KKR nears European RE final close

Kohlberg Kravis Roberts (KKR) is wrapping up fundraising for its European real estate fund, the private equity firm said on its first-quarter earnings call Monday.

KKR has raised $598 million for Real Estate Partners Europe, which launched in September, according to the earnings report. Investors include the Maine Public Employees’ Retirement System (PERS), which allocated $50 million to the fund, according to PERE Research & Analytics. KKR said in its earnings results that it committed more than 11 percent of the capital raised to date for the fund.

“We saw so much opportunity to invest in real estate in Europe,” said Scott Nuttall, KKR’s head of global capital and asset management group, on Monday’s analyst call. “We'd filled up the baskets on our global fund and needed more capital, so that fund is progressing quite nicely.”

Nuttall said most of the firm’s first-time vehicles garner between $500 million and $1 billion in commitments, a range he said will be true for the European fund, too.

KKR launched a dedicated real estate platform in 2011. In the last year, the New York-based firm has bolstered both its US and Europe teams. In November, the firm hired Marcus Ralling as a director in the firm’s real estate team in the London office, responsible for the asset management of the firm’s European real estate portfolio.

Closer to home, PERE reported last month that KKR moved three members of its real estate team from New York to San Francisco with the aim of ramping up its property investments in the US region. This relocation comes as KKR is marketing its second domestic opportunistic fund, Real Estate Partners America (REPA) II. Maine PERS also allocated $50 million to REPA II, according to PERE Research & Analytics.

KKR closed the predecessor vehicle, REPA, in December 2013 at $1.5 billion. The debut fund has a gross internal rate of return of 26 percent, Nuttall said on the first-quarter earnings call.

In addition to US real estate investments, Nuttall said the firm is looking at credit opportunities and Indian real estate as areas for expansion for its global real estate platform.

The firm overall had a tough first quarter, posting a loss in economic net income (ENI) of $553 million, largely due to $300 million in losses from its biggest investment, the payments processing company First Data, according to the earnings report. Despite the loss in ENI, real estate fundraising helped bolster the firm’s total assets under management, which were up 17 percent from the same quarter a year earlier, to $126 billion. Real estate comprises 9.2 percent of KKR’s portfolio, according to the firm’s earnings report.

“I'd say the real estate business has been developing really well, certainly at least in line with our expectations, if not ahead of (them),” Nuttall said on the call.