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New York-based investment firm KKR closes first Asian real estate fund at US$1.7 billion

Alison Tudor-Ackroyd alison.t-a@scmp.com
·4 min read

Global investment firm KKR said on Thursday that it had closed its first Asia-Pacific property fund at US$1.7 billion.

The fund, called KKR Asia Real Estate Partners (AREP), will invest in commercial, industrial and residential properties, and will opportunistically evaluate assets in emerging alternative sectors. It can buy equity and debt in both emerging and developed markets.

"Increased domestic consumption, productivity and urbanisation - combined with the acceleration of e-commerce and platform-based businesses and the evolution of the traditional office landscape - are fundamentally reshaping the region's real estate sector," said John Pattar, head of Asia-Pacific real estate at KKR.

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The property fund comes hot on the heels of KKR closing its first Asia-Pacific infrastructure fund at US$3.9 billion, a record size for the region.

KKR has invested in Namsan Square, an office tower located in Seoul's central business district. Photo: Google alt=KKR has invested in Namsan Square, an office tower located in Seoul's central business district. Photo: Google

KKR is rapidly diversifying its business across asset classes in the region. Traditionally known for buyouts, the New York-headquartered firm is also ramping up investment in areas such as private debt.

"AREP's close marks the next chapter of growth for KKR in Asia-Pacific, as we continue to expand our position as a proven alternative capital provider across asset classes," said Ming Lu, head of KKR Asia-Pacific.

Global investors poured capital into the fund, including public and corporate pensions, sovereign wealth funds, insurance companies, endowments, private banking platforms, family offices and high-net-worth individual investors.

Patter joined the firm in 2018 from CLSA where he was the chief executive of its real estate arm, and launched the fundraising in early 2019. There was a hiatus in fundraising in early 2020 due to the onset of the coronavirus pandemic.

While on the road, they found that many pension funds were looking to raise their allocations for Asia from nothing to about 3 per cent of their portfolios. It was not always easy and KKR had to explain the potential risk-adjusted returns in Asia.

The fund is targeting between 16 and 20 per cent gross risk-adjusted returns and leverage at close to 70 per cent across the portfolio. Investors tend to ask for a premium of 100 basis points for Asian assets versus Western economies.

KKR has bought a mixed-use development on the Bund in Shanghai. Photo: Xinhua alt=KKR has bought a mixed-use development on the Bund in Shanghai. Photo: Xinhua

In Asia-Pacific, the firm has deployed more than US$1.5 billion of equity across about 20 real estate transactions since 2011, including investments in mixed-use, commercial, industrial, hotel, office and retail properties.

KKR has already acquired nine assets with the fund, including logistics sites in China and last-mile storage and warehouses in Australia, as the e-commerce boom last year created greater demand for dry and cold storage across Asia. It is providing both equity and debt to new teams in the logistics industry at a time when it is difficult to obtain credit from banks.

The firm also expects a gradual move back to offices after working from home across Asia-Pacific in the coming years. It is hunting for opportunities in Beijing, Tokyo and Seoul offices.

It has bought a mixed-use development on the Bund in Shanghai and completely refurbished the hotel and retail complex. Last year, it acquired Namsan Square, an office tower located in Seoul's central business district. In Hong Kong, it has bought convenience retail assets Lake Silver and Parkside.

KKR launched its dedicated real estate platform in 2011. The firm had real estate assets worth around US$14 billion under management in the US, Europe and Asia-Pacific, as of September 30, 2020, and a team of around 90 dedicated investment professionals across 11 offices and 8 countries.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2021. South China Morning Post Publishers Ltd. All rights reserved.