Skip to main content
MENU
Subscribe
  • Sign Up Free
  • LOGIN
  • Subscribe
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2023 Defined Contribution East
    • 2023 ESG Investing
Breadcrumb
  1. Home
  2. SPECIAL REPORT
October 04, 2021 12:00 AM

KKR's latest growth seeded 10 years ago

Arleen Jacobius
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Ralph Rosenberg
    Photo: Kent Meister
    Ralph Rosenberg said KKR has been selective with its investments, like offices, due to the pandemic.

    KKR & Co. Inc.'s real estate business chalked up a 270% growth spurt in the past year, but it was an accomplishment 10 years in the making.

    The business, which makes equity and credit investments in everything from opportunistic flagship funds to a mortgage real estate investment trust, reported assets under management of $32 billion as of June 30, a far cry from KKR's early forays into real estate made from its private equity funds.

    "Our vision was to create an integrated model of equity and credit under a single leadership," said Ralph Rosenberg, New York-based partner and global head of KKR real estate. KKR offers real estate strategies to both institutional and retail investors.

    "We tapped into the firm's relationships with global institutional investors but also with global retail distributors and started creating retail products," Mr. Rosenberg said.

    Related Article
    Managers rebound strongly following pandemic slump

    Mr. Rosenberg joined KKR in 2011 from now-defunct hedge fund manager Eton Park Capital Management, where he was a partner. Mr. Rosenberg built KKR's real estate venture by using balance sheet capital before raising the $1.2 billion KKR Real Estate Partners Americas LP, which closed in 2013, bringing KKR's total real estate AUM that year to $1.5 billion.

    "We started that strategic rollout by using KKR's own balance sheet to get proof of concept," Mr. Rosenberg said. KKR is typically the largest investor in any of its funds, he added.

    As of June 30, KKR Real Estate Partners Americas has invested $1 billion, realized $1.4 billion and produced a gross internal rate of return of 16.7% and a net IRR of 11.8%. Despite its name, the fund aimed to invest 25% in Western Europe, Mr. Rosenberg said.

    In 2015, KKR augmented its real estate capability by adding a real estate credit strategy. Since then, the firm has launched three credit products: one publicly listed mortgage real estate investment trust and two closed-end risk-retention funds investing in the securities market, which developed as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act. That act required that managers of asset-backed securities retain 5% of the value of new issuances, he said.

    Bloomberg

    The Stirling Square commercial real-estate complex that houses the offices of KKR.

    Real estate boost

    The real estate business and particularly KKR's credit strategy got a boost on Feb. 1 when KKR's $4.7 billion acquisition of insurance company Global Atlantic Financial Group Ltd. closed. The acquisition of Global Atlantic contributed $98 billion to KKR's AUM in the first quarter, earnings release materials show.

    "Management of all of the real estate exposure on the Global Atlantic balance sheet was transferred over to our real estate team," Mr. Rosenberg said.

    KKR did not break out how much Global Atlantic has in real estate assets. Global Atlantic had $12 billion in private market assets including real estate when the deal closed.

    Global Atlantic's real estate portfolio is consistent with a traditional insurance company real estate portfolio. It includes first mortgage exposure that is 40% to 50% loan-to-value, he said.

    "It's a different risk profile than our mortgage REIT," Mr. Rosenberg said.

    KKR also actively manages and trades a commercial mortgage-backed securities portfolio for Global Atlantic, he said.

    "The reason the Global Atlantic real estate credit exposure is really strategic for us is scale," Mr. Rosenberg said. "The number allows us to talk to borrowers about both transitional financing and stabilized financing."

    KKR real estate executives are pushing to continue that growth trajectory. Craig Larson, head of investor relations, said in KKR's second-quarter earnings call on Aug. 3 that the firm held a final close of its second European real estate fund at $2.1 billion, three times the size of its first European real estate fund. It also saw a $3 billion first close for its third KKR Real Estate Partners Americas fund.

    "With these closures, we are now a clear top five opportunistic real estate manager," Mr. Larson said.

    Even so, KKR will have a way to go before eclipsing another New York private equity firm, Blackstone Inc., which had $207.5 billion in real estate assets as of June 30, up 24.5% from $166.7 billion a year earlier.

    KKR ranks 24th on Pensions & Investments' just-released list of the top real estate managers ranked by total worldwide assets as of June 30. Top ranked MetLife Investment Management had $137 billion as of June 30. (Blackstone did not participate in this year's survey.)

    However, KKR is building its assets under management at a triple-digit clip, compared to MetLife's global real estate asset growth of 2.8%. As for assets managed for U.S. tax-exempt institutions, KKR's AUM was up 47% to $5.3 billion; Nuveen, which is No. 1 on the list, saw 14% growth to $92 billion.

    Related Article
    ESG factors becoming a focus for real estate investors
    Around the world

    KKR real estate executives have always had their eyes set on offering multiple real estate strategies investing across the globe, Mr. Rosenberg said.

    Among KKR's independent real estate strategies are U.S. opportunistic, Asian opportunistic, European opportunistic, a domestic institutional core-plus open-ended fund strategy and a publicly listed REIT in the U.S. offered to individual investors.

    "They are independent strategies but jointly run risk management and investment management by a collective team of professionals who all work with me and are all subject to an aligned compensation and rewards system, with one pool that I have responsibility to distribute on an annual basis." Mr. Rosenberg said.

    KKR executives are consistent across its real estate business in the themes they like and others that don't provide an adequate risk/reward profile, he said.

    These days, KKR is selective with its investments due to the "valuation shock" caused by the pandemic, Mr. Rosenberg said. "We have selective exposure to office but only in what we deem to be growth markets," he said. KKR has favored investment in apartments in Sunbelt cities as well as lending to multifamily developers, Mr. Rosenberg said.

    Related Article
    Managers search for opportunities in office, retail, hotels
    Hiring, not acquiring

    KKR has expanded the real estate strategies it offers by hiring executives rather than acquiring firms. "We typically have hired a proven industry veteran in each of these disciplines or lifted out a small team," Mr. Rosenberg said.

    For example, in August, KKR hired Andres Dallal and Joseph Mastrocola from W.P. Carey Inc., a net-lease REIT, to head a new triple-net-lease real estate platform, Strategic Lease Partners, he said. Funding to acquire $3 billion in assets is coming primarily from KKR's credit and real estate funds.

    "We provide them (the individual or team) with all of the institutional support you need when you start building a new company," Mr. Rosenberg said.

    Another example of a hire is Matt Salem, a New York-based partner and head of real estate credit who joined KKR from Rialto Capital Management in 2015, the year KKR formed its real estate credit business. In 2017, when KKR closed its first risk-retention fund, he co-headed KKR's real estate credit strategy with Chris Lee, who is now a partner and head of real estate Americas.

    KKR executives credit the Dodd-Frank Act for opening up a new investment opportunity — the risk-retention strategy — for credit managers, including KKR.

    "Wall Street firms were forming risk-retention bonds that they could not hold and needed someone like us to be counterparty to sell risk to," Mr. Rosenberg said.

    "In 2017, we … recognized there were very, very few players in the real estate credit markets who had the ability to be in the risk-retention business … where you have to hold the risk-retention bonds for 10 years," Mr. Rosenberg said.

    And that is a high barrier to entry, he added.

    "Many have tried and failed because LPs have to believe that the GP will be around for 10 years to manage this risk exposure," Mr. Rosenberg said. "We raised a little over $1 billion in our first fund focused on purchasing the junior tranches of these commercial mortgage-backed securities."

    KKR raised $950 million for its second risk-retention fund in 2020.

    Related Articles
    KKR, Canadian plans to buy Spark Infrastructure for $3.7 billion
    KKR sells warehouses to Oxford in $2.2 billion property deal
    KKR to buy infrastructure group John Laing for $2.8 billion
    Recommended for You
    Mutual funds most used by DC plans, by asset class 2022
    The largest managers of proprietary mutual funds most used by DC plans 2022
    Graphic: DC mutual funds/target-date funds by the numbers
    The Institutional Investor's Guide to ESG Investing
    Sponsored Content: The Institutional Investor's Guide to ESG Investing

    Reader Poll

    January 25, 2023
    SEE MORE POLLS >
    Sponsored
    White Papers
    Show Me the Income: Discovering plan sponsor and participant preferences for cr…
    The Future of Infrastructure: Building a Better Tomorrow
    Fulcrum Issues: Equity Returns and Inflation — Choose Your Own Adventure
    What Matters Most in Considering a Private Debt Strategy
    Why pursue direct lending in the core middle market?
    Research for Institutional Money Management
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    December 12, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2023 Defined Contribution East
      • 2023 ESG Investing