KKR Closes $1.7B Refi of Drawbridge Office Portfolio, Will Expand Suburban Office Holdings in Tech Markets

Global investment giant KKR is banking that its success leasing office buildings to single-tenant tech players can be replicated nationwide, with a focus on acquiring suburban buildings in markets with strong tech employment and population growth. 

KKR, which just closed on a $1.7-billion refinance of 45 office buildings held by investment partner Drawbridge Realty, said the recapitalization will fund a new venture with Drawbridge aiming to rapidly expand the portfolio across the US.

“Drawbridge is positioned to accelerate its investments in high-quality, innovation-focused, net-leased office properties in growth markets nationwide with a goal to more than double the size of its portfolio over the next two to three years,” KKR and Drawbridge said in a joint statement.

Drawbridge’s portfolio comprises approximately 5.4 million SF of Class A office assets in what it calls “innovation-driven growth markets” concentrated across the Sunbelt and on the West Coast. Drawbridge says the office buildings are more than 95 percent leased to corporate tenants, predominantly under triple net leases with single tenants.

IBM, Northrop Grumman, Google and Johnson & Johnson are among the industry leaders who have single-tenant leases on buildings in the Drawbridge portfolio. Under the terms of the refinancing agreement, Drawbridge will continue to manage these properties following the recapitalization.

The new financing comes from KKR’s Global Atlantic Financial Group, a subsidiary created by KKR’s $4.7-billion acquisition last year of Global Atlantic, one of the largest US fixed-rate and fixed-annuity providers.

In an interview with Bloomberg, KKR COO Billy Butcher said the portfolio is focused on suburban properties in markets with strong tech employment and population growth. 

In the interview, Butcher noted the weak demand in the office market in urban centers. He indicated that KKR’s expansion strategy is rooted in the belief that demand for suburban office space, which he called “a very strong subset” of the office sector, will continue to grow, particularly in expanding tech hubs.

In one of the largest Bay Area office sector acquisitions of 2021, KKR acquired HQ@First, a three-building Class A campus in San Jose, paying $535 million to Mori Trust Co, for the fully leased asset.

Big-city office towers, which emptied out as workers went remote during the pandemic, are still less than half occupied, according to Kastle Systems’ 10-city Back to Work Barometer. Kastle, which tracks card swipes in office buildings, reported that an average of 32 percent of workers entered their offices last week in the 10 cities it surveyed.