KKR looks to Singapore as key investment market for new US$1.7b Asia real estate fund

Singapore

INVESTMENT firm KKR, which recently closed a US$1.7 billion fund, has set its sights on Singapore as one of the core markets for the fund which is targeting real estate investments in the Asia-Pacific.

With the city-state on the path to recovery, KKR's head of Asia-Pacific real estate, John Pattar, expects to gain exposure to the Singapore market within the next two years, with an eye on the office and retail sectors here. Some 10-15 per cent of the US$1.7 billion raised under the KKR Asia Real Estate Partners (AREP) fund could be a reasonable amount to deploy in Singapore, although he stresses this is not set in stone.

Mr Pattar said: "We think there's some real demand for capital. We think this next point in the cycle would be a good time for us to be looking at the Singapore market."

However, he noted that the size of the market here often translates to limited opportunities, which will require agility when opportunities present themselves.

KKR's inaugural pan-Asian real estate fund will look to Singapore's suburban malls - on expectations that domestic demand will hold up well - as well as the office market, which Mr Pattar expects to rebound as the global pandemic is contained. In the case of the latter, he sees potential in assets which may require a bit of value-add work or redevelopment, or even business parks and assets outside the Central Business District.

"We anticipate office demand will come back fairly strongly in 2022 and 2023," he highlighted, adding that work-from-home fatigue is bound to set in, while companies will want employees in the office to facilitate collaboration.

"In Asia, where people often live in smaller accommodation as well, I think we won't see the concept of constantly working from home take off perhaps as in bigger markets such as the US and Europe, where they have the optionality of a lot more regional cities where they can work from."

Office supply also remains limited in key Asia-Pacific cities such as Singapore, Beijing, Seoul and Sydney, he went on to point out.

Aside from Singapore, the new fund - which seeks to capitalise on the growth prospects in Asia given trends such as urbanisation and an emerging middle class - will look at markets such as Japan, China, Australia, Korea and Hong Kong. Mr Pattar doesn't rule out Vietnam either, although Singapore remains its primary target in South-east Asia.

In particular, KKR is focused on China, Korea and Australia for logis-tics assets, while the office sector in Seoul offers potential, he reckons.

Amid a credit crunch and some groups divesting non-core assets, the timing for deploying the capital is opportune, Mr Pattar highlighted. "We're seeing banks being more careful about lending. We're able to fill that gap for liquidity and provide joint venture partnerships in the region," he said, adding that this year and the next will be a good time to review opportunities.

AREP received funds from a range of global investors, including public and corporate pensions, sovereign wealth funds, insurance companies, endowments, private banking platforms, family offices and high net worth individuals.

By geography, nearly half the funds came from investors in the United States, while 30 per cent of capital came from Asian investors, and the rest from Europe.

According to Knight Frank APAC Research, which drew data from Real Capital Analytics, private equity investments in real estate in Singapore shrank to some US$1.96 billion last year, down sharply from US$10.55 billion in 2019. Similarly, private equity investments into South-east Asia's real estate sector declined sharply in the midst of the pandemic, slumping 68 per cent year-on-year from US$13.75 billion in 2019 to about US$4.32 billion in 2020.

Since 2011, KKR has invested over US$1.5 billion of equity across 20 real estate assets including commercial, industrial, hotel, office and retail properties in markets such as Korea, Australia and Hong Kong.