Curious if anybody has intel on how KKR’s real estate funds have continued to perform. I know pre-Covid they were killing it, but they were also buying a lot of Bay Area office, extremely high basis life sciences, and buying apartments in 21-22 like they were going out of style. One would presume that they have some real problems on their hands.
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I’m sure it’s nothing to write home about. I’ve seen a lot of head scratcher buys from them, including post covid acquisitions where they’ve executed their business plan successfully only to see all of the value destroyed by expanded cap rates (no appreciation vs basis), plus some pre Covid stuff that’s a wipe.
I think they’re just one more commoditized REPE / levered beta group that seems to prioritize top/down rather than bottom up investing; nothing special or creative about the way they invest. The difference is KKR (buyout biz not RE) has been around a long time and the company has a phenomenal brand, which will help them to continue to raise larger RE funds even if performance is mediocre. They do have smart people on the RE side and they are decisive/move quickly, but I haven’t seen them do much recently that’s creative/interesting.
Side note observation: Blackstone started spouting off the “high conviction themes” mantra with their recent fundraises and it seems most REPE managers are raising capital around the same top/down ideas. Everyone is scared to death of office and other out of favor/troubled sectors, but that’s where the real value opportunities lie. Gotta love all of the sheep that the investment world produces even among the “elite” shops. “If my portfolio tanks but my investments look like everyone else’s, then I’ll get to keep my job / won’t be fired. Ok, I’ll invest like that. Call my banker; I need some leverage…”
By "top down investing" do you just mean following investor sentiment instead of fundamentals?
He means investing based on macroeconomic and market trends (top down/birds eye view) as opposed to bottom-up investing where you are focused on the individual asset's merits and business plan.
The latter is where the real home runs are found in real estate. Top-down investing in real estate requires substantial pools of capital because you are allocating to a theme and are generally less selective on the specific deals, so you're going to have a higher percentage of busts.
I understand what you’re saying. But I think you’re forgetting their profit motive. Once a firm starts having billion the dollars - all you are really trying to do is hit your targeted returns. Sure the promote is nice. But you make your money on the management fees. 2/20 over ten years is 20/20…As long as you don’t lose everything, the goal is to keep raising funds. $10B in funds under management at a 2% fee is $200M per year in fees…The goal isn’t out perform. It’s raise more money. Stay with the herd. No one cares about out performance..
This is a great take - motives are hugely different once you're a massive, established shop. You have the brand of outperformance and now just need to hit your targets to keep bringing the money in.
More food for thought for new people coming into the business who want to go do their own thing - I've said this before and this is a good chance to reiterate exactly why working at a megafund will not prepare you for that journey. You need to learn how to identify, invest in and execute on the standout deals and not invest thematically to break out on your own.
this is a beautiful take --- you had all these people on this website shitting on the strip mall guy yet I think he falls into the category of finding deals in niche markets and executing successful business plans rather then the herd mentality stated above. (Someone is gonna try and shit on me for saying this but whatever, its got some truth).
This is such an insightful comment. I genuinely mean that. Folks in finance-oriented roles love to envision themselves as mavericks out there chasing returns, but nine out of ten are just doing the same thing as everyone else and hoping they time the market better than average.
No one gets fired for performance in line with what everyone else produces, but no one generates real returns doing that either. But most people are too scared to take a real risk, even when "risk" means investing someone else's money.
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Sounds like a very profitable strategy to me — hopefully they open up hiring for juniors as their team is still very lean
They will be more than fine. A few growing pains right now and suffering a bit like other MFs but RE and infra are shifting into part of their main pe strategies. unparalleled name and resources will make them a top player in the coming decades. Top senior talent and lean operation will make KKR an even more attractive platform for juniors.
Some of KKR’s ‘21 MF buys green lit the justification for so much development in some SE sub markets. To effectively cause some of the total cannibalization of rent growth we’re all seeing there now. Cool stuff. Shoutout TA Realty too.
Bad performance so far for both European Funds
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