KKR likely to adopt regional fund approach

The global head of real estate at buyout titan Kohlberg Kravis Roberts (KKR) has told PERE that the firm is likely to approach opportunistic real estate investing via regional funds.

In December, KKR closed its first dedicated real estate fund, KKR Real Estate Partners America (REPA), raising $1.2 billion for a value-added/opportunistic strategy focused on equity and debt investments, special situations and real estate-heavy enterprises, predominantly in North America. Up to 25 percent of the vehicle’s equity may be deployed in Europe.

In an exclusive interview with PERE, however, Ralph Rosenberg confirmed that, as the firm’s still-nascent real estate platform evolves, it is likely that a dedicated fund for European deals and a dedicated fund for Asian deals would materialize. “I think it’s fair to assume that, as the strategy evolves over time, we will have dedicated capital that is focused on both Europe and Asia,” he said. He declined to offer more details about future funds and further added that market events could impact the timing of their introduction.

It took two years from the time that KKR entered the real estate market with Rosenberg’s hire for REPA to be launched, but he pointed to KKR’s existing network of offices – it has 19 offices globally – and early deals in both regions that already have taken place. Indeed, KKR heavily seeded REPA with deals originally completed using company equity, and a similar approach could be taken in Europe and Asia.

While KKR’s real estate platform has dedicated equity for European deals, it currently is investing in Asia from capital sources elsewhere in the business. For instance, in China, the firm entered into a joint venture development platform with Sino Ocean Land in 2011. The firm funded an initial $70 million equity commitment from its KKR China Growth Fund, one of its private equity vehicles.

Rosenberg also indicated that KKR would be heavy co-investors in the future real estate funds it sponsors. For the strategy of REPA, KKR raised an additional $286 million from its employees and from KKR Financial Holdings, one of the firm’s listed investment units, in addition to committing capital to the fund itself. “From our perspective, we like to have significant amounts of our own capital inside the vehicle because we like the market opportunity in its own right for the return expectation of our own balance sheet,” he said.

Rosenberg added: “The day we go back to the market to raise another vehicle, assuming our balance sheet continues to be liquid and to grow, my expectation is that we’re going to have a sizeable commitment from the balance sheet in future vehicles as well.”

To read more coverage of PERE’s interview with Rosenberg, be sure to pick up this month’s edition of PERE magazine, out now.