PIMCO, a Newport Beach, Ca.-based investment management firm with nearly $1.7 trillion worth of assets under management, has launched a new real estate interval fund. The fund might signal further “democratization” of access to commercial real estate investment opportunities, industry insiders say.
PIMCO’s Flexible Real Estate Income Fund (REFLX), announced earlier this month, will kick off with a commitment of $75 million in seed capital from the firm and tap into PIMCO’s $190 billion commercial real estate platform.
The fund will invest in the four main buckets of the commercial real estate industry: privately-owned income-producing commercial properties; private real estate loans; public debt like mortgage-backed securities; and public equity such as REITs. PIMCO plans to focus largely on opportunities involving high quality, stabilized assets with the vehicle.
“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,” said PIMCO Managing Director and Group Investment Officer Dan Ivascyn, 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.”
An interval fund is a type of closed-end mutual fund that doesn’t trade on public exchanges. While these funds can offer higher yields for investors, they are considered illiquid because investors can only sell or buy shares during certain times of the year. REFLX expects that as of now, investors will be able to repurchase 5 percent of its outstanding shares each quarter, PIMCO said in its statement announcing the fund.
PIMCO has other investment vehicles that target the commercial real estate space, but those vehicles are mostly geared toward institutional players. REFLX, on the other hand, is designed to offer individual investors access to commercial real estate, the firm said, as the ability to invest in both real estate equity and debt—in public and private markets—can offer more flexibility for investors. The fund is open to both accredited and non-accredited investors, though some platforms may limit access to accredited investors only.
As of now, the fund offers Institutional Class shares, which have a minimum initial investment of $1 million and can be purchased through an investor's broker-dealer, a financial firm or the fund's distributor. There isn't a minimum investment amount after the initial buy-in, and this investment minimum may be lowered or waived for certain types of investors at the fund's discretion.
“When liquidity is required, that gives funds the advantage of getting out of public stocks if the investors want liquidity more in one quarter than other,” says Milind Mehere, founder and CEO of YieldStreet, an alternative private market investment platform. “So, I think that gives more flexibility, in my opinion, for the fund managers to manage the fund appropriately.”
Typically, the main way individual investors can tap into the commercial real estate space is through equity and mortgage REITs. REITs offer tax benefits in exchange for paying out nearly all their profits to shareholders as dividends, and REITs are commonly bought via public stock markets.
PIMCO’s REFLX fund has also elected to be taxed as a REIT, which means it can also tap into certain tax benefits, which ultimately means the fund should have a tax-efficient distribution profile, wrote Chris Donner, CEO of Allianz Real Estate, in a strategy document about the fund. Allianz Real Estate is partnering with PIMCO, owned by Allianz S.E., to manage the fund.
PIMCO’s fund will join a slate of other interval funds targeting public and private real estate equity and debt, such as the Apollo Diversified Real Estate Fund, which as of June 30, 2022 had $515 million in assets under management and whose Class I shares generated one-year trailing returns of 13.83 percent by the end of the third quarter.
The Bluerock Total Income+ Real Estate Fund’s A shares saw one-year trailing returns of 24.67 percent for the same time period. In September, the firm announced it surpassed $7 billion in net assets—making it the first real estate interval fund to hit that mark.
As public stocks continue to experience volatility—even as inflation starts to cool—YieldStreet’s Meherre sees these alternative funds growing, even as the pandemic slowed inflows into real estate interval funds.
“I think there will be other funds that continue to explore this,” he says. “Private markets are going to get more and more democratized. [The] world’s biggest institutional investors have access to private markets, but retail [investors] do not. I think in the coming decades we’ll see more and more vehicles being launched.”