Rosenberg Pursues Seniors Housing For KKR Real Estate Group

Kohlberg Kravis Roberts & Co. has been setting its sights on seniors housing recently.

Kohlberg Kravis Roberts & Co. has been setting its sights on seniors housing recently. In February, it invested $150 million in Sentio Healthcare Properties Inc., a two- to three-year investment that will help the Orlando-based REIT expand its portfolio of seniors housing and medical offices and facilities. In mid-September, it teamed up with Beecken Petty O’Keefe & Co. and Coastwood Senior Housing Partners to purchase Sunrise Senior Living’s management company component for $130 million. The company has contracts for nearly 300 communities, leasehold interests in 15 communities and 12 development parcels.

But KKR is hardly focused on seniors housing. Since hiring Ralph Rosenberg, a former Goldman Sachs partner with more than 25 years in the real estate industry, to lead its global real estate efforts in March 2011, it has invested in properties ranging from a suburban Chicago shopping mall to a Kansas City outlet center, a multi-family development in North Dakota to a business park in Texas and a Pittsburgh office building—and, of course, those seniors housing and healthcare facilities.

While the company has made many investments in commercial real estate businesses, platforms and properties over the years, Rosenberg’s arrival marked the first time the global investment firm had established a dedicated real estate group. Since then, the team has committed approximately $600 million to 10 transactions, with about $300 million of that invested to date.

The investment firm seeks to partner with real estate owners, lenders, operators and developers, according to Rosenberg, a KKR managing director, providing such flexible capital solutions as outright ownership of assets, companies and platforms or investments in private and public real estate securities “up and down the capital structure.” They may include equity, debt, mezzanine or other types of infusions.

Retail, healthcare and hospitality investments are all natural extensions of KKR’s private equity franchise, Rosenberg said. “We have to believe that our industry expertise or trends we are seeing provide us unique insight to be able to improve the asset.”

“Everyone and their brothers are trying to fight for assets in New York City. Where they’re playing, they have the ability to play alone and get some really attractive deals,” noted Dan Fasulo, managing director of Real Capital Analytics Inc. “They’ll go where the deals are, and I don’t think they’re going to discriminate over geography or sector.”

So far, KKR has not established a third-party fund like its competitors Blackstone or Carlyle Group, instead using its own balance sheet to pay for the real estate deals. Fasulo said KKR may eventually create a real estate fund if these first investments perform well. Rosenberg would only say that the team has access to “multiple pools of capital to be able to execute on opportunities we are seeing.”

The real estate team includes 11 people in the U.S. and Europe and numerous other KKR professionals in Asia searching for opportunities. It has already uncovered some deals in China, so far committing approximately $150 million to two strategic joint ventures to build entry-level to middle-income for-sale apartments in China, one with Sino Ocean and the other with Poly, Rosenberg said. In Europe, the group has purchased a joint-control position in a mezzanine debt instrument for Queens Moat Housing, a private hospitality company.

The first deal publicly announced by the real estate group came in April 2012, when KKR partnered with YTC Pacific to buy Yorktown Center, a 1.5 million-square-foot suburban Chicago shopping center, for $196 million. YTC Pacific manages the mall, which is undergoing approximately $30 million in upgrades.
The group tapped into the hot Houston market in late September, when it partnered with Hines and Pinto Realty Partners to develop a 971-acre business park. And in November it said it was answering the need for housing in Williston, N.D., one of the fastest-growing cities in the United States because of the surge in oil and natural gas drilling. KKR Financial Holdings, along with co-investors Pfeffer Capital and CP Realty, acquired 164 acres to build The Ridge at Harvest Hills, which will include 330 apartments and 500 single-family lots. 

KKR is buying the Legends Outlet Center Kansas City for $131.5 million with joint venture partner RED Legacy, which will own 5 percent and manage the 658,453-square-foot outlet center, according to Real Capital Analytics. Rosenberg told Bloomberg Businessweek it intends to invest $40 million and borrow the remainder.
The Del Monte Center, a 270,619-square-foot office building near Pittsburgh’s two sports stadiums, is also part of the portfolio. The firm purchased the headquarters of Del Monte Foods Co. from Continental Real Estate Cos. in February on behalf of the Pittsburgh Steelers and Pirates for $52.5 million, RCA reported.

Expect more to come. Rosenfeld said that he and the KKR leadership team felt the time was right to create a dedicated real estate unit to capitalize on opportunities emerging from the financial crisis.

“Trillions of dollars of real estate loans will be maturing over the coming years, and it will be difficult to refinance them in the traditional debt markets,” he said. “Property owners will require significant new capital to deleverage and to improve and re-tenant assets. We believe that this large capital need, coupled with the inefficient and local nature of private real estate markets, will create dislocation and attractive opportunities for investors with real estate expertise and capital markets savvy.”