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KKR to Build Warehouses as Demand for Space Outstrips Supply

The private equity giant’s real estate unit has started its first-ever ground-up industrial developments, in Atlanta, Dallas, Denver and Orlando, Fla.

(Bloomberg)—KKR & Co. has turned to building warehouses after being a big buyer of the properties, as demand for space to store, distribute and manufacture goods continues to outstrip supply.

The private equity giant’s real estate unit has started its first-ever ground-up industrial developments, with eight projects underway in Atlanta, Dallas, Denver and Orlando, Florida. The properties -- midsized warehouses for last-mile deliveries and other logistics needs -- will add 1.8 million square feet (170,000 square meters) to KKR’s current 45 million-square-foot industrial portfolio.

The shift to new construction comes as Inc., the main driver of the e-commerce boom, said last month that it had overbuilt its logistics network, cutting into the company’s productivity and profits. Still, KKR and other industry players see a persistent need for warehouses amid supply-chain disruptions that are boosting the need for inventory and redistribution space.

“We continue to see strong demand for high-quality industrial space,” said Ben Brudney, who oversees KKR’s industrial real estate investments in the U.S. “Our development strategy positions us to meet the market and add attractive, strategically located new supply to our portfolio.”

Funding for the projects will come from the $4.3 billion KKR Real Estate Partners Americas III fund and a $200 million construction loan provided by Square Mile Capital Management and BMO Harris Bank. Before the latest effort, KKR had agreed to acquire $7 billion of industrial properties since 2018.

In the first three months of the year, the U.S. warehouse vacancy rate fell for a sixth straight quarter to 3.4%, even as 90 million square feet of new space were completed in the period, Jones Lang LaSalle Inc. reported. Industrial-property sales totaled $33.9 billion in the first quarter and prices jumped 30% from a year earlier to a record high, according to Real Capital Analytics.

To contact the author of this story: John Gittelsohn in Los Angeles at [email protected].

© 2022 Bloomberg L.P.

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