KKR Pays $2.1B for Apartment Portfolio

KKR has acquired a portfolio of 18 multifamily assets from a closed-ended fund sponsored by Quarterra Multifamily for $2.1 billion.

The recently-built, Class A portfolio consists of over 5,200 units concentrated primarily in growing coastal and sunbelt markets including California, Washington, Florida, Texas, Georgia and North Carolina, Colorado and New Jersey. The portfolio, a mix of mid-rise and high-rise buildings, serves high-growth metropolitan areas where new supply will slow down significantly looking out beyond the next couple years, according to Daniel Rudin, Managing Director at KKR.

The acquisition is, much like Blackstone’s $10 billion deal to acquire AIR Communities in April, a shot in the arm for the asset class, which has been struggling amid elevated interest rates, slumping sales and declining prices. Multifamily prices were down more than 20% in May from their July 2022 peak, according to MSCI Real Assets.

“We believe this is a great moment to invest in real estate, as transaction activity starts to pick up on the heels of two-years of dislocation in commercial real estate markets,” said Justin Pattner, Partner at KKR and Head of Real Estate Equity in the Americas. “Across our platform we are finding opportunities where our scale, strong relationships, multiple pools of capital and local knowledge give us advantages as a buyer of large pools of high-quality, irreplaceable assets.”

KKR will work with multifamily operators, Carter-Haston, MG Properties and Dalan Real Estate to operate the assets. KKR is making its investment in this portfolio through capital accounts advised by KKR.

KKR was advised on the transaction by Gibson Dunn & Crutcher LLP. Quarterra was advised by Troutman Pepper Hamilton Sanders LLP and Jones Lang LaSalle.

Coincidentally the deal comes as AIR Communities announced its stockholders approved its all-cash acquisition. The proposed acquisition is expected to be completed on or about June 28, 2024, subject to the satisfaction or waiver of customary closing conditions.

“Blackstone has a great record of acting prior to the movement in cycles,” Jeffrey Adler, vice president at Matrix Yardi Systems, told the trade association Nareit earlier this year. “And given the amount of capital they have to deploy, I think they wanted to get in early and also take down a large portfolio, which is not that easy to assemble.”

The acquisition could be a sign that values have bottomed and will go up, he added.

Meanwhile, there is still some pain that needs to be cycled through. Quarterra is the apartment development arm of the home builder Lennar, which has reported losses in its multifamily division during recent quarters, the Wall Street Journal has reported. The company plans to sell off additional buildings from its portfolio to different buyers.