KKR is seeking third party investments for a real estate debt lending vehicle it developed following the hiring of a team of Rialto Capital Management debt experts one year ago.
Scott Nuttall, head of KKR’s Global Capital and Asset Management Group, indicated during a Q1 conference call this week that the firm is looking at outside sources of capital to boost investment power after seeding its first real estate credit fund with internal funds.
“We seeded investments in [the] real estate credit portfolio off the balance sheet,” he said. “We’re dropping that portfolio into a vehicle where we’ll have third party investors alongside us, and we’ll seek more third party capital fee in carry paying to invest with us in real estate credit.”
KKR hired the Rialto team of about a dozen professionals in April 2015 with plans to start making real estate debt investments for the first time since forming its real estate business in 2011. At the time the group was understood to be eyeing preferred equity, mezzanine debt and other forms of junior credit, and Nuttell added that investments will include “whole loans and a variety of other opportunistic situations we see in the credit space.”
The Rialto team included its head, Matt Salem, who had previously led the CMBS trading unit at Goldman Sachs. Nuttall noted that “we’re looking at the CMBS market closely as well… we see opportunities in credit to expand, and that’s a very large marketplace.”
Under its leader Ralph Rosenberg, the KKR real estate group had until the Rialto hirings made real estate equity investments only. The opportunistic Real Estate Partners Americas fund (REPA) has about $1.23 billion in commitments, $628 million of which are uncalled, and the more recent Real Estate Partners Europe vehicle has now raised $598 million, the firm’s Q1 results report shows.
“We did seed our opportunistic real estate strategy off the balance sheet,” Nuttell said of REPA, adding that it has a gross IRR of about 26 percent. “So far so good on that. We’re in the market now with REPA II marketing off that track record. So the opportunistic strategy is going quite well.”
He added: “And then if you go to places like Asia and India, we’ve actually created some vehicles and are investing on the ground in India in real estate as well. So, relatively early days, but the development of the business has gone quite well today.”
Of the $8.19 billion in total investments as of March 31, 2016, just over $757 million, or about 9.2 percent, was held in real estate assets, according to the Q1 report. AUM was $126.4 billion as of March 31, an increase of $6.9 billion, compared to $119.5 billion as of December 31, 2015. The increase was attributed primarily to new capital raised in the firm’s private equity, credit and hedge fund businesses, according to the report.
A KKR spokesperson declined to make Nuttall available for additional comment on the credit vehicle.