KKR and Oxford’s $2.2B Industrial Deal

After three years of cultivating a portfolio of infill and light industrial assets, KKR has agreed to sell the 14.5 million-square-foot collection of 149 premier distribution buildings to Oxford Properties Group. Oxford will pay $2.2 billion for the facilities, which are located in 12 key industrial markets across the U.S.

KKR has its reasons for letting go of a premier portfolio of industrial assets at a time when vacancies in the industrial sector continue to drop and rents are skyrocketing practically across the board. The industrial assets are in a close-ended fund, and the plan had always been to sell the assets sooner, rather than later.

“We began assembling a portfolio of logistics properties [in 2018] after developing a thesis around the opportunity to be an aggregator in a highly fragmented asset class,” Roger Morales, partner & head of Real Estate Acquisitions with KKR, told Commercial Property Executive. “Our strategy focused on acquiring high-quality urban infill assets strategically located in growth markets, which we believed would be well positioned to benefit from increasing e-commerce penetration and transformation of last-mile distribution. We’ve seen many of these trends accelerated over the past year. Part of our thesis was that there would be attractive exit opportunities to sell large, stabilized portfolios to institutional investors looking for a scaled industrial exposure and we are pleased to have agreed to a transaction to sell this high-quality portfolio.”

KKR took the market-focused approach a step further by targeting areas with multiple and varied demand drivers located near major supply chain centers and transportation corridors: the Inland Empire, Dallas, Atlanta, Phoenix, Chicago, Houston, Tampa, Orlando, San Diego and the Baltimore Washington corridor. The portfolio was created through more than 50 transactions along with Alpha Industrial Properties, KKR’s industrial operating division.

Timing is everything

Over the last three years, tailwinds in the industrial sector—led by e-commerce, changes in consumer preferences and inventory restocking in the U.S. driven by supply chain disruptions—allowed KKR to realize substantial income growth such that the portfolio was positioned for sale. KKR declined to comment on other parties that took an interest in the portfolio, but the group of assets is rumored to have attracted positive attention from both domestic and international investors.

For Oxford, the transaction with KKR will give the Toronto-based global real estate investor a substantial boost to its U.S. footprint. “This acquisition significantly scales our direct-drive portfolio, building our local presence within several key markets,” according to an Oxford Properties Group spokesperson. “We will continue to supplement our portfolio with both regional and one-off transactions as we build a large-scale industrial business in the U.S.”

Upon completion of KKR’s sale of the portfolio to Oxford, KKR will still own more than 20 million square feet of industrial property across the U.S. KKR relied on CBRE National Partners as real estate advisor in the agreement, while Oxford turned to JLL Industrial Capital Markets. The transaction is on schedule to close in the coming months.