KKR & Co. (KKR:US), the buyout firm run by Henry Kravis and George Roberts, is preparing to market its first fund dedicated to real estate investments with an initial $500 million committed to the pool, according to two people with knowledge of the matter.
The firm committed a significant amount of its own money to put investors at ease as it gears up to pitch the fund to additional so-called limited partners, said one of the people, who asked for anonymity because the plans are private. KKR hasn’t set a target for the fund, the people said.
KKR started a real estate unit in 2011, following larger competitors Blackstone Group LP (BX:US) and Carlyle Group LP (CG:US), as it seeks to expand its business beyond traditional leveraged buyouts. KKR has committed more than $650 million to 10 property deals, investing primarily from its own balance sheet and its KKR Financial Holdings LLC (KFN:US) vehicle.
“We’ve got a real sense of urgency around scaling in these businesses and grabbing as much land as we can,” Scott Nuttall, KKR’s head of global capital and asset management, said during an investing conference in September. “Fundraising is not always an easy thing, and first-time funds are particularly challenging to raise,” he added. “We’ve been really leaning in with our own capital.”
Kristi Huller, a spokeswoman for New York-based KKR, declined to comment on the firm’s fundraising.
Ralph Rosenberg, a former partner at Goldman Sachs Group Inc., joined KKR as head of real estate in 2011. In an interview in November, he said KKR plans to invest in Europe and was bidding on deals in London that would finance construction of rental and for-sale apartments.
The unit has 11 employees in the U.S. and Europe who focus solely on deals. KKR also has dealmakers in Asian cities including Beijing and Mumbai who spend time on real estate.
KKR’s real estate deals have included an investment in a residential development in Williston, North Dakota, for workers in the state’s booming oil business; a joint venture with Houston-based Hines to develop a business park; and the acquisition with two other companies of Sunrise Senior Living Inc.’s management business. In April last year, KKR paid $196 million for family-run Yorktown Center, a shopping mall in the Chicago suburb of Lombard, Illinois.
A $132 million deal for Legends Outlets Kansas City, an outlet-center business with 1.1 million square feet of retail space and a 14-screen movie theater, is set to close this week. KKR was the winning bidder for the property at a Jan. 25 foreclosure auction in Kansas City, Kansas.
“We’ve never had a team come into the firm and get as busy as quickly as this team has,” Nuttall said on a conference call with analysts and investors last year. “There’s just a variety of opportunities on a global basis: commercial, multifamily, U.S., Europe, Asia.”
Blackstone has built its real estate business to $57 billion of assets under management, owning real estate debt and properties such as Hilton Worldwide Inc. and California’s Hotel del Coronado. The New York-based firm last year raised a $13.3 billion real estate opportunity fund, a record for the industry. Carlyle, based in Washington, oversees real estate funds in the U.S., Europe and Asia.
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