KKR closes $560M industrial CRE sale
Global investment firm KKR recently announced that it sold more than 5 million square-feet of industrial warehouse and distribution properties for a total aggregate value of more than $560 million. The sale confirms commercial real estate analysts’ belief that industrial is currently the safest asset class among industry sectors, GlobeSt.com reports.
The dispositions were completed through five discrete transactions with five separate buyers. The fifth and final sale closed on September 29.
The sales, primarily comprising assets in KKR’s Real Estate Partners Americas II fund, included more than 50 industrial buildings located in high-growth, infill markets across Atlanta, Dallas-Fort Worth, Chicago, the Lehigh Valley and Central Pennsylvania.
Since 2018, across its investment strategies in the U.S., KKR has acquired more than 60 million square feet of logistics assets totaling approximately $8 billion of aggregate value. Including these five sales, KKR has sold approximately 21 million square feet since 2021 and currently owns more than 40 million square feet of industrial CRE in major metropolitan areas.
“Our strong focus on asset quality and market selection gives us flexibility to deliver results for our investors in different market conditions, whether through the sales of large portfolios or individual dispositions of well-bought properties,” Ben Brudney, a director at KKR overseeing U.S. industrial real estate investments, said in a statement. “We continue to selectively acquire logistics properties in growth markets and our existing portfolio continues to benefit from high occupancy and embedded rent growth potential.”
“Industrial real estate is the largest exposure across our U.S. opportunistic and core plus real estate strategies, and we have built a dedicated investment and operating platform focused on this sector that enables us to own great properties at scale,” said Roger Morales, partner and head of real estate acquisitions in the Americas at KKR. “These sales demonstrate the attractive bid that exists for a quality asset in supply-constrained locations.”
While KKR’s more than half a billion-dollar deal shows belief in the industrial sector, a potential new supply slowdown looms in 2024 and 2025, Commercial Edge Manager, Business Intelligence Doug Ressler told GlobeSt.com. Only 204.3 million square feet of industrial space has broken ground in 2023 — a significant drop from the 614.1 million in 2022 and 586 million in 2021.
“A convergence of factors is leading to the slowdown: Demand for industrial space has normalized from the significant levels seen in previous years, and interest rate hikes and stricter lending standards have made construction financing more expensive and harder to come by,” Ressler told GlobeSt.com. “Spec development has become a riskier proposition due to inflation hitting material and labor costs as well as general economic uncertainty.”
Despite the concerns, Ressler noted that the long-term industrial property outlook for development remains positive and demand drivers should keep the sector going for years to come. To be safe, many companies have moved from “just-in-time” inventory management to “just-in-case.” The strategy decreases exposure to supplier delays but demands additional warehouse space.
Meanwhile, Eric Enloe, senior managing director at Partner Valuation Advisors, applauded KKR’s ability to create a strong industrial footprint across the U.S., as well as closing the transaction despite the capital markets’ current condition.
“That is a real number in this capital markets climate,” Enloe told GlobeSt.com. “Industrial asset values remain strong and are not at levels where they were a year ago, however, this type of transaction shows the strength in the market and clearly a buyer taking a positive long-term view of the logistics market.”