to being the “only” in the room — a lot of women, a lot of people of color, and certainly there aren’t very many LGBTQ professionals that are in the senior ranks of the industry. You can take that one of two ways. You can find it discouraging or you can find it motivational; and I do think that I have always sought to prove that not only I, but other minority or underrepresented individuals, can thrive in this industry.
I hope that some of the momentum around DEI that really took hold after the tragic death of George Floyd continues so that people from all sorts of backgrounds and identities can participate in what I think is one of the best industries in the world.
Last, on a lighter note, what do you do for fun when you’re not busy closing loans?
In college, I was on the college ski team, and I still love to alpine ski in the winter. I’m a cyclist, and I love to ride. But, honestly, these days I have two daughters, 5 and 3. So, on most weekends, you’ll find me goofing off with the girls in the pool or in the neighborhood playgrounds.