KKR Raised $32B in Q2, Closed $10B in Real Estate Deals Since April 1
The private equity giant said it has very limited exposure to office and retail on earnings call
By Brian Pascus July 31, 2024 11:48 am
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Private equity giant KKR (KKR) reported strong earnings in the second quarter of 2024, driven largely by a growing number of assets under management and an increasingly aggressive strategy to deploy credit and equity across the commercial real estate spectrum.
KKR raised $32 billion of new capital in the second quarter of 2024, the second-highest amount of capital raised in a single quarter by the firm in its nearly 50-year history. KKR now has $601 billion of assets under management. Moreover, the firm deployed $23 billion in the second quarter alone, an increase from the $10 billion it allocated in the second quarter of last year.
Scott Nuttall, co-CEO of KKR, said that the firm believes 2024 “can be a sweet spot year,” where values are attractive and actively levels remain high, compared to last year, when values were attractive but transaction volumes stayed muted as owners refused to sell or finance deals in a closed market.
“We believe this is a very attractive investment market,” said Nuttall on the Wednesday earnings call. “This year, we not only have an open market, we have a pent-up supply of deals that didn’t get done in the last couple of years coming to the market, so we are optimistic.”
KKR’s total revenues hit $4.1 billion in the second quarter of 2024, compared to $3.2 billion in the second quarter of 2023. All told, KKR’s entire platform has generated revenues of $13.8 billion on the year, more than double the firm’s revenues of $6.7 billion at this point in July 2023.
The firm’s increased deployment and impressive returns were driven by the firm’s belief in its real estate platform. KKR’s leadership argued that current real estate investment opportunities are “compelling,” and the firm has closed or is in contract for $10 billion worth of commercial real estate equity deals since April 1.
“We have a full pipeline, as some owners of real estate seek liquidity and sell their best assets, and in this environment, scale is trading at a discount,” said Nuttall.
There is no better example of KKR’s aggressive play into CRE than its $2.1 billion unlevered acquisition in June of roughly 5,200 apartment units nationally in markets ranging from California and Texas to New Jersey.
KKR CFO Rob Lewin said on the earnings call that the firm has “conservatively priced the deal” to an 8 percent unlevered return, and that it carries “significant upside potential,” even as the firm expects the first-year yield to be in the low 4 percent.
“Given the dearth of core real estate capital globally, we are seeing excellent risk returns for the few, very well capitalized buyers in the market, of which we are one,” said Lewin.
Lewin reiterated that KKR deployed $23 billion of capital in the second quarter, bringing the firm’s first half of 2024 total deployment to a whopping $37 billion.
“Real estate, in particular, had a strong deployment quarter across equity and credit,” said Lewin. “On the credit and liquid strategies side, direct lending continued to put capital to work. … Importantly, there remains a healthy pipeline for deployment in the second half of 2024.”
Nuttall closed his remarks by emphasizing that CRE credit opportunities remain compelling in a capital markets landscape that is overflowing with equity investments and lacks competition from commercial banks, whose lending volumes remain low amid higher interest rates.
“We don’t have office and retail exposure of any consequence, so we have the ability to play offense in this environment,” he said. “And we believe we will take share in the next several years and benefit from current and coming dislocation.”
Brian Pascus can be reached at bpascus@commercialobserver.com.
