Joel Traut
Partner at KKR
Describe the past 12 months in one word, then expand on your choice.
Complex. At KKR, we believe we have entered a regime change for rates and that higher for longer will be the new normal. To that end, all risk assets have been repricing to account for potentially higher rates and slower growth — real estate is no exception. We see this as the beginning of a multiyear sea change in commercial real estate capital structures, which will create both challenges and attractive opportunities to invest capital. We have positioned ourselves to navigate this complexity in partnership with our clients and stakeholders, including successfully fortifying our portfolio and ensuring we have the right capital available to be a solutions provider and can continue actively investing at a time when many remain on the sidelines.
Tell us about a recently closed deal you’re proud of, and its biggest challenges/high points.
It’s hard to pick just one! The first I’d highlight is a large industrial portfolio we closed with one of our largest institutional clients, which was the first loan for our new pool of bank capital that turned on over the summer. It was a long journey (two years!) to establish this investment strategy, but we knew it would be an important program for our clients and we were thrilled to see it across the finish line. The second would broadly be a series of deals we’ve recently closed in Europe, where we set up our platform late last year. It’s been a lot of work for many team members across the firm, but it’s wonderful to see our client base expand across the pond!
What are/aren’t you lending on today?
Our market call at present is to “Keep it simple.” What this means is focusing on the highest-quality credits, staying up in the capital structure, and underwriting on-theme investments backed by Class A/B real estate with strong institutional sponsorship. We have been one of the more active lenders in 2023, investing on behalf of our bank and insurance company strategies, while selectively deploying in our opportunistic credit vehicle to take advantage of the material repricing and capital constraints that exist in the global real estate credit markets.
Has certain lenders’ retrenchment been beneficial to your pipeline? Discuss.
In short, yes. We’ve very intentionally built our global real estate business across both equity and credit strategies to be able to deliver differentiated results across all market environments. The fact that we have a global footprint and capital spanning the risk spectrum allows us to find the best pockets of opportunity and remain offensive across cycles. Right now, one of the best opportunities we are seeing is in real estate credit. The retrenchment of other lending sources is enabling us to invest behind really high-quality properties and clients, while generating attractive yields over time horizons that are appropriate for our investors’ capital. In this more challenging environment, our clients also value the long-term relationships we have, which enables us to work together to deliver the best outcome for all parties.
What’s your approach when it comes to loan extension requests?
When it comes to loan extensions, we take a balanced approach in support of our critical relationships and stakeholders. Extensions typically occur when our sponsors invest additional capital in the assets or reduce debt.
What scares the bejesus out of you in today’s market?
Fortunately, there is very little that scares us to any material level. While we’d prefer a lower-rate environment and more confidence in underlying fundamentals, we invest with humility in all market dynamics and focus on lending into defensible capital structures. One of the worst mistakes an investor can make is to allow emotion — whether exuberance or fear — to overwhelm the discipline that is required to invest. The investment world will always be complex, so I try to learn from every experience and apply those learnings to the next investment.
If you had five minutes with Jerome Powell what would you say?
I’d spend the first four and a half minutes asking him questions about what he is observing in the markets and how this might impact his monetary policy. After learning as much as I could in that time, I’d ask him to exhibit patience before increasing rates further.
Lightning Round:
Multifamily or Industrial?
Multifamily. Everyone needs a place to live!
Taylor Swift or Beyoncé?
Tough one, but my house is filled with Taylor Swift music lately, so I’ll go with her.
What would be the title of your Lifetime biopic?
“The Journey,” because it’s all about the experience we have and the relationships we build in our journey of life.
‘Ride or dies’ only (relationship borrowers) or taking on new borrowers?
You can’t become an existing borrower without first being a new borrower! Having said that, life is all about relationships so I’m going with “Ride or die.”
Vacay time: Mountains or beach?
Beach, but that’s because my wife and kids carry more votes than I do.
Complete this sentence: If I weren’t a lender I’d be a…
Professional water skier. It’s pretty recession-proof (and fun).
