Kohlberg Kravis Roberts & Co. L.P. (KKR), the U.S. based private equity firm, recently raised its first real estate fund worth $1.5 billion. The fund – Kohlberg Kravis Real Estate Partners Americas LP – focuses on North America and Western Europe, with property-level equity and debt as well as businesses with sizable real estate holdings as their main avenue of investment.
While Kohlberg Kravis raised the major portion of the fund ($1.2 billion) from investors, the remaining amount was gathered internally.
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Raising funds for the first time can be challenging amid the not-so-stable economic scenario. Therefore, the latest move reflects Kohlberg Kravis’s fund raising ability and enhances the chances of increased earnings in the forthcoming quarters. Following the announcement of the news on Dec 23, the stocks gained marginally and closed at $24.44 per share on Dec 24.
Kohlberg Kravis, known for its strategic acquisitions, has always shown interest in the real estate market. The company has a real estate team in operation since 2011 and has been involved in 14 transactions, committing equities worth more than $850 million for the same.
With the overall economy recovering, the real estate market has shown an impressive rebound, thereby posing a lucrative source of increased profitability for firms like Kohlberg Kravis. Government support in the form of its sloppy monetary policy has improved the unemployment rates which in turn increased the property demand in the housing market. Moreover, the near zero interest rate made finance for these property investment cheaper, further accelerating the demand.
However, with the Federal Reserve’s (Fed) proposed tapering of the bond buyback by $10 million, the interest rates might surge to some extent, making finance costlier. Nevertheless, Ralph Rosenberg, Kohlberg Kravis’s global head of real estate, assured (in a telephonic interview with Bloomberg) that he does expect the same to happen in the upcoming two years.
Real estate prices are on a high and we expect a slide only if the interest rate rises substantially. However, this is not likely in the near term, as the Fed will maintain the low short-term interest rate for a while despite tightening its monetary policy.
Currently, Kohlberg Kravis carries a Zacks Rank #3 (Hold). Other better-ranked investment managers include Artisan Partners Asset Management Inc. (APAM), Lazard Ltd. (LAZ) and Brookfield Asset Management Inc. (BAM). All these stocks carry a Zacks Rank #1 (Strong Buy).