EUROPE NEWS: Buyout firms build out

They have been coming for a while, and now they are here. Kohlberg Kravis Roberts (KKR), the New York firm with a long history in buyouts, and TPG Capital, a similar firm with corresponding stature from Texas, are now at the stage of hiring dedicated real estate professionals in London.

Both firms recently made strategic decisions to begin investing in real estate with experts in the field rather than relying purely on their existing buyout personnel. As one might expect, both firms have built up real estate teams in the US first, and now it is Europe’s turn.

KKR, for example, has six dedicated US real estate team members, soon to be seven with the addition of Chris Lee. Lee most recently served as a senior deal professional at Apollo Global Real Estate and, prior to that, worked on Goldman Sachs’ Whitehall Funds team. Lee’s hire is expected to complete KKR’s US real estate team.

In Europe, however, KKR has just made its first dedicated appointment with the addition of Guillaume Cassou, who begins in May as the director leading the firm’s real estate efforts in the region. Cassou, who has been working at Goldman Sachs for 11 years, soon will be supplemented by further hires and is expected to take part in the recruitment process.

Similar to KKR, TPG has made a number of hires in the US to build out its real estate platform and is now bulking up in Europe. For example, a former vice president at AREA Property Partners in London starts this month in TPG’s London office. Krysto Nikolic has been working at AREA for five-and-a-half years, having joined the firm in 2006 from Goldman Sachs.

Meanwhile, TPG may take a different tack to KKR when it comes to the type of capital available for real estate investing. While KKR is using its $60 billion balance sheet as a public company and various other pockets of capital, it is possible TPG will raise a dedicated real estate fund. In the meantime, real estate deals can be made via one of its huge private equity funds.

Despite that possible difference in capital allocation, the two firms seem roughly at an equal stage in deal flow. KKR, according to sources, is close to an agreement with a European bank on the restructuring of a large real estate loan. Meanwhile, TPG has been busy putting various real estate deals to its investment committee. 

The timing is significant. Both firms have observed how Europe is lagging the US and how European banks have been able to continue holding problematic real estate assets on their balance sheets without needing to delever. However, they know that situation will likely change. They also observe how private real estate owners in Europe have a need for a fresh infusion of capital to help delever or reposition their existing asset base and/or corporate entities. Nevertheless, they have been watchful and careful because, in Europe, they do not necessarily want to start investing until they feel there is some stability to the region at the bottom.

Now that KKR and TPG are getting dedicated real estate boots on the ground, potential deals are just a phone call away.