KKR & Co. has raised $2.2 billion for a new real estate fund that will seek investment opportunities throughout Europe as lockdown measures are eased across the continent.
The private equity firm’s second dedicated property fund has already invested more than $700 million in residential housing and warehouses, two areas that have proved resilient to the pandemic, according to a statement. It will also seek to buy hospitality properties hurt by restrictions and build offices fit for the post-Covid workforce.
“We continue to believe that Europe represents an attractive investing environment for real estate,” Ralph Rosenberg, partner and global head of KKR Real Estate, said in the statement.
About a quarter of the funds being raised for private equity real estate deals in the first three months of this year targeted Europe, according to Private Equity Real Estate data. Global fund raising for property was about $33 billion in the period, which was still lower than a year earlier as travel restrictions disadvantaged many of the smaller managers.
As economies gradually start reopening, pension funds seeking stable income streams amid low interest rates are looking for buildings with long leases. At the same time, rapid changes in consumption habits have upended parts of the real estate market, creating opportunities for private equity firms that can re-purpose troubled properties into long-term investments.
The shift to online shopping — accelerated by the pandemic — has boosted demand from retailers for warehouse space to service online orders. That’s encouraged private equity firms including KKR and rival Blackstone Group Inc. to pour yet more money into logistics properties, betting on rising rents and values. A lack of affordable housing, student dorms and retirement options is also luring investors to bet on European residential assets.
Widespread lockdowns have also put pressure on hotel revenues, creating opportunities for cashed-up private equity groups to buy properties at knock-down prices. Still, government support and stiff competition from investors has so far limited the number of distressed real estate deals in Europe.
The KKR Real Estate Partners Europe II fund will aim for so-called value-add investments that typically involve buying buildings that are partially vacant or in need of modernizing or redeveloping.
The New York-based firm’s first dedicated European real estate vehicle raised $739 million in 2016. The fund has delivered an interim net initial rate of return of more than 10%, according to filings.
