June 6, 2013 2:42 pm

KKR moves into European property market

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KKR has made its maiden purchase in the European property market, buying UK retail parks in a deal that marks a departure from the traditional private equity route into the country’s property market.

The US buyout group, which joins American private equity investors active in the European property market, paid £112m for three retail parks in Oxford, Glasgow and Sunderland. The price represents an initial net yield of 6.5 per cent across the 430,000 sq ft portfolio.

Traditionally, first forays into UK property have tended towards the better-performing London office and retail assets rather than the more risky regional markets. But fierce competition in the capital – fuelled by sovereign wealth funds and institutional investors – has driven down yields and pushed private equity buyers out.

The three retail parks, known as the Tuscany Portfolio, were sold by UK real estate group Resolution Property, having previously been under offer to Starwood Capital, the rival US private equity investor, for about £125m.

Guillaume Cassou, head of European real estate at KKR, said: “We like the assets because they have a long lease [10 years], which is a good thing to have in periods of macroeconomic uncertainty.”

He added that KKR was “perfectly placed to develop the portfolio given the company’s experience and expertise in the retail sector with leading companies such as Pets at Home and Alliance Boots”.

The company, which teamed with UK-based asset manager Quadrant Estates to do the deal, is understood to be negotiating on other property deals in the UK and continental Europe.

The move into out-of-town shopping parks is part of a trend by investors to try to secure exposure to the shifting dynamics of the UK retail sector, which has migrated from the high street to the internet and large suburban malls and parks.

Norges Bank Investment Management, Norway’s sovereign wealth fund, this week snapped up a £250m portfolio of suburban warehouses used as distribution centres by retailers including Tesco and the Co-op. The deal suggests even the most risk-averse investors are finding the competition in the coveted London market too much.

The warehouse deal is the latest in a series of NBIM’s ambitious bets on the global real estate market as it pursues its ambition of having 5 per cent of its assets in property within a few years.

KKR was advised by Jones Lang LaSalle. CBRE and Harvey Spack Field acted for Resolution Property.

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