Private equity firm KKR is limiting withdrawals from one of its real estate investment trusts, following similar moves by other investment giants such as Blackstone Group and Starwood Capital Group as investors look to cash out while economic concerns intensify.
The nontraded KKR Real Estate Select Trust said on Thursday it received requests from investors to pull out 8.1% of the fund’s value, far beyond the 5% in net asset value that it allows per quarter. In response, KKR will fulfill requests at a prorated amount equal to 62% of each tender request, the fund said in a filing with the Securities and Exchange Commission and a letter to shareholders from fund CEO Billy Butcher.
Blackstone and Starwood said in December they were limiting withdrawals following unusually high numbers of requests from investors to cash out after months of rising interest rates, weakened real estate values and concerns about a recession.
Later that month, Blackstone CEO Stephen Schwarzman and Starwood CEO Barry Sternlicht defended the strategies of their nontraded REITs.
Liquidating assets now could be particularly challenging after months of properties being priced down or pulled from the market because of higher borrowing costs and a reduced pool of potential buyers.
For KREST’s first-quarter tender offer period ending last week, there were repurchase requests totaling $128 million, or 8.1% of the fund’s net asset value, Butcher said in the message to investors. That far exceeded share repurchases of $79.3 million, or 5% of the value.
Funds limit monthly or quarterly redemptions to prevent a forced sale of properties.
“While this is elevated relative to prior tender offer periods, KREST has continued to benefit from strong fundraising momentum, with $946.5 million of subscriptions in 2022, including $141.7 million during the fourth quarter,” Butcher said in the letter.
The fund’s total return last year was just over 8.3%, he said.
In a similar move this week, California-based REIT KBS Real Estate Investment Trust said it is cutting dividends and suspending withdrawals amid expiring leases and soft office demand in the San Francisco area where it owns several buildings.
KKR Real Estate Select Trust’s portfolio had 83 properties at the end of 2022, including warehouses throughout the country, office buildings in Seattle and Northern California, four apartment buildings in Philadelphia and a residential tower in Brooklyn, New York, according to its website.
The largest percentage of holdings in the portfolio is the 27% allocated to credit to other real estate investors, including a $65 million mezzanine loan on developer Crescent Heights’ 76-story, 796-unit NEMA Chicago apartment tower along the south end of Grant Park.
Butcher wrote that “KREST is well-positioned for today’s market environment,” with 36% of the fund’s value in liquid holding such as credit and cash.
KKR is based in New York, where it recently doubled the size of its office in Related Cos.’ Hudson Yards development.