Firm: Kohlberg Kravis Roberts & Co.
Fund: KKR Real Estate Partners Americas LP
Raised: $1.5 bln
Investors are seeking to capitalize on the growing demand for commercial real estate space as U.S. industries slowly recoup job losses after the recession. Jones Lang LaSalle Inc expects 10 percent growth of global investment volume year-over-year in commercial real estate to $550 billion in 2014, with a lot of these gains coming from the United States.
The U.S. housing market has also been strengthened this year by employment gains and favorable financing, though a run-up in mortgage interest rates and the Federal Reserve’s gradual tightening of monetary policy are expected to moderate the sector’s growth in 2014.
The fundraising environment for first-time fund managers has been increasingly challenging in recent years. Managers raising their first investment vehicle accounted for only 5 percent of the capital raised in private real estate in 2013, market research firm Preqin said earlier this month.
KKR said the inaugural fund, dubbed KKR Real Estate Partners Americas LP, would invest in North America and Western Europe. Investors contributed $1.2 billion to the fund, with the rest coming from KKR staff and its specialty finance company, KKR Financial Holdings LLC.
The New York-based firm formed a dedicated real estate team in 2011 led by Ralph Rosenberg and seeded the business with its own capital, committing more than $850 million of equity to 14 real estate transactions in the United States and Europe since then.
Founded in 1976 by Henry Kravis, George Roberts and Jerome Kohlberg, KKR is known mostly for its acquisitions of companies. It gained prominence in 1988 with its $25 billion leveraged buyout of RJR Nabisco, a battle that was immortalized in the bestseller “Barbarians at the Gate.” In recent years, it has diversified into alternative credit investments and hedge funds.
“We have invested in the real estate business since the eighties, but we never quite had a fund,” Roberts told the Goldman Sachs Financial Services conference earlier this month.
Real estate among private equity firms has been dominated by The Blackstone Group. The firm had $69 billion of real estate assets under management as of the end of September, accounting for 28 percent of its total assets but 58 percent of its nine-month economic net income to the end of September.
In response, rivals have been seeking an edge by developing niche strategies. The Carlyle Group, for example, which has been active in real estate since 1997 and had $7 billion in U.S. property assets as of the end of September, has been focusing on individual properties such as rental apartments and offices, as opposed to taking over multibillion-dollar property portfolios.
KKR’s real estate investments include a housing development for oil workers in Williston, North Dakota, elder housing company Sunrise Senior Living Inc, and Colonie Center, a 1.3 million square foot regional mall in Albany, New York.
KKR’s own investment in the real estate fund was marked at 1.26 times its money of the end of September, according to KKR’s third-quarter earnings statement.
Greg Roumeliotis is a Reuters journalist working in New York