Newport Beach’s Pimco, best known for its bond funds, has started what it calls its “flagship offering in core real estate.”
The company, one of the world’s largest money managers with $1.7 trillion in assets under management, on Dec. 1 announced the launch of the Pimco Flexible Real Estate Income Fund (REFLX), the firm’s first real estate-focused interval fund that will invest in public and private markets.
“The extraordinary re-pricing of assets across financial markets this year has created what we think are some of the most attractive investment opportunities in more than a decade,” Pimco Chief Investment Officer Dan Ivascyn said in a statement. “Higher yields and lower valuations in both public and private markets make for an attractive environment for patient investors ready to deploy funds in a flexible vehicle that can allocate investments across commercial real estate.”
The fund plans to “achieve its investment objectives by investing primarily in privately negotiated loans and equity investments to middle market companies generally with annual revenues greater than $20 million and earnings before interest, taxes, depreciation and amortization of less than $50 million,” it said in regulatory filings.
Diversification Plan
Pimco, which rose to worldwide fame as a bond investor, has been diversifying its investments to other asset classes since Ivascyn became CIO in 2014 and Manny Roman joined as chief executive in 2016.
The firm currently has investments in nontraditional assets like real estate, including office campuses—it was part of a venture that sold the Intersect office campus in Irvine in June for $235 million, Orange County’s largest office sale of the year—and large private equity ownership stakes in companies such as retailer Nieman Marcus and the utility Pacific Gas & Electric.
“We’re leveraging our size to do interesting things,” Ivascyn told the Business Journal during an interview in October.
“We’ve gone from one of the largest holders of commercial-backed securities that trade within the public marketplace and have shifted into the private opportunity set where we put together portfolios of private loans backed by commercial real estate properties. It’s an almost identical underwriting process, just one is in the public space the other in the private area of the market.”
Allianz
In 2020, Pimco took over the real estate portfolio of its Munich-based parent company, Allianz, which at the time held roughly $50 billion in private real estate equity and more than $20 billion in privately originated real estate debt.
Pimco says it now has a $190 billion commercial real estate (CRE) platform that includes more than $118 billion in private real estate assets; it has 290 CRE investment professionals in 32 offices in 19 countries.
Until now, most of Pimco’s CRE offerings have been limited to institutional investors.
“We launched REFLX to offer individual investors access to the same institutional-quality CRE investments in what we believe is an investor-friendly interval fund structure,” Devin Chen, who is head of Pimco’s commercial real estate strategy, said on Pimco’s website.
“And we have committed $75 million in seed capital to the fund, further aligning our interests with our investors.”
Four Quadrants
The fund can invest in four distinct quadrants of the CRE markets: private equity by acquiring stabilized, income-oriented CRE; private real estate loans; public debt such as commercial mortgaged-backed securities; and public equity such as Real Estate Investment Trusts, or REITs.
The money manager says private, stabilized CRE can potentially offer three key benefits: tax-efficient income, low volatility of returns, and inflation hedging. Private real estate assets have realized a volatility level that is less than half of the S&P 500 index over the last 15 years, Pimco said.
Private commercial real estate represents the third-largest U.S. asset class with a market value of more than $20 trillion.
Pimco’s competitive advantage “is to leverage proprietary information and well-established relationships to access, underwrite and structure real estate opportunities,” Chen said.
Ivascyn, who oversees 305 portfolio managers, will be part of an investment committee for REFLX that includes Chen as well as portfolio managers and real estate experts Christoph Donner, Russell Gannaway, John Lee and Peggy DaSilva.
Pimco launched its first interval fund in 2017 and has over $4.5 billion of AUM across five continuously offered interval funds, as of Sept. 30.
Unlike a typical mutual fund, investors can only sell their shares in an interval fund on
a quarterly basis through REFLX’s periodic repurchase offers, which are currently expected to be at 5% of outstanding shares. As such, REFLX investment is considered illiquid.
The fund, which has an adjusted expense ratio of 1.82%, plans to offer a monthly dividend.
