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New York

KKR, Dalan buy Downtown Brooklyn rental tower from Brookfield for $190M

Expansion-eyed private equity firm picks up 365-unit 80 DeKalb Avenue as rents spike

KKR's Henry Kravis and George Roberts with 80 DeKalb Avenue (KKR, Google Maps)
KKR's Henry Kravis and George Roberts with 80 DeKalb Avenue (KKR, Google Maps)

UPDATED July 21, 2022, 1:00 p.m.: In its quest to double its $36 billion real estate portfolio over the next few years, KKR told The Real Deal in December that it would focus on markets and sectors it felt were poised for a rebound.

The 365-unit rental tower at 80 DeKalb Avenue, which KKR, in partnership with Dalan Management, picked up from Brookfield Properties for $190 million, may offer that upside.

Among the earliest of several towers that now make up Downtown Brooklyn’s skyline, the property was developed by Forest City Ratner in 2007 and came to Brookfield’s portfolio through its $7 billion acquisition of Forest City Realty Trust in 2018.

Just 20 percent of its units, which range from studios to two-bedrooms, are set aside as affordable, meaning KKR is buying nearly 300 market-rate apartments at a time when rents in Brooklyn are spiking. The median rent for a one-bedroom apartment in the borough hit $3,000 in June, according to a monthly report by appraiser Miller Samuel, a 13.2 percent increase from the same time last year.

Discounts are also disappearing, and some tenants who scored deals on apartments last spring and summer have reported renewals as high as 40 percent in recent months. All that growth means better returns for landlords and in the case of KKR, its investors.

A source with knowledge of the 80 DeKalb deal said KKR Real Estate Select Trust, a fund KKR launched in May 2021, purchased the rental tower. The fund allows individual investors to get in on “income-generating commercial real estate,” plus private real estate debt, according to a KKR press release.

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KKR has taken a shine to New York’s pandemic-discounted assets in recent years, telling TRD that prior to Covid, the city’s prices ran too hot. Its first major deal in the city, the $860 million purchase of a 14-building Brooklyn rental portfolio — including 260 Gold Street, a 286-unit rental tower in Downtown Brooklyn — closed in the summer of 2020. At the time, nearly half of all new leases in Brooklyn came with concessions, and rental inventory had reached an eleven-year high.

Now, prices commanded by multifamily assets in the borough are exceeding pre-pandemic levels. By March, the average price per unit had topped $374,000, ahead of 2019’s average of about $372,000, according to reports by Ariel Property Advisors. KKR bought 80 DeKalb for around $520,000 per unit.

KKR declined to comment on the motivation for the purchase.

For seller Brookfield, rising asset values compelled it to sell. Managing Director Swarup Katuri said the deal “capitalizes on the strong market for rental housing in New York.”

Offloading 80 Dekalb, he added, “serves as the latest example of our strategy to recycle capital out of well-performing assets while seeking new value opportunities.”

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This article has been updated to include that Dalan Management purchased 80 DeKalb in partnership with KKR, as well as additional information on the fund that purchased 80 DeKalb Avenue.

Tags
Brookfield PropertiesDowntown BrooklynKKRRental Market