KKR expects to write up $12bn of loans to invest in US commercial real estate by yearend

KKR expects to write up to $4bn of additional loans on commercial real estate in the U.S. by yearend, after closing on or committing to about $8bn of originations since the start of 2021.

KKR’s head of real estate credit, partner Matt Salem, said the fund operator forecasts the yearend total to range from $10bn to $12bn, reflecting pent-up demand for financing as the industry grapples with another wave of the pandemic.

The firm’s year-to-date origination volume, bolstered partly by its Feb. 1 acquisition of insurer Global Atlantic Financial, marks a sharp jump from KKR’s annual high of $3.1bn in 2019. The yearly total dropped to $1.4bn last year, amid widespread market dislocation brought on by the coronavirus crisis.

KKR anticipates its new-loan volume to keep growing next year, when it’s likely to add an undetermined number of staffers to Salem’s roughly 50-member team of originators, underwriters, asset managers and other mortgage pros. “Our restraint right now is not a lack of capital or market opportunity. It’s more about how quickly we can grow our team and add resources,” Salem said.

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Approximately two-thirds of the bridge loans, construction financings and mortgages on stabilized properties that KKR has closed on or circled so far this year are pegged to fixed
rates, while the rest have floating rates. There’s still a heavy focus on multi-family lending, but about 15% of loan volume is tied to industrial properties and about 5% involves life-science properties. Taken together, those two sectors previously accounted for less than 5% of KKR’s commercial real estate lending activity.

“Coming out of Covid, both of those markets have been really active, that’s where we’re seeing the demand, from borrowers looking to acquire, refinance, reposition or develop commercial properties,” Salem said. “Both of those [property sectors] were growing before, but Covid accelerated the trend.”

About half of KKR’s originations and commitments so far this year came via its mortgage REIT (KKR Real Estate Finance) or its debt funds. The rest came on behalf of Global
Atlantic, whose origination volume prior to the KKR takeover couldn’t be learned.

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