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  • Writer's pictureRealFacts Editorial Team

KKR Makes Its Biggest Foray Into Apartments, Betting on Rising Rents

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In a bold maneuver that underscores its confidence in the commercial real estate market, KKR has executed its largest-ever acquisition of apartment buildings. This $2.1 billion investment spans over 5,200 units across key regions in the United States, including California, Texas, and New Jersey. This significant purchase, consisting of 18 new mid- and high-rise buildings, closed on Tuesday, marking a pivotal moment for the private-equity firm.

The Multifamily Housing Struggle

The backdrop of this ambitious acquisition is a multifamily housing sector that has been grappling with stagnation. Rent growth for new leases has remained nearly flat for over a year, primarily due to the largest construction boom in the multifamily sector in four decades. This surge in new supply, coupled with rising interest rates, has exerted downward pressure on property valuations. Data from MSCI Real Assets revealed a more than 20% drop in apartment-building prices from their peak in July 2022, and building sales in May were 44% lower than the previous year.

Lennar's Divestment and Challenges

The properties KKR acquired were sold by Quarterra, the apartment development division of home builder Lennar. Quarterra has been divesting parts of its portfolio as Lennar faces challenges in its multifamily division, particularly in the luxury rental market within high-supply regions like the Sunbelt. Despite previous plans to spin off Quarterra, Lennar has put those plans on hold for over a year due to ongoing losses.

Optimism Among Major Investors

This transaction is not an isolated bet on the future of multifamily housing. It joins other substantial deals that hint at a growing optimism among prominent investment firms about the potential rebound in apartment rents and values. For instance, in April, Blackstone committed $10 billion to acquire the landlord Apartment Income REIT, and just last month, Brookfield purchased a 7,000-apartment portfolio for $1.55 billion. These moves suggest that major investors are beginning to see the light at the end of the tunnel for the multifamily housing market.

Factors Fueling Confidence

One of the key factors bolstering this renewed confidence is the decreasing number of new apartment construction starts. Investors believe this trend will result in lower levels of new supply, thereby accelerating rent growth by 2026. KKR, in a recent report on the multifamily market, expressed optimism that even the fast-growing Sun Belt markets would quickly rebound once the influx of new supply slows down.

Broader Commercial Real Estate Market Challenges

The broader commercial real estate market is navigating through its toughest period in nearly two decades, with office-building owners facing record-high vacancy rates. The apartment market, too, is experiencing rising distress as landlords struggle with variable-rate loans. According to MSCI, distressed apartment building sales surged to nearly $1 billion in the first quarter of this year. In response, investors have amassed significant capital, eyeing opportunities to acquire troubled properties at attractive prices.

KKR’s Strategic Shift

KKR’s strategic shift is also evident in its recent transactions. In April, the firm paid $1.64 billion for a student-housing portfolio from Blackstone Real Estate Income Trust. A month later, it acquired an industrial campus in Nashville. This series of acquisitions indicates a deliberate move to strengthen its real estate business amid fluctuating market conditions.

Attractive Portfolio Deals

In an era of higher interest rates, large portfolio deals have become more attractively priced, diverging from the trend during periods of lower rates when such portfolios traded at a premium. KKR’s approach reflects a strategic adaptation to current market dynamics, focusing on large-scale acquisitions that offer long-term growth potential.


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