KKR’s $2bn J-REIT platform purchase is a play for Japanese permanent capital

KKR's Asia real estate boss John Pattar says the acquisition of the manager allows the firm to tap into a new pool of public capital expected to complement its existing private funds.

Through its $2 billion acquisition of Japanese REIT manager Mitsubishi Corp-UBS Realty, KKR has gained access to a capital market that has previously proven difficult for non-domestic managers to access.

John Pattar, partner and head of KKR’s real estate in Asia-Pacific, told PERE the transaction represented a push by the firm to increase its access to permanent capital in the region.

With $15 billion in assets under management, its acquisition pushed KKR’s real estate assets under management from $41 billion to $55 billion in one transaction, accelerating already fast growth for the firm’s real estate business, which was founded in 2011.

MC-UBSR manages two REITs in the country: the $11 billion Japan Metropolitan Fund Investment Corporation and the $4 billion Industrial & Infrastructure Fund Investment Corporation. The former is invested in retail, offices, hotels and other assets located in urban areas while the latter is invested in industrial and infrastructure properties.

Mitsubishi Corp-UBS Realty was founded in 2000 as a joint venture between Mitsubishi and UBS-AM. It currently has 170 employees.

Pattar said the purchase also represented a further step in KKR’s effort to grow its real estate platform in Asia. At the end of 2020, the firm closed on $1.7 billion for its first private property fund in Asia, KKR Asia Real Estate Partners.

The MC-UBSR acquisition allows the firm to set a foothold in one of the largest real estate markets in Asia. “KKR has looked at our real estate portfolio globally and said, we really want to be in the Japan market. You have got to understand with Japan, it’s always been about scale,” said Pattar.

Beginning with private equity investments, the firm has invested over $4 billion of equity to date across funds and asset classes in Japan since 2006, prior to buying MC-UBSR.

Pattar said the J-REITs inherited via the acquisition of MC-UBSR complement its private commingled fund in terms of capital style and risk-return profile. While KKR Asia Real Estate Partners is more opportunistic, “this is much more at the core end of the market where income and income distribution are important to public investors,” he said. “Whether it’s in the US, here or Europe, these are the kind of building blocks that we want to put together in all our strategies. We want long-term dated money and we also want shorter, opportunistic capital where we can provide liquidity into the markets.”

Since launching a dedicated real estate platform in 2011, the private equity powerhouse has also acquired two REITs in the US: KKR Real Estate Finance Trust, an externally managed REIT focused on originating senior commercial mortgage loans, and KKR Real Estate Select Trust, a REIT that is thematically invested in income-oriented commercial real estate equity and debt, also primarily in the US. Like MC-UBSR, both of those REITs were acquired from the firm’s balance sheet.