Dive Brief:

• Last week, a group of four senators, including Sen. Elizabeth Warren (D-Mass.), sent a letter to KKR expressing concern regarding the New York City-based global investment firm's $2.1 billion acquisition of more than 5,200 apartment units across the country. 
• In the letter also signed by Democrats Raphael Warnock of Georgia, Peter Welch of Vermont and Ron Wyden of Oregon, the lawmakers questioned the deal’s potential to “exacerbate rising rent costs in regions across the United States.”
• In June, KKR purchased the 5,200 units from Irving, Texas-based developer Quarterra Multifamily, a subsidiary of Miami-based home builder Lennar. The portfolio includes 18 newly built mid- and high-rise properties in California, Washington, Florida, Texas, Georgia, North Carolina, Colorado and New Jersey. 

Dive Insight:

Before the Quarterra acquisitions, KKR put out a report in April telegraphing that it could be an active apartment buyer. In the report, Ralph Rosenberg, partner and global head of real estate at KKR, wrote that apartment performance usually remains stable through economic cycles.

“The influx of new supply is likely to taper off after 2025, at which point we are optimistic about rent growth given the structural shortage of housing and unfavorable cost dynamics for new construction in the United States,” Rosenberg said in the report. 

With favorable long-term dynamics in the multifamily business, acquisitions make a lot of sense, according to Rosenberg. “As owners come under more pressure to sell assets, we see an exciting opportunity coming to buy high-quality properties below replacement cost while achieving attractive long-term yields,” he said.

In their letter, the senators alluded to Rosenberg’s comments in the April report as they expressed concerns about private equity’s involvement in housing and adverse impacts on renters’ costs and quality of life.

“We are deeply concerned that KKR’s multi-billion dollar real estate purchase could result in even higher rents, exacerbating America’s housing crisis,” the lawmakers wrote.

The four senators asked KKR to respond to a series of questions, some of which relate to older housing stock that isn’t involved in the Quarterra acquisitions, including:

• How the firm will determine rent and fee levels.
• If it will work with residents to ensure that rents remain stable.
• How it will handle fees and ensure tenant safety and that apartments are maintained.
• How it will ensure that long-term tenants, including older tenants and tenants of color, will have the opportunity to stay in their homes.
• What yield the firm anticipates receiving on this investment over the next five, 10 and 20 years.
• What proportion of that yield the firm anticipates will be driven by rent growth and fee hikes over the next five, 10 and 20 years.

In a statement given to Multifamily Dive, KKR didn’t respond to questions raised by the senators but did say its investment in newly constructed apartment buildings supports the development of much-needed new housing. 

“These properties provide residents with a high-quality housing option that offers affordable value in their respective markets and proximity to attractive employment opportunities and cultural amenities,” KKR said. “We work with expert local property managers to invest in great living experiences and hold our partners to high standards for tenant satisfaction, transparency and fairness.”

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