Kohlberg Kravis Roberts is looking for gold – in the form of good real estate returns – out west.
Last month, the New York-based private equity shop relocated its co-head of real estate acquisitions in the Americas, Justin Pattner, and two other investment professionals to its downtown San Francisco office, with the aim of ramping up its property investments in the US region. The office has primarily served as the home of its corporate credit business.
“We realized that you when you look west of Texas, we have very few investments in that part of the country,” said Pattner in an interview with PERE. “Given the fact that the Western US accounts for 35 percent to 40 percent of overall transactions in the commercial real estate space, that piqued our interest.”
On the West Coast, KKR is competing against other private equity firms, foreign investors and other institutional buyers, which have become more active in 2016 to date than they were in 2015 by percent of deal volume, according to real estate data provider Real Capital Analytics (RCA). Fellow private equity real estate firm Blackstone was the biggest buyer on the West Coast in the last two years, picking up 160 properties for a total of $6.3 billion, according to RCA.
Despite the combination of record-high property prices and a constrained lending market, deal volume on the West Coast was only down by 1 percent in January from the same year-ago period, according to RCA.
KKR had a real estate footprint on the West Coast before the move, however. Last June, the firm acquired a stake in Drawbridge Realty, a San Francisco-based real estate investment manager that specializes in single-tenant commercial real estate with holdings across the western US. In December 2013, the firm bought Waikiki Trade Center, a 22-story office building in Honolulu, Hawaii, in a joint venture with Coastwood Capital Group.