KKR's £8B Off-Centre Real Estate Play Now Takes In Manchester
Avoid the markets with the highest entrance fees, keep your eyes on the strong tier two cities with powerful dynamics: This post-pandemic recovery strategy has led KKR & Co. to add a 200K SF Manchester office development to its $8B-plus tally of real estate commitments so far in 2021.
The move into Manchester, a city heavily fancied by international money but operating at a significant discount to central London, matches similar moves in the U.S. KKR has landed on Atlanta and Miami but avoided the more pricey gateway markets.
KKR is backing the St Michael’s development in Manchester, fronted by Jacksons Row Development Ltd, which in turn is led by former England and Manchester Utd player Gary Neville, Brendan Flood and Ryan Giggs. The first phase will focus on a 200K SF office development with work on-site expected to begin later this year.
Apartments and a five-star hotel, which had been the focus of earlier iterations of the scheme, are pushed back to subsequent phases.
KKR’s investment was made through its $2.2B second dedicated European real estate fund, KKR Real Estate Partners Europe II. The firm closed that value-add fund earlier this month.
The first phase of development will see the former Bootle Street City Police Headquarters brought back to life and the refurbishment of one of Manchester’s most historic pubs, the Sir Ralph Abercrombie, blending the old and new within the scheme. Jacksons Row Development is creating substantial public space in the development of Abercrombie Square and a 20K SF roof terrace in the heart of the city, with views overlooking the Grade I-listed Town Hall and library.
The deal with KKR represents a happy end to a long story for the St Michael’s scheme, one in which planning, funding and contracting issues have caused delays and uncertainty.
“We look forward to delivering this exceptional development for the benefit of Manchester as businesses seek high-quality office space to meet their ever-evolving needs. This investment reflects our strategy and focus on investing behind best-in-class office projects and alongside expert local developers,” KKR Head of UK Real Estate Charles Tutt said in a statement.
The first phase of St Michael’s is expected to complete in late 2023. Later phases of St Michael’s will start work on-site once the hospitality sector has recovered from the impact of the coronavirus pandemic, according to the release.
KKR & Co. has more than doubled its commitment to commercial real estate in 2021, inking loans valued at up to $8B so far this year as its funding capacity increases, Bloomberg reports.
The private equity investor has around $28B under management and has said it intends to increase that to $43B by 2022.