KKR to build real estate debt platform

The New York-based private equity firm is launching the new effort with a major team lift out from Rialto Capital.

Kohlberg Kravis Roberts (KKR) is making a dedicated push into real estate debt, a significant step in the growth of its three-year-old property business. As part of its new initiative, the New York-based buyout firm has poached a team of approximately a dozen debt professionals from Rialto Capital Management, according to a source familiar with the matter speaking to PDI sister title, PERE.

KKR declined to comment, but it's understoods that the employees gave notice at Rialto last week and are expected to join KKR in the coming weeks. Matt Salem, a managing director who currently oversees Rialto’s real estate debt security and capital markets activities, will focus on investments in preferred equity and mezzanine debt, among other credit opportunities. Chris Lee, a director who joined KKR from Apollo in 2012, will be co-leading the new debt initiative.

The firm is said to view real estate debt as the next step in the expansion of its property platform, which it established in 2011 with the hire of Ralph Rosenberg, a 17-year veteran of Goldman Sachs, where he served as chief operating officer of the firm’s Whitehall funds and Archon Capital commercial real estate lending platform. Salem, who joined Rialto two years ago, also previously worked at Goldman Sachs, serving as head commercial mortgage-backed security trading.

KKR intends to initially make real estate debt investments through its balance sheet. KKR began investing in real estate equity transactions in a similar fashion before launching the KKR Real Estate Partners Americas, which raised a total of $1.5 billion to invest in North America and Europe. The real estate debt business could potentially follow a similar trajectory, the source said.

One recent real estate debt investment for KKR was forming a structured lending platform in India, with an investment from GIC, Singapore’s sovereign wealth fund. In the firm’s announcement last week, Rosenberg called the launch of the non-banking financial company a “milestone” for KKR’s global real estate business.

The KKR/GIC platform is KKR's second in India and first focused solely on real estate. It invested $193 million in deals ahead of the formal announcement, as reported by PDI.