Animal Spirits Podcast – Talk Your Book: Investing in Real Estate Credit

Date: December 8, 2025

Hosts: Michael Batnick & Ben Carlson
Guest: Charlie Rose, Managing Director, Global Head of Real Estate Credit, CEO of Invesco Commercial Real Estate Finance Trust

Episode Overview

This episode dives deep into real estate credit investing, a domain typically dominated by institutional investors and now becoming increasingly accessible to individuals and the wealth management channel. Michael and Ben are joined by Charlie Rose of Invesco, who provides expertise on the structure, benefits, risks, and evolving landscape of real estate credit, particularly as it moves from exclusive institutional use toward broader adoption by retail investors.

Key Discussion Points & Insights

1. Introduction to Real Estate Credit & Market Trends

• Most investors think of real estate as equity (ownership in properties), but real estate credit—lending to real estate owners—is a large, underrepresented asset class for individuals.
• The shift from bank-provided credit to asset manager-originated real estate credit post-GFC (Global Financial Crisis) is democratizing access to this market.
  • Quote:

    "It's a debt instrument, but with some equity-like risk characteristics, but with a shorter duration. So yeah, it is kind of this different asset class altogether."
    – Ben Carlson (02:31)

• Institutional investors have increased allocations to private markets including real estate credit for diversification and income.

2. Invesco’s Real Estate Business

• Invesco manages ~$87 billion in global real estate assets, focusing mainly on commercial real estate: multifamily, industrial/warehousing, and specialty segments (senior housing, medical office, self-storage).
• Office properties are largely avoided due to secular changes in demand, except select high-performance geographies like New York or Dallas.
  • Quote:

    "We are probably the largest real estate investment manager that most in the retail channels have never heard of... We're a top 15 global real estate investment manager."
    – Charlie Rose (03:39)

3. Residential Real Estate & Institutional Involvement

• Contrary to popular belief, institutional ownership of U.S. single-family homes remains small; their residential focus is more on large apartment blocks and rental-focused complexes.
• Undersupply in U.S. housing (especially multifamily, manufactured, and senior housing) persists post-GFC, making these attractive targets for investment.
  • Quote:

    "Not everyone necessarily needs an office space to work in, but everyone needs to live in a home..."
    – Charlie Rose (07:08)

4. Real Estate Credit Defined

• Real estate credit involves lending to commercial real estate owners/sponsors—directly originating large ($50M+) floating-rate loans typically for 5-year terms.
• Borrowers are established institutional sponsors executing value-add business plans (buy, fix, lease, sell/refinance).
• Standard loan-to-value (LTV) ratios for Invesco's deals range from 60%–65%, ensuring substantial borrower equity below the debt.
  • Quote:

    "You'll see us generally on the lower end of that LTV range... our borrowers have 30 to 35, even 40% equity fully subordinate to our loans."
    – Charlie Rose (15:50–16:26)

5. Risk Management, Defaults & Workouts

• Real estate credit is asset-backed, which leads to clearer, faster resolution in default situations (often 60–120 days to foreclose/restructure).
• In event of stress, managers can move quickly to protect investor capital by taking control of properties.
• The asset class showed resilience even through recent downturns:
  • "Within the data that we look at for real estate credit, there was never a single quarter of negative performance."
    – Charlie Rose (22:56)

6. Interest Rate Environment & Loan Structuring

• In a rising-rate environment, floating-rate lenders benefit since borrower rates float higher (with protection from interest rate caps purchased by borrowers).
• Invesco requires rate caps for all borrowers and floors for loans (protecting both sides in rate volatility).
• Even during the pronounced 2023 real estate correction (22–25% value decline), real estate credit delivered positive returns.

7. Yield, Leverage & Tax Efficiency

• Long-term historical yields for real estate credit target 7%–9% net, recently at the upper end due to elevated interest rates (24:00–24:30).
• Most real estate credit is held in REIT (Real Estate Investment Trust) structures, offering investors a 20% permanent tax deduction on distributions under 2024’s "one big beautiful bill" (OBBA).
• These strategies often use moderate leverage (up to 50% LTV at the portfolio level) for enhanced returns, with banks now preferring to provide leverage to asset managers instead of holding real estate loans themselves.

8. Transition from Institutional to Wealth/Individual Investors

• Institutional investors typically allocate up to 50% of portfolios to private markets—compared to 5% or less for individual/retail investors—but interest in the wealth channel is growing.
• Key barriers remain around investor education, liquidity expectations, and understanding the structure and risks of these vehicles.
  • Quote:

    “Most retail investors have no exposure to this $6 trillion asset class.”
    – Charlie Rose (28:53)

9. Investment Vehicles & Liquidity Structure

• The prevalent structure for individuals is the non-traded mortgage REIT—public filers with independent boards, monthly or quarterly liquidity, but overall semi-liquid.
• Typical liquidity features: 2% of NAV/month or 5%/quarter repurchase limits.
• Suitable for multi-year holdings; average institutional holding period is seven years—this is not for short-term liquidity needs.
  • Quote:

    “We talk about this as a strategic allocation, which should be a long-term allocation within a portfolio... for short-term liquidity needs, you do not want to be allocating that portion of your portfolio to private markets.”
    – Charlie Rose (32:08)

Notable Quotes & Memorable Moments

• On institutional vs. retail adoption:
  "There's a lot of fundamental education in the wealth channel about what these different private markets products are, how they perform, and how they can be suitable or not suitable for individual clients."
  – Charlie Rose (28:44)

• On office market risks:

  "There is more clarity today on demand for office, and there is much more understanding of which buildings are the winners and which are the losers..."
  – Charlie Rose (05:17)

• On strategic allocation and illiquidity:

  "This should not be viewed as a liquid product. Perfect."
  – Charlie Rose (32:48)

• On performance during market stress:

  "The total return was just north of 5% in 2023. So there was an increase in default rates, albeit from a very low level. And as such, the asset class continued to deliver positive performance even under that significant period of strength."
  – Charlie Rose (23:28)

Important Segments & Timestamps

• [03:39] Invesco’s scale and history in real estate
• [05:17] What’s happening in U.S. office and other commercial sectors
• [07:08] Trends in residential real estate & institutional roles
• [12:58] The size and scope of the U.S. real estate credit market
• [15:46] How real estate credit lending is structured (size, LTV, borrowers)
• [17:18] Real-world risk, defaults, and workouts in real estate credit
• [20:06] Handling interest rate volatility with loan features and caps
• [24:00] Current yields and tax advantages for investors
• [27:23] Growth and education challenges in wealth channel
• [30:34] Modern vehicles for retail—non-traded, semi-liquid mortgage REITs
• [32:08] Recommended investment time horizon and illiquidity

Final Takeaways

• Real estate credit offers lower volatility, steady income, and low correlation with traditional markets, making it attractive for sophisticated and now retail portfolios.
• Access is expanding—non-traded REITs are the preferred retail structure, but illiquidity is a trade-off for yield and diversification.
• Due diligence and education are critical for individual investors new to the asset class; understanding risks, liquidity constraints, and yield expectations is essential.

For more details:
Visit invesco.com
Contact Animal Spirits at: animalspirits@thecomponews.com