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KKR Closes $950M B-Piece CMBS Fund

Posted by: | Posted on: July 22, 2020

NEW YORK CITYKKR has announced the final closing of KKR Real Estate Credit Opportunity Partners II with $950 million in committed capital. The fund will invest in the junior tranches of new issue conduit CMBS, or in other words, the B-piece, which is the riskiest part of the stack. 

KKR has invested more than $1.25 billion into conduit risk retention since 2017, according to Matt Salem, partner and head of KKR’s Real Estate Credit business. “We believe that the market has demonstrated the need for private, long-dated risk retention capital.”

Salem  told Bloomberg that he’s optimistic about B-piece performance because loans backing hotel and retail properties—the hardest-hit by the pandemichave mostly been removed from new CMBS. 

This fund, like its predecessor fund, focuses primarily on investing in newly-issued conduit CMBS B-pieces but it also is able to purchase non-risk retention conduit CMBS and other real estate securities.

The first fund closed on nine risk retention transactions, with both funds having completed a combined 36 closed investments through June 2020. KKR says this makes it the most active CMBS B-Piece buyer of third party risk retention structures since risk retention regulations took effect in the 2010 Dodd-Frank Act.

For the first six months of 2020, some 60% of deals’ required risk retention portions were purchased by B-piece buyers, according to Bloomberg

KKR launched its dedicated real estate platform in 2011 and it has grown to approximately $11.8 billion in real estate assets under management across the US Europe and Asia as of March 31, 2020.

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