KKR’s Fast-Growing Warehouse Arm Lands $894 Million in New Debt

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(Bloomberg) -- KKR & Co. has refinanced its U.S. warehouse business, Alpha Industrial Properties, with $894 million in new debt.

KKR’s platform, which has made 40 acquisitions since May 2018, raised $690 million in commercial mortgage-backed securities in a transaction led by JPMorgan Chase & Co., according to Roger Morales, the firm’s head of commercial real estate acquisitions in the Americas. It also raised $204 million in a separate facility from an affiliate of Invesco Ltd.

“We have a lot of conviction in the sector’s drivers and expect to be significant investors in the asset class across a number of our real estate strategies,” Morales said in an interview.

Warehouses have become a hot asset as consumers increasingly embrace the convenience of e-commerce. Real estate-focused private equity funds have been vying with the largest real estate investment trusts for large portfolios of the properties.

The KKR portfolio, encompassing 10.8 million square feet (3.3 million square meters), largely comprises “last touch” warehouses that can reach dense, affluent populations within hours. The firm is targeting distribution centers associated with maritime ports, air cargo and rail hubs. It has also focused on acquiring properties in metropolitan areas such as San Diego, Atlanta, Dallas, Los Angeles and Orlando, Florida.

KKR’s bet on U.S. warehouses stems from the Amazon-led phenomenon of consumers demanding fast delivery, in addition to occupancy rates of as much as 98% in most major markets, Morales said. KKR sees strong rent growth driven by tenants’ willingness to pay more for locations that are closer to consumers, which enables them to generate savings on distribution costs.

Morales said the firm, which has been amassing the portfolio through KKR Real Estate Partners Americas Fund II, will seek to “continue to add heft” to the business, which is led by industry veteran Paul Loosmann.

©2020 Bloomberg L.P.

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