TOKYO — U.S. private equity firm KKR sees a treasure-trove of investment opportunities in a “transformed” Asia-Pacific real estate sector, as consumers increase e-commerce shopping and work from home amid the pandemic.
On Thursday, the company announced the closing of its first pan-Asia-Pacific real estate fund that has raised $1.7 billion from investors.
“The transformation of Asia Pacific’s real estate sector is creating a strong pipeline of new and exciting opportunities that are well-suited to KKR’s flexible investment approach, local expertise and deep operational experience,” John Pattar, head of Asia Pacific real estate at KKR, said in a statement.
“Increased domestic consumption, productivity and urbanization — combined with the acceleration of e-commerce and platform-based businesses and the evolution of the traditional office landscape — is fundamentally reshaping the region’s real estate sector.”
About 20% to 30% of the new fund is expected to go to Japan. It will focus on building new properties such as data centers and logistics facilities, as well as buying unused assets from companies. The fund also looks to put cash into office buildings and hotels, depending on demand trends after the coronavirus pandemic.
This is likely to mean more activity in the Japanese real estate market, which foreign funds have been gravitating toward in recent months. Canada’s BentallGreenOak and Hong Kong-based PAG each set up funds for this purpose last year and look to invest up to $10 billion and $8 billion here, respectively.
Given KKR’s track record of private-equity investment in Japan, the real estate division will “partner with the private equity division to invest in real estate companies,” said Daisuke Hiramoto, director for real estate in Tokyo.
The fund will operate for 10 years. The first five or so will be spent buying and developing properties, with the remaining time used to sell to other investors to earn a return.
KKR operates real estate funds in the U.S. and Europe. It began investing in property in Asia-Pacific markets such as China and South Korea in 2011, using its own capital and funds from other private equity firms, and plans to expand this business with the new fund.
KKR has yet to make any property investments in Japan but is adding to its Japanese real estate team with an eye toward future deals.
As investors flock to the property market amid a prolonged stretch of low interest rates, Japan, where the economic impact of the coronavirus has been relatively muted, has become an attractive destination. Asia in general is also seen as a more promising market for office buildings than Europe or the U.S., as telecommuting is expected to be less likely to take off in a region where smaller residences are more common.