It should come as no surprise that, after years of rumors, Kohlberg Kravis Roberts & Co. (KKR) is on the fundraising trail with its first dedicated real estate fund. News reports in March stated that the New York-based firm had $500 million of equity to deploy, with early deals being inked for that fund in the US. Now, for the first time, Europe is getting in on the action.
Under the leadership of Guillaume Cassou, head of European real estate, KKR has been looking for value-added and opportunistic investments in various parts of Europe and the UK. Last month, that perseverance paid off when the firm announced that it had bought a portfolio of multi-let retail warehouses in Oxford, Glasgow and Sunderland from Resolution Property, a London-based firm.
The assets in question initially were purchased by Resolution in 2008, and KKR was aware that the loan backed by those properties was reaching maturing when it started assessing a potential deal. The firm stepped in as a fresh source of capital, alleviating any need by Resolution to put in more equity.
KKR now will own and manage 430,000 square foot of retail, which has some upside potential via asset management initiatives, leasing up and re-gearing of leases, according to Cassou. There is an average of 10 percent vacancy across the assets, and average lease lengths on the 90 percent of space that is leased are 10 years.
Cassou, who joined one year ago from Goldman Sachs’ real estate team, said KKR has the ambition to become a big player in real estate and currently is focussing on Western Europe. “We have been active in Ireland, the UK, France, Germany, Spain and Italy, looking at opportunities and working across the asset classes,” he added.
When it comes to the UK, KKR has been looking at deals in sought-after London and in regional cities where “attractive pricing” can be found, Cassou said. In London, it has been looking more at residential development in select areas, as well as office repositioning.
“Our business is focussed on straight asset deals such as this retail warehouse portfolio, but also more complicated corporate and structured transactions that obviously take longer and are harder to find,” Cassou said.
Examples of such transactions can be found in the US, where the firm led a buyout of the management company of Sunrise Senior Living from Health Care REIT for around $130 million in September.
KKR is seeing that many of the distressed opportunities in the US are over, so opportunities are more about growth markets and helping companies and platforms expand. Asia also is about growth, albeit with very different characteristics, while the opportunities in Europe are more about some form of stress, such as where borrowers might have to sell amid a constrained financing market, Cassou explained.
KKR has a team of around 10 people in the US and plans to boost its real estate group further in Europe. Ralph Rosenberg, who joined KKR in 2011 and is based in its New York headquarters, leads the overall effort. In May, the firm rounded out its key regional hires with the appointment of Bryan Southergill from JPMorgan, where he was a managing director and head of Asia real estate investing.
In its fundraising effort, KKR has secured a $300 million investment from the Teacher Retirement System of Texas for its debut fund, KKR Real Estate Partners Americas. The firm declined to comment on fundraising activity.