In an unprecedented move by a nontraded real estate investment trust, the KKR Real Estate Select Trust Inc. on Tuesday disclosed its management was going to devote as much as $250 million over the next few years to support the net asset value, or NAV, of the company.
Industry executives said it was an effort to prevent current KREST investors cashing in their shares as well as give financial advisors a positive picture of the company in a topsy turvy commercial real estate market.
Nontraded REITs are notoriously volatile investments.
“What KKR is doing is a bold move that favors the investor,” said one senior industry executive who spoke confidentially about the matter to InvestmentNews. “This supports the thesis that retail class alternative investments like real estate have been institutionalized, or risen to the level of the institutional investor. This would not have happened a decade ago.”
Common industry wisdom also says that it’s tough for financial advisors to sell another series of nontraded REITs to his or her best clients after a manager has already had problems or been in the headlines. Older investors typically buy nontraded REITs for promised, steady yields, with advisors usually recommending a small percentage of less than 10% into any one REIT manager or sponsor
“Nontraded REIT managers don’t want to be in a negative spotlight, and they have been making changes to prevent a drop in their REIT’s NAVs,” said Brian King, CEO of Lodas Markets.
A KKR spokesperson did not respond to a message Wednesday morning seeking comment.
KKR Real Estate Select Trust, also known as KREST, is relatively small, with $1.2 billion in total assets, according to the company’s website. But larger competitors Blackstone Real Estate Income Trust Inc. and Starwood Real Estate Income Trust Inc. have seen clients steadily withdraw cash since 2022, fearing rising interest rates and a commercial real estate market that was in some areas because workers had not fully returned to offices after Covid-19.
The Starwood REIT last month said it would limit its quarterly buyback of shares from clients starting in July to 1% of stockholder NAV from its former level of 5%. That drops the gate on some investors who want to sell their REIT shares back to the company; nontraded REITs do not trade on an exchange like the Nasdaq Stock Market.
KREST is making two moves to support its NAV, according to Robert A. Stanger & Co. Inc.
First, various affiliates of KKR have pledged that if NAV per share of is below $27 by June 2027, they will cancel up to 7.7 million shares of KREST they own to support a NAV of $27. The company’s current NAV is $25.56 per share.
In addition, affiliates of KKR will inject $50 million of new capital into KREST.
“No nontraded REIT has ever done this,” said Kevin Gannon, CEO of Stanger. “The industry is buzzing about it, but remember, fundraising for nontraded REITs is on track for only $5 billion this year compared to $30 billion a couple years ago.”
