As one of the newer businesses for KKR, real estate is among the strategies with the biggest growth potential, the New York-based private equity firm noted at a recent conference.
In a slideshow presentation at the Bernstein Strategic Decisions Conference 2020 last week, the $207 billion manager said, “We have many young strategies with significant scaling opportunity.” Six of the strategies highlighted in the presentation included real estate, infrastructure, credit, growth, core and hedge fund Marshall Wace.
Real estate was identified as a “16x growth opportunity” in the presentation, comparing KKR’s property platform, which had $10 billion of assets under management as of March 31, against the $161 billion real estate business of market leader Blackstone. The strategy has the second-largest growth potential after core, the firm’s $11 billion long-term investment strategy in private equity, which was identified as a “33x growth opportunity” when compared to the $372 billion size of the market leader. The growth opportunity for the other four strategies ranged from 2x for credit to 9x for infrastructure.
“We have made a strategic decision that we only want to be in businesses where we can be in the top three in the world,” said Scott Nuttall, KKR’s co-president and co-chief operating officer, at the conference. “And everywhere we look we have an opportunity to at least double if not grow 10x to 20x as these businesses mature and go global.”
Speaking specifically on property, he added: “One of our younger businesses where we see a significant amount of growth opportunity is real estate. And so we’re spending time thinking about that on a global basis.”
KKR’s real estate platform encompasses the five sub-strategies of US real estate, Europe real estate, real estate credit, Asia real estate and core-plus real estate, with US real estate the oldest at seven years and core-plus newly launched, according to the presentation.
Scaling the firm’s property business could entail pursuing some mergers and acquisitions in the sector, Nutall noted. “We’re also looking at things that could fit from the standpoint of distribution, things that we could do that would broaden our distribution footprint, whether it allows us to get into the retail world more aggressively. We’re doing that organically right now with good success. But we’re looking and thinking about other things that we could do that would be inorganic as well.”
However, the firm would set “a really high bar for anything inorganic, because the cultural fit is so critical,” he added. “But if we can find something that checks all the boxes, we have the capital and that allows us to go after those things. And I’d say a good amount of our growth opportunity ahead could be satisfied by ideas like that.”
KKR’s real estate strategy is also well-positioned for growth, given that it is expected to emerge from the covid-19 crisis relatively unscathed. The crisis “does create an inflection point for a number of the businesses we’re in, and real estate is one of those,” Nuttall said. “The big part of the reason for that is the real estate business is quite underweight in retail and hospitality. And so we have very, very few things that need fixing or cleaning up in our real estate business.”
In real estate, the firm is also raising successor funds for its US, Europe and credit strategies, as well as first-time vehicles, he added. “So there’s a lot happening in real estate and the teams are focused very much on offense because there’s just happily not as much defense to play, given our portfolio construction.”
Founded in 1976, KKR managed $207 billion of assets as of March 31. In 2011, the firm hired Goldman Sachs veteran Ralph Rosenberg to launch its real estate business.