KKR (NYSE: KKR) is a leading global private equity (PE) firm. It had invested $429 billion across 109 portfolio companies in almost every sector as of mid-2021.
However, while KKR is a private equity behemoth, it lags behind its rivals in the commercial real estate sector. It doesn't have the size or name recognition in the space of Blackstone (NYSE: BX) or Brookfield (NYSE: BAM).
That's likely to change in the coming years. Here's a look at what seems to be ahead for the PE giant.
Where KKR is right now
KKR has been investing in real estate since 1981 and formed a dedicated real estate platform in 2001. Today, KKR real estate has $32 billion of assets under management.
While that's a good-sized real estate business, it pales in comparison to Blackstone and Brookfield. Blackstone currently has $230 billion of investor capital under management as part of a $411 billion global real estate platform. One of the highlights is its leading non-traded REIT, BREIT, the biggest and fastest-growing non-traded REIT. Meanwhile, Brookfield has $219 billion of real estate assets under management, including more than 500 million square feet of commercial space.
Where KKR seems headed
KKR has been working toward narrowing that gap over the past year. The company has been very active in the commercial real estate market, completing several noteworthy deals.
The biggest splash was the acquisition of The Exchange on 16th in San Francisco. It bought the property for $1.08 billion. That's the second-highest sales price ever in the city and a record value of $1,440 per square foot. While fully leased to Dropbox (NASDAQ: DBX), the tech company is transitioning to a "virtual first" workplace. That will allow KKR to redevelop the property to cater to the needs of San Francisco's fast-growing life sciences sector.
That's one of two notable healthcare-related real estate deals KKR has completed in recent months. It also launched a joint venture with Cornerstone Companies to develop and acquire healthcare properties across the country. The duo aims to invest $1 billion into healthcare real estate, primarily medical office buildings, over the next few years.
KKR has also made big moves in several other real estate categories:
- Industrial real estate: KKR has been both a buyer and seller of logistics properties. It has assembled a portfolio of warehouses in a series of smaller deals and sold off a portion of that portfolio to Oxford Properties for $2.2 billion.
- Self-storage: KKR made its first few investments in the self-storage sector this year. It's primarily buying newly built properties in the fast-growing Sun Belt region.
- Net lease: KKR formed a $3 billion platform to invest in triple net lease properties.
- Non-traded REIT: KKR launched KREST, using a more investor-friendly structure than other non-traded REITs.
- Single-family rental homes: KKR launched My Community Homes, a platform that will buy and manage rentals.
Overall, KKR is targeting real estate sectors and market opportunities with strong fundamentals. It concentrates on areas benefiting from significant demand drivers, which should yield outsized growth. That should enable KKR to earn attractive returns for its investors.
KKR will likely continue to launch new real estate investing strategies in the coming years. It could do that by building platforms from the ground up, forming more joint ventures, or making acquisitions.
Speaking of deals, KKR could start getting involved in bigger transactions, including large-scale corporate privatizations. KKR certainly has a history of taking companies private, given the core PE business, and could eventually follow Blackstone and Brookfield in making a headline-grabbing deal to privatize a publicly-traded REIT.
Building leading real estate platform
KKR' seems intent on growing its real estate platform over the next few years. While it has a long way to go before it rivals Brookfield and Blackstone in size, its growing scale positions it to potentially make some blockbuster deals in the coming years. Because of that, it's a name to watch in the real estate sector.