Commercial real estate is in the midst of a “regime change,” says Chris Lee, partner and president of KKR Real Estate. 

Speaking on this week’s Walker Webcast, hosted by Walker & Dunlop CEO Willy Walker, Lee attributed this to seismic macroeconomic changes in recent decades.   

After the Great Financial Crisis, Lee said, most central banks had a mandate of growth and economic recovery. As a result, the Fed concentrated on monetary stimulus, resulting in unusually low interest rates for the next 10 years. Coupled with a “very benign” globalization framework, this created favorable market conditions, he said. 

Today, the CRE landscape looks very different.

Lee said the federal government is carrying much more debt, central banks are more worried about inflation, and the geopolitical backdrop has become more tumultuous. 

“Additionally, you have an economy that's really driven by artificial intelligence and capital spending around digitization, and it's just a very different environment that impacts real estate in a bunch of different ways,” he said. 

KKR’s approach in this uncharted market? Keeping a balanced portfolio spread across the CRE debt and equity markets. KKR is “very active” in the lending space through several types of capital, including banks, insurance companies, fixed- and floating-rate strategies and opportunistic capital, Lee said.

“There is just a tremendous amount of opportunities to lend, given we really have a maturity wall that we're hitting,” he said. “A lot of the five-year loans from 2021 and 2022 are hitting their maturity, so there's a lot of need for capital on the refinancing side.”

On the equity side, Lee said his firm is buying and investing in properties, but it’s being very selective. KKR looks for demand trends that it thinks are attractive long term. If the stars align, KKR will invest, but it's become increasingly cautious about where it deploys capital. 

KKR has been active in the multifamily space over the past couple of years, inking big deals such as the $2.1B Quarterra portfolio in 2024. This multifamily portfolio contained more than 5,200 units across 18 assets in coastal and Sun Belt markets such as California, Georgia and North Carolina. 

“These were newly developed assets, and we thought that we bought them very well,” Lee said. “We’ve watched those assets perform nicely since then. But that was in a strategy that we could hold those assets longer, and we had the right cost of capital when that transaction was available.”

Lee added that since 2024, multifamily construction starts have dropped dramatically on a national scale, with the exception of a few regional markets that are faring well in today’s economy.

KKR is very active in both the multifamily and industrial sectors but not as much in hospitality, retail or office. This is because these are more nuanced asset classes, Lee said — particularly hotels.

“We have traditionally not been an aggressive hospitality investor, because at the end of the day, the marginal buyer is pricing such assets that the return profile is below where we think it should be,” Lee said. “We think the other asset classes tend to play to our strengths as a firm much more.”

KKR is also active in Europe, which Lee called a “very interesting place to invest right now.”  

“You can't paint all of Europe with the same brush because you have different economies that are experiencing different levels of growth and different government balance sheets,” he said. “There's also a pretty big difference between what's happening in the United Kingdom and continental Europe. We have been very active as a lender there.”

Lee said KKR can compete well in the UK market because there are fewer opportunistic lenders in the space. In addition, student housing is a standout in the UK market, Lee said, because Europe is an “exporter of education.” It’s also increasingly eyeing data centers, multifamily, build-to-rent and even logistics assets. 

“If you think about what's happening in Europe, there's a reindustrialization in terms of energy infrastructure, defense infrastructure,” Lee said. “Logistics should be a beneficiary of that activity over time.”

Artificial intelligence was part of the conversation on the webcast, with Lee noting that KKR primarily uses AI as a productivity tool as it incorporates it into “really everything” internally. 

“We think we can spend more time doing things that only humans need to be doing: making judgments and having conversations around where the world is headed,” he said. “We’re reducing the amount of administrative tasks associated with running our business.”

As AI takes a greater foothold in CRE, Lee said it’s important for companies to be heavily reliant on high-quality human capital. Companies still want to recruit the best people to their firms, and beyond any technological advancement, recruiting the best of the best means fostering a great culture.

“It has to be an intellectually stimulating job,” he said. “You have to be competitive on compensation, but then you also have to create an environment that people want to be in. Businesses are getting more efficient, so how do we make sure we have the best people around? That’s what you’re seeing today.”

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This article was produced in collaboration between Walker & Dunlop and Studio B. Bisnow news staff was not involved in the production of this content. 

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