Invesco Real Estate (IRE), the global real estate investment manager, announced the launch of an open-ended fund investing in the pan-European (ex-UK) hotel sector targeting a 6%-7% p.a. gross income return and with an initial equity commitment of €179.5m from 10 institutional investors.
The launch is the third IRE fund to focus on hotels but is the first to be open-ended. This approach responds to market appetite from professional clients and institutional investors for open-ended funds but the format also suits hotels because of their longer leases, lower volatility and long-term income and return characteristics compared to commercial property.
The fund will focus on acquiring high quality, mid-market hotels in city centres that operate as seven-day markets, catering to business travellers in the week and tourists on the weekends. It is launching with a €200m seed portfolio of four assets in the Netherlands and Germany, which gives it an immediate footprint in excellent locations as it aims to grow the fund to c.€500m in the first two years.
“We’re very excited about the launch of the new hotel fund for institutional clients, and 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,” says Marc Socker, Managing Director, Hotel Fund Management, Invesco Real Estate.
“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.”
IRE has a long track record 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. It has been steadily building the size and expertise of its specialist hotels team since then and has transacted c. €2bn in the sector on behalf of its dedicated hotel funds, closeended pooled funds and separate accounts for the past 11 years.