KKR to Buy U.K. Retail in First European Real Estate Deal

KKR & Co., the private-equity firm that’s raising its debut real estate fund, agreed to buy 430,000 square feet (40,000 square meters) of U.K. retail warehouses, its first European property purchase.

The warehouses, including food and shopping sites in Oxford, Glasgow and Sunderland, are being acquired from closely held Resolution Property Plc, New York-based KKR said today in a statement. Terms of the deal weren’t disclosed.

KKR expanded into real estate in 2011 after Blackstone Group LP and Carlyle Group LP had already built similar units. The firm, run by Henry Kravis and George Roberts, is seeking investors for its first real estate fund, which has garnered $500 million, including $200 million from KKR itself, two people familiar with the matter said in March.

Retail parks have “obviously suffered over the last couple of years with bankruptcies from retailers in the U.K., but we think it’s reached a pricing level that is attractive,” Guillaume Cassou, head of KKR’s European real estate team, said in a telephone interview. KKR is buying properties with the potential for new leases at higher rates or improved occupancy rates, he said.

Empty Stores

U.K. retailers have been closing outlets as the economy struggles and Internet shopping grows, leaving empty store fronts in downtown areas. Retail parks outside of London stand to benefit from the growth of “click and collect” shopping, where consumers pay for goods online and pick them up at a retail park, rather than have them delivered, Cassou said.

“London is expensive in a lot of the classes,” he said. “We look beyond London and there are attractive opportunities, both in offices and retail or alternative classes. We’re looking at residential and student housing.”

KKR has committed more than $650 million to 11 real estate deals since it hired Goldman Sachs Group Inc.’s Ralph Rosenberg in 2011 to lead the business globally. More than half of that commitment has been from the firm’s own balance sheet.

Rosenberg said last month at the firm’s investor conference that a client has committed $300 million to the strategy.

Blackstone’s Presence

Investors spent more on real estate in London than the rest of the country for the first time last year, lifting values there while prices elsewhere sank, according to a report by broker DTZ last month.

Blackstone, the world’s largest private-equity firm, has built its real estate business to more than $59 billion of assets. The New York-based firm, which last year raised a record $13.3 billion real estate opportunity fund, is taking advantage of credit constraints in Europe to buy discounted assets that are being sold by banks. Blackstone last year invested $3.5 billion of equity in European property deals, Jonathan Gray, the firm’s global head of real estate, said last month.

Carlyle, based in Washington, oversees real estate funds in the U.S., Europe and Asia. The firm has raised three funds dedicated to European property deals since 2001.

KKR is also looking to buy real estate in Ireland, Spain and France, Cassou said. Quadrant Estates will manage the U.K. portfolio, according to the statement. Jones Lang LaSalle Inc. advised on the latest deal, which KKR expects to complete in coming weeks.

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