Private equity giant KKR touted its billion-dollar capital chest while forecasting a rise in commercial real estate financing this year among cash-flush investors.
The issuance of commercial mortgage-backed securities will increase by nearly a third this year compared to 2023, according to a client note reported by Bloomberg. KKR’s head of real estate credit Matt Salem predicted private equity funds are “awash in dry powder” after moving cautiously in the last 18 months.
KKR is no exception. Salem said the firm’s real estate credit pipeline last year averaged between $10 billion and $12 billion, but has since jumped to $15 billion.
All eyes are on how firms like KKR and Brookfield deploy their dry powder. There’s a vacuum in the commercial lending world as regional banks have pulled back and tightened their own practices, giving private investors ample opportunity to fill the void.
Private investors may not be able to do it alone, which could leave more landlords facing distress and default on their properties. Banks hold roughly half of the outstanding commercial real estate debt, Salem wrote. If they manage to reduce that to 40 percent, lending needs in the market would exceed $500 billion.
For its part, Salem said KKR is “bringing multiple deals to our equity investment committee each week.” Over the summer, KKR replaced Valley National Bank as the lender on GLP Capital Partners’ 130,000-square-foot, self-storage building in College Point, Queens, providing $59 million.
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KKR’s hesitance to issue loans was felt in the first half of last year, when its Real Estate Finance Trust didn’t issue a single loan.
But some investors are ready to jump at the opportunity to make deals at bargain rates. Commercial real estate valuations dropped an average of 42 percent last year, a CRED iQ analysis reported by the Commercial Observer found.
In the fourth quarter, KKR’s after-tax distributable earnings increased from $851.9 million a year earlier to $888.5 million, according to Reuters, topping Wall Street expectations.
— Holden Walter-Warner