KKR's Asia fund underscores hope for real asset recovery

The announcement of two fund closures by US investment firm KKR this week highlighted its anticipation for real asset recovery in the Asia-Pacific region, including South Korea.

KKR on Wednesday closed the $1.7 billion fund KKR Asia Real Estate Partners, which is focused on real estate investments in the Asia-Pacific region to meet demand for modernized properties and developments. A few days earlier, its KKR Asia Pacific Infrastructure Investors on Sunday closed a $3.9 billion vehicle for infrastructure-related investments across the region. The two are the first pan-Asian platforms by KKR for each asset class.

The closure of the funds presents a hallmark moment for KKR’s commitment to expand a footprint in Korea since last year, as KKR has increased appetite for commercial real estate assets and infrastructure-related targets here. In February 2020, a consortium made up of KKR, Igis Asset Management and SK D&D acquired Namsan Square, an office building in the central business district of Seoul. Later in 2020, KKR bought a controlling stake in environmental services firm ESG in August and became the minority shareholder of waste management firm TSK Corp. in October.

In the meantime, KKR‘s new investment platforms have reportedly received allocations from major Korean institutional investors, including the National Pension Service, Korean Teachers’ Credit Union and MG Korean Federation of Community Credit Cooperatives and KB Kookmin Bank.

The moves come amid signs that real assets in the Asia-Pacific region will recover. According to an estimate by real estate services firm JLL, the real estate investment volumes in the Asia-Pacific region will rebound by 15-20 percent in 2021, building on the rebound first observed in the third quarter of 2020. Major Asian economies such as Japan, China and Korea made up three-quarters of transaction activity in 2020 due to effective management of the virus and economic resilience.

“The rebound in transactions in the latter parts of this year will accelerate in 2021 as investors reaffirm their commitment to increasing exposures to Asia Pacific real estate,“ said Stuart Crow, chief executive of capital markets, Asia Pacific at JLL. “Longer term, the investment outlook remains incredibly positive given the expectation for continued low interest rates, huge amounts of dry powder and the insatiable hunt for yield.”

Korea stood out in the third quarter in its recovery, with its sales activity of commercial real estate growing by 22 percent on-year boosted by office transactions, according to intelligence firm Real Capital Analytics. The uptrend will continue to boost commercial properties market transactions and push unit prices higher, as high liquidity is making the market more competitive, an analyst said.

“Korean real estate market will remain heated in 2021 because the low interest rate is expected to sustain in Korea, and the high liquidity supported by institutional investors here is turning to domestic targets for the cash to be fully deployed,” said Judy Jang, head of research at Colliers International Korea.

KKR was managing $233.8 billion worth of assets as of September 2020, investing in private equities, private credits and real assets in North America, Europe and Asia. KKR‘s prior Asian investment has been dedicated to private equities, including Korea’s car part maker LS Automotive and e-commerce platform Tmon.

By Son Ji-hyoung (consnow@heraldcorp.com)