KKR Forms $3B Strategic Lease Partners

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KKR’s drive to expand its reach in the real estate arena is taking yet another new turn. The global investment firm has just announced the launch of Strategic Lease Partners, a new platform designed for the investment in triple-net lease real estate. Relying predominantly on its credit and real estate funds, KKR plans to amass a portfolio of diversified assets valued at more than $3 billion.

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Billy Butcher and Jenny Box, partners at KKR, said in a prepared statement that they believe there is an attractive opportunity to acquire NNN assets and that the new platform can be a real estate partner of choice for companies in need of comprehensive, creative net lease solutions. “By leveraging KKR’s broad-based real estate, credit and capital markets capabilities and resources—and the deep connectivity between them—SLP can be a differentiated partner for corporate tenants,” they explained.

KKR has tapped former W.P. Carey executives Andrés Dallal and Joseph Mastrocola, seasoned experts in the net lease arena, to come aboard SLP in the position as partners to help spearhead the new platform’s evolution via the acquisition of assets and the arrangement of sale-leaseback solutions.

Finger on the pulse

KKR appears to have good timing in its decision to debut SLP. “The convergence of exceptional sale-leaseback market fundamentals has established a uniquely attractive period for operating businesses to monetize owned real estate,” according to SLB Capital Advisors’ summer 2021 market update. “Sale leaseback cap rates are well inside of many companies’ weighted average cost of capital, implying that sale leasebacks continue to be an attractive capital allocation tool from a corporate finance standpoint.”

In terms of the property type SLP will target, KKR did not specify in its announcement. However, multiple sectors currently prove advantageous. As noted in the SLB Capital report, “There is a bid for almost all sale leaseback types, with industrial leading the way, and investors becoming more comfortable with office investments as well.”

Additionally, KKR’s multibillion-dollar budget will come in handy, as cap rates in the single tenant net lease sector rose only slightly in the second quarter of 2021 after hitting historic low levels in the previous quarter, according to a report by The Boulder Group. Industrial cap rates went on the upswing, quarter-over-quarter, but office cap rates remained unchanged.