KKR seeks at least US$1.5b for second US property fund

Washington

KKR & Co is aiming to raise at least US$1.5 billion for its second US real estate fund, as the private equity firm co-founded by Henry Kravis and George Roberts capitalises on robust investor demand for higher-yielding assets, according to people with knowledge of the matter.

A marketing memorandum was sent out to investors this week for the successor to KKR's Real Estate Partners Americas LP, which raised US$1.5 billion in 2013, according to one of the people, who asked not to be identified because the information is private.

KKR's real estate unit is led by Ralph Rosenberg, who joined the firm in 2011. Kristi Huller, a spokeswoman for New York-based KKR, declined to comment on the new fund.

KKR and TPG both started real estate units after property funds at Wall Street banks, which had dominated the business for higher-return real estate investments, imploded during the financial crisis.

Blackstone Group is now the largest private equity property investor worldwide, having raised US$15.8 billion for its eighth global real estate fund this year. Carlyle Group this week finished raising US$4.2 billion for its seventh US property fund.

"The overall capital climate for real estate fundraising is good," said Marc Weiss, partner and head of real estate primaries and secondaries at Zug, Switzerland-based Partners Group AG, which manages US$47 billion in private-market assets, including US$8 billion of real estate. "People are still out there starving for yield."

Commercial property is yielding about 6 per cent, or four percentage points more than the roughly 2 per cent yield of the 10-year Treasury note. Combined with low borrowing costs and the availability of debt capital, "real estate is a good fit for a lot of folks", Mr Weiss said.

KKR's first fund has made more than a dozen investments, including US suburban malls, an outlet centre, a housing development in the oil hub of Williston, North Dakota and a single-tenant commercial landlord.

The firm's property unit last year sold a stake in a senior-residence management business for a five-fold gain in what was its first exit of a US deal.

KKR also has made warehouse investments in Britain and in Houston. Other deals include the Del Monte Center in Pittsburgh, the K Twin Towers in Seoul, shopping centres in Spain and an office property in Melbourne, according to its website.

The first fund was intended mainly for North America and could put as much as a quarter of its capital in Europe. It won pledges from pension funds including the Teacher Retirement System of Texas and the Maine Public Employees Retirement System, as well as from sovereign wealth funds, insurance companies and family offices, the company said in 2013.

KKR manages US$102 billion in private equity, credit, energy assets, real estate and hedge funds. WP