KKR Breaks Its Loan Record With Property Market ‘Roaring Back’

(Bloomberg) -- KKR & Co. has committed to $8 billion in commercial-property loans so far in 2021, more than double its previous full-year record, as the pandemic reopening stokes demand for financing.

“The market is just roaring back from a volume perspective,” Matt Salem, KKR's head of real estate credit, said in an interview. “Pipelines are very big across the board.”

Demand for new loans has revived as construction picks up, debt matures and low interest rates spur refinancing on favorable terms. Total debt on U.S. commercial and multifamily properties increased to $3.93 trillion as of March 31, up 1.1% in the first three months of this year, according to the Mortgage Bankers Association.

That growth continued as trillions of dollars in stimulus money flowed into the economy and vaccination campaigns fueled a revival of commerce and real estate investors' appetites for risk.

KKR's real estate finance unit closed on $4 billion in commercial-property loans and committed to $4 billion more this year through June 30, according to Salem. That has already surpassed its previous annual record of $3.1 billion, reached in 2019. KKR's lending fell to $1.4 billion last year, when real estate markets froze.

The firm, best known as a private equity investor, had $28 billion of real estate assets under management as of March 31 and expects that to increase that by as much as $15 billion by 2022, according to a presentation last month.

KKR's lending volume grew partly because its financing options increased. Early this year, the firm bought Global Atlantic Financial Group Ltd., an annuity provider whose portfolio invests in longer-term real estate debt. In May, it launched KKR Real Estate Select Trust, which holds higher-yielding debt, including mezzanine loans and preferred equity.

Read more: KKR Raises $2.2 Billion Fund for European Real Estate

In the U.S., KKR has made loans for office projects in cities such as Atlanta, Dallas and Miami, while steering clear of high-cost markets hit hard by the pandemic-induced urban exodus.

“In New York and San Francisco, I think you've got to wait a little bit to see how things play through,” Salem said.

KKR has also begun to finance hotel deals, targeting properties that attract leisure travelers while remaining cautious about convention-oriented destinations.

There haven't been many opportunities to buy discounted, non-performing or distressed loans, Salem said.

“We're much more focused on creating new loans,” he said, “and not on acquiring the scratch-and-dent ones.”

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