Global investment firm KKR has bought a sprawling apartment portfolio across the United States from the multifamily arm of homebuilder Lennar for $2.1 billion, casting a major vote of confidence for a property type that's faced valuation challenges in recent years as a result of record development.

The portfolio, sold by Quarterra, includes 18 Class A multifamily properties totaling more than 5,200 units. The real estate includes a mix of high-rise and mid-rise developments in coastal and Sun Belt markets, including California, Washington, Florida, Texas, Georgia, North Carolina, Colorado, and New Jersey.

The purchase is KKR's largest in the apartment sector, according to reports. It was financed through capital accounts advised by KKR; the firm plans to work with multifamily operators Carter-Haston, MG Properties, and Dalan Real Estate to manage the assets.

“We believe this is a great moment to invest in real estate, as transaction activity starts to pick up on the heels of two years of dislocation in commercial real estate markets,” Justin Pattner, head of real estate equity in the Americas at KKR, said in a statement. “Across our platform we are finding opportunities where our scale, strong relationships, multiple pools of capital and local knowledge give us advantages as a buyer."

The apartment industry reached record openings of 565,000 units completed in 2023, a 40-year high, according to a report from Apartments.com. That supply has threatened apartment valuations and pushed down rent growth in the past year, a set of circumstances that delivers risk to the KKR investment.

Despite all that construction, the is proof that KKR likes "the fundamentals in this sector,” Daniel Rudin, managing director at KKR, said in a statement following the Quarterra deal. “This portfolio serves high-growth metropolitan areas across the country, where new supply will slow down significantly looking out beyond the next couple years.”

The sale comes months after media reports indicated that Quarterra would be putting roughly 11,000 units, or roughly a quarter of its total inventory as of its 2022 annual report, up for sale for an estimated $4.5 billion.

Quarterra, launched by homebuilder Lennar in 2011 as Lennar Multifamily Builders, first flirted with a sale in July 2022 as a surge in demand for apartments and cheap access to capital pushed operating revenue at the company to $69 million, with $46 million coming in the third quarter alone.

By December of that year, the company pulled back from the potential sale, citing market conditions that had become unfavorable to the year-end timeline, including rising interest rates, slowing rent growth, and persistent supply chain issues.

Through the first six months of 2023, overbuilt markets and slower-than-usual rent growth led to $30 million in operating losses at the company. By the end of the year, losses totaled $50 million, with Quarterra reporting another $16 million in losses through the first quarter of 2024.

Despite those losses, a recent report on the multifamily market from KKR was bullish on the opportunities for apartment acquisitions. The company concluded that current challenges in the market would present well-capitalized investors with a window of opportunity to purchase high-quality properties at significant discounts to replacement cost through 2024.

Acquisitions could be particularly attractive from the perspective of owners who financed projects in 2021 and 2022 when interest rates were lower. With those loans now coming due, some have come under pressure to sell even as demographic developments, demand for apartments, and forward-looking supply estimates remain favorable to the sector's long-term outlook.

The purchase from Quarterra adds to recent transaction activity by KKR that included the purchase of a 19-property student housing portfolio in April from Blackstone Real Estate Investment Trust for $1.64 billion. That deal is expected to close by the third quarter of this year.

KKR was advised by Gibson Dunn & Crutcher LLP on the transaction. Quarterra was advised by law firm Troutman Pepper Hamilton Sanders LLP and real estate advisor JLL.

This article was updated on June 26 to add the law firms and real estate firm that advised the buyer and seller in this transaction.