Global alternative investment firm KKR says 2024 is turning out to be a "sweet spot" for real estate investing as it has deployed billions of capital this year.
The New York-based firm said Wednesday it spent $8 billion in the second quarter largely driven by real estate purchases. Those investments include a $2.1 billion bet on multifamily in buying about 5,200 apartment units from homebuilder Lennar’s Quarterra division, its largest multifamily purchase to date.
“We have conservatively priced this deal to an 8% unlevered return with significant upside potential, which we think is a really compelling risk-adjusted return,” Rob Lewin, KKR's chief financial officer, said on an earnings call. “But it's a type of deal that is going to put some pressure on our near term.”
Lewin said the first-year yield on the portfolio is only expected to be in the low 4% — less than what it typically looks for in its investments.
“But the combination of yields increasing over time and the expected appreciation of the asset make this a really interesting deal, and one we're excited to pursue for the long term,” Lewin added.
KKR's recently acquired Global Atlantic Financial Group participated in the Quarterra deal and will continue to provide additional capital for future real estate acquisitions, KKR said.
Attractive Opportunities
While KKR may limit purchases with a similar return timeline as the Quarterra purchase, the firm is moving aggressively into real estate investments, according to co-CEO Scott Nuttall.
“In real estate, the credit opportunity remains compelling with banks on the sidelines and the equity investment opportunity is very attractive,” Nuttall said on the call. “As a reminder, we started our real estate business in 2011. We don't have office and retail exposure of any consequence. So, we have the ability to play offense in this environment. And we believe we will take share over the next several years and will benefit from the current and coming dislocation.”
KKR has closed or is under contract for over $10 billion of real estate equity deals since April 1, Nuttall said. That pipeline is being driven by owners seeking liquidity and now willing to part with their best assets.
“So far, 2024 feels like it could be a sweet spot year, where values are attractive and activity levels are high,” Nuttall said. “This is in contrast to last year when values were attractive, but transaction volumes were more muted as owners of mature assets didn't want to sell or finance them in a closed market.”
KKR’s optimistic real estate investment outlook follows a similar assessment this month from Blackstone in its second-quarter earnings report. The New York private equity firm said it invested $34 billion in the second quarter, including taking private both Apartment Income REIT and Tricon Residential.
Jonathan Gray, Blackstone’s president, said commercial real estate values were bottoming with more buyers and lenders coming back to the market.
For the quarter ended June 30, KKR reported having assets under management totaling $601 billion, up 16% year over year. That total included $152 billion of real assets, which includes real estate properties.