Reit Magazine - March/April 2021 - 68

mREITSnapshot

Senior loan, multifamily property in Grant Park, Chicago.

KKR Real Estate Finance Trust
Stays Resilient Through Pandemic
BY KEITH LORIA

K

KR Real Estate Finance
Trust Inc. (NYSE:
KREF) has assembled
a loan portfolio during the past
few years that is matched to a
conservative set of liabilities-a
strategy that has held up well
during recent market volatility fueled by the COVID-19
pandemic.
Externally managed by an
affiliate of global investment
firm KKR & Co. Inc., the mREIT
was created to take advantage of
the opportunities KKR saw in its
private equity real estate funds.
Matt Salem, CEO of KREF
and partner and head of KKR's
real estate credit business, notes
that " KKR's view was that real
estate credit offered attractive

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reit

risk-reward returns and the
best way to take advantage of
that value was to build out an
integrated credit team alongside KKR's real estate equity
business. "
KKR chose a publicly traded
mREIT format because it would
provide the most cost-effective
access to capital, as well as the
opportunity to scale the portfolio over time as the client base
grew, Salem adds.
Salem notes KREF's affiliation
with KKR has been its strongest
differentiator as it provides the
firm with a unique perspective
and a look into risk-adjusted
returns across asset classes.
" KKR's integrated real estate
equity and credit model gives

us sourcing and underwriting
advantages, " Salem says.

BEST IN CLASS
On the liability side, KKR
leverages its 45-year history
and deep relationships to
create best-in- class liabilities
for KREF. This durable capital
structure was stress-tested in
the early stages of the pandemic
and held up well. 
" We have combined these
advantages with a conservative
and disciplined management
approach to asset selection, "
Salem says. " We match our
loan portfolio with one of the
most conservative and diverse
set of liabilities, which again
has allowed us to differentiate

ourselves during this volatile
market. "
From the outset, KREF's
primary strategy has been to
originate senior loans secured by
transitional properties located in
major markets, owned by bestin-class sponsors.
" We leverage the expertise
and perspective of KKR's
broader asset management
platform- including its fully
integrated real estate equity
investing team-to source
and underwrite, which we
believe positions us to create
differentiated outcomes for our
investors, " Salem says.
Since its IPO in 2017, the
mREIT has shifted its portfolio
to a more conservative posture,
reflecting a view that the real
estate and economic cycles were
in the later stages. This can be
seen in its heightened focus on
institutional quality real estate
and sponsorship, which led to
an increase in average loan size
from $50 million when KREF
started to $118 million as of
the fourth quarter of 2020. The
mREIT has also increased
exposure to less volatile
property types.
Jade Rahmani, managing
director of commercial real
estate finance with Keefe,
Bruyette & Woods, has followed
KREF since it went public and
says he is impressed with the
mREIT's asset mix that is concentrated in " resilient sectors. "
" The company is in a healthy
position, " Rahmani says. " What
KREF is doing well is lending
money to value-add investors
who are improving the projects.
The average commercial real
estate loan is 10 years, but for
them, the average is around
two to three years, and has been



Reit Magazine - March/April 2021

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