KKR towards a $42 billion private real estate lending pipeline

KKR & Co. is planning a record volume of commercial real estate financings and expects further deals as property prices stabilise. Theinvestment company's pipeline has reached an all-time high of USD 42 billion, the second such record reached this year, according to a note released by KKR's real estate lending group.

In recent years, higher interest rates have weighed on market prices for almost all asset classes. Meanwhile, rate concerns since the beginning of April have made it more difficult for landlords to obtain financing, increasing their demand for private credit. The volatility, the note goes on to say, has pushed spreads on loans higher and stalled securitisations secured by single-asset, single-borrower commercial mortgages and, pending clarity from lenders, created an opportunity to intervene with alternative forms of financing.

According to KKR, real estate loans are generally attractive because the secured cash flows and the variable rate make them a hedge against inflation. The company usually lends at a ratio of 60% to 70% of the value of the property, which, according to the company, provides sufficient equity for repayment even in the event of losses.

As Bloomberg reports, 'Private credit commercial real estate loans can offer annual returns of between 12 per cent and 14 per cent, while posing less downside risk than equities,' Matt Salem, head of real estate lending at KKR, added in an interview. However, he said KKR remains cautious about the potential effects of tariffs and high inflation.

Tariffs could affect the value of warehouses in Los Angeles, a major US port city, Salem said as an example. 'The biggest risk at the moment is macroeconomic,' he said. Inflation is number one, followed in second place by the risk of recession'.