KKR plunks $2.1B down on Quarterra portfolio

Private equity giant deems time right for multifamily, despite rents moving sideways

KKR Buys $2.1 Billion in Apartments From Lennar’s Quarterra
KKR's Henry Kravisand Justin Pattner and Quarterra's Jeff McCall (KKR, Quarterra)

KKR ponied up $2.1 billion for 18 apartment complexes stretching from the West Coast to the Sun Belt to New Jersey, the most it has ever spent in a multifamily deal, the company said Tuesday.

The private equity behemoth did not identify the properties but said they were midrise and high-rise, Class A buildings in Washington, California, Colorado, Texas, Florida, Georgia and North Carolina in addition to the Garden State. The transaction, totaling more than 5,200 units, was initially leaked to the Wall Street Journal.

On the other side of the deal was Lennar’s apartment-building division Quarterra Multifamily, which has reported losses in recent quarters because it built too many units in oversupplied regions, such as the Sun Belt.

But for KKR, the purchase reflects a belief that rents for high-quality apartments near population centers will pick up, both in markets where they have been weakened by overbuilding during the low-interest-rate period that ended in 2022, and where they have remained strong, such as California and New Jersey.

In a press release, KKR said the acquired properties were relatively new and have “convenient access to urban, metropolitan areas, high-quality construction, modern amenities and excellent energy, water and waste efficiency.”

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The acquisition represents a 3 percent increase in KKR’s real estate portfolio, which itself is about 12 percent of its $575 billion in assets under management.

“We believe this is a great moment to invest in real estate, as transaction activity starts to pick up on the heels of two years’ of dislocation in commercial real estate markets,” said Justin Pattner, partner at KKR and head of its Real Estate Equity in the Americas division, in a statement.

Pattner was referring to the disruption of the debt-dependent industry triggered by interest rate increases beginning in March 2022.

“We still think the current economic cycle has further to run, a backdrop that should accrue to the benefit of long-term investors, especially ones who have dry powder,” KKR partner Henry McVey, a former portfolio manager at Fortress Investment Group, wrote on the firm’s website this month.

KKR was advised on the $2.1 billion deal by Gibson Dunn & Crutcher, and Quarterra by Troutman Pepper Hamilton Sanders and JLL.

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