Real Estate Credit Over Yield at Invesco – Charlie Rose

Charlie Rose (0:00)

I'll share with you a controversial position that we've taken.

We are not lending on data centers.

It is a tempting sector to lend to in this environment. The supply of opportunity is immense. The yields are interesting on the face of it. We're seeing valuations of these tech firms explode in this environment. However, we believe that there's fundamental binary risk in data center investments. In the hyper-scaled situations, you oftentimes have a single tenant. They may be investment grade today.

It's unclear to us how reusable that space may be, or what the functional obsolescence considerations may be 5, 10, 20 years from now for that real estate. And there's no alternative use.

A lot of different segments of the investable universe have some meaningful exposure to AI. If we can remove that exposure from our portfolio, that will help maintain that low correlation profile of our asset class.

Ted Seides (1:22)

I'm Ted Seides, and this is Capital Allocators.

My guest on today's show is Charlie Rose, the Global Head of Real Estate Credit at Invesco, where he oversees an $85 billion global platform. Before joining Invesco, Charlie worked in real estate as an academic researcher, Jack of all trades through the financial crisis, and investor up and down the capital stack for eight years at Canyon Partners. Our conversation covers Invesco's credit over yield approach, property-first underwriting, collaborative work inside the firm, and relationship-based focus. We discussed sourcing through repeat borrowers, risk management, portfolio construction, contrarian calls, including avoiding data centers and AI exposure, and sheds and beds theme of industrial and multifamily loans. We close with lessons from the 2020-23 real estate correction, managing troubled loans, and how Invesco is using AI to improve investment decisions.

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Please enjoy my conversation with Charlie Rose.

Charlie, great to see you.

Charlie Rose (4:27)

Ted, great to see you again.

Ted Seides (4:28)

I'd love you to take me back to where your initial interest in real estate started.

Charlie Rose (4:34)

I grew up in a small town, about 45 minutes east of Seattle, full city Washington, where it rains 30 percent more than in the city of Seattle.

Simple life, great, hardworking community. I saw a few examples of people in our community who made it out, had done well for themselves. The pivotal moment for me was when my family had opportunity to live in Switzerland in sixth grade. It completely opened my eyes to the world and the built environment set me on a different trajectory. I was an English major in undergrad. I had no internships in commercial real estate in college. I had this vague idea that real estate would be an interesting career path. I had no idea what that meant. I applied to pretty much anything that I could see that had the words real estate in it. Eventually, I landed a job working for Ken Rosen, the chair of the Fisher Center of Real Estate at UC Berkeley, as a research analyst. He needed someone who was a good writer.

I spent three years working for Ken learning about what fundamentally drives demand and supply in the real estate markets. That has been the basis for my career. During that time, our clients were investment banks, commercial banks, private equity funds, home builders. I saw what our clients were experiencing, the decisions that they were making.