Blueprint: KKR’s European debt business growth plans, PERE’s latest fundraising report, APG’s Asia self-storage JV

KKR targets relationship building as the route to growing its debt origination activities for its European credit business; fundraising slows in PERE's latest report; APG and CapitaLand buy an established Asia self-storage business; and more in today's briefing, exclusively for our valued subscribers.

They said it

“You cannot get rid of your book within a week, or a month”

Isabelle Scemama, global head of AXA Investment Managers Alts, on why the market has not yet seen forced selling of real estate assets, speaking on Bloomberg TV.

What’s new?

European expansion: KKR’s Ali Imraan and Matt Salem are eyeing significant growth in the New York firm’s credit business on the continent and are prepping for up to $2bn in originations next year.

KKR’s path to scale
We have written before about how market dislocation is expected to generate opportunities for non-bank lenders in Europe. Count KKR among that cohort, with the mega-manager now building a European real estate credit team. Led by former LaSalle Investment Management executive Ali Imraan, who joined in January as head of European real estate credit, the platform now has a four-person team in place.

KKR is eyeing $1 billion to $2 billion in originations in the region next year, with an intention to add further scale to that transaction volume by multiples over time, according to head of real estate credit Matt Salem. To build the platform, KKR is spending time on forging relationships with the borrowers with which it wants to do repeat business. “Ultimately, that’s your path to scale,” Imraan told PERE.

And while the New York-based firm has fresh capital and is eager to lend in the region, Imraan said it is important to proceed at a measured pace. “For us, building those relationships is way more important than doing a particular deal.” Check out our coverage here.

Fundraising slows
This year has seen one challenge after another materialize for the market, with geopolitical and macroeconomic factors contributing to a period of extreme volatility. According to PERE’s Q3 2022 fundraising report, that has finally caught up with investors in regard to their capital commitments to private real estate closed-end fund strategies.

The amount of capital raised in the first nine months of the year was just over $107 billion – the smallest amount raised in the sector since 2013. Last year, the final number was bolstered by a record $69.6 billion raised in Q4. While there are certain mega-funds still in the market, it is not likely this year will witness a repeat of the yearly record. Check out the full report here for further analysis.

Extra space
Self-storage is one asset class that remains attractive for investors during this period of uncertainty. One of the world’s largest real estate investors, Amsterdam-based APG, has formed a joint venture with Singapore-based manager CapitaLand to establish an Asia-focused platform for the niche asset class. The partnership will provide an initial S$570 million ($402.3 million; €407.2 million) in a 90:10 investment split, with the capability to double that commitment, according to an announcement.

The capital will be used to acquire Extra Space Asia, an established owner-operator with 1 million square feet of properties in six Asian markets, primarily Singapore. Elsewhere, London-based PineBridge Benson Elliot has also demonstrated its appetite for the asset class in Europe, acquiring a controlling stake in Spanish owner-operator Necesito un trastero for an undisclosed fee this week. The deal sees PineBridge Benson Elliot acquire 81 franchises extending to more than 200,000 square feet of facilities.

Awards season

PERE Global Awards season is officially under way. On Friday, we launched the 17th edition of private real estate’s most eagerly anticipated awards, this time with 72 categories. Institutional investors, managers and advisers have the chance to battle it out for recognition of their exploits during one of the most challenging market periods in living memory. We are expecting a record number of votes for this year’s awards, which have been updated once again to fit with the times. Notably, we are introducing our first categories dedicated to data centers, given the asset type’s meteoric rise in stature and investment. Click here to learn more and, critically, find a form to submit ahead of our nomination selections!

Trending topics

Sustained interest
Despite many other factors drawing the attention of real estate managers and investors, the industry is still taking a holistic view on one of its most important challenges: climate change. A major component of that focus is the idea of renewable energy and ways to drive net-zero carbon emissions. Many managers, including Hong Kong-based ESR and New York-headquartered CBRE Investment Management, have made green investments across their portfolios, including in solar panels and electric vehicle charging stations. This investment is being driven by ethical reasons but also by regulation globally and a pre-emptive move to future proof assets. Read our full deep dive on the subject here.

Energy crisis
Another underlying reason for a focus on renewables has come sharply into focus this year. Since the beginning of the Russian invasion of Ukraine, an energy crisis has gripped much of Europe. According to research released this week from Paris-based proptech firm Deepki, more than half of European managers have seen a more than 50 percent increase in energy costs. The survey of more than 250 managers on the continent found that just under 20 percent have seen increases of up to 90 percent. One silver lining is increased demand for sustainable buildings, meaning a premium on pricing for them – more than half of respondents, 56 percent, said they had seen an increase in pricing of between 11 percent and 15 percent for energy efficient buildings.

Data snapshot

Laying bare the bifurcation in office
Industry body Urban Land Institute, along with financial services giant PwC, analyzed office leasing between April 2020 and June 2022. The findings lay bare a clear bifurcation between offices built in the middle of last decade and before versus all other stock, highlighting the scale of the leasing problem facing many owners of older office stock.

People moves

Ready for take-off
Today’s turbulent times would make some real estate executives skittish about launching a new firm. Not so with Phil Walker [his LinkedIn profile here] and Bianca Tristao [her LinkedIn here], former head of investments and senior investment manager, respectively, at European manager Avignon Capital. Together with ex-Avignon colleague Alessandro Iovino, Walker and Tristao have launched UK and Europe-focused real estate investment firm Coleford Capital, with the aim of capitalizing on the market dislocation.

“Some of the best buying opportunities will be coming in the next nine months, and there will be more of those opportunities than in the last four years,” Walker explained. Similar to Avignon, Coleford will be focused on making property investments on behalf of high-net-worth investors. “They see the time as an opportunity rather than a risk,” he said. “They’re excited [about] what the next six months will bring.”

Investor watch

Return of the cash
Uncertainty in the market has caused a bifurcation in investors that are looking to commit capital to real estate and those that are not. While the denominator effect has halted activity for some portfolios, there is at least one US public pension that will be committing resources to real estate early next year. New Jersey Division of Investment is planning to return to deploying capital to real estate funds in 2023, targeting medical office, industrial/logistics, multifamily, life sciences and data centers, according to public documents. The Trenton-based investor’s $5.5 billion real estate portfolio has been buoyed by the performance of its private holdings, which returned 17.76 percent in 2022, versus a negative performance of -10.98 percent from its public real estate investment trust portfolio. The real estate portfolio has provided positive cashflow since 2013, the documents state, with future commitments looking to continue that with exposure to be increased to “strategies that produce meaningful current yield as a key component of total return.”

This week’s investor meetings

Wednesday, November 2

Thursday, November 3

Today’s letter was prepared by Peter Benson with Jonathan BrasseEvelyn Lee, and Christie Ou contributing