One of the world’s largest private equity firms is to provide financial backing for London residential developer Regal Homes.
KKR has entered into a joint venture agreement with the builder which will see it finance future residential-led acquisitions around the capital on schemes of between 100 and 500 homes.
It will look to target central London residential opportunities left by the retreat of the major housebuilders as land values decline and the new-build sales market cools. The jv will form part of KKR’s $739m (£592m) opportunistic European real estate investment fund announced in 2016.
Since the capital’s prime residential market began to cool in 2014 there has been considerable speculation about developments that could be in distress, and many are expecting a continuing squeeze in the market, which private equity money could be well placed to take advantage of.
It is not the first firm to set up or back a London housebuilder. Ares Management backs both Mount Anvil and London Square, while Oaktree launched Anthology in 2014. However, it is the biggest since the London residential market cooled and will be seen as a bellwether for investor sentiment towards central London.
Although KKR is the world’s largest private equity firm by capital raised, it was a late entrant to global real estate, raising its first dedicated real estate fund in 2013 with an initial $1.5bn of capital. However, since 2013 the company has invested more than $1.3bn in real estate across Europe.
Its total funds have generated a cumulative gross IRR of 25.6% since 1976, compared to the S&P 500 Index average of 11.7%. At the end of 2016 it had $129.6bn under management globally.
The partnership is exclusive and is looking to deploy a significant amount of capital, potentially buying up to five schemes a year. The arrangement will target new schemes and not apply to Regal’s existing developments in London.
KKR director of real estate Jenny Hammarlund said that KKR was partnering with a best-in-class developer to find opportunities in the residential sector in London.
She said: “This strategy fits well with our investment focus on creating value in strong locations by partnering with experienced management teams, and we look forward to working with Regal Homes.”
Regal Homes was founded by Simon De Friend and Paul Eden in 1998 and has a pipeline of 1,000 homes across eight schemes, which also include considerable commercial elements. Sites include Dalston Lane, Grays Inn Road, Pentonville Road and Hackney Road. It has an average sales price of £850,000.
It previously sourced equity for each individual scheme, but the new arrangement will allow it to buy sites immediately. It will then look to raise debt for development.
Regal Homes is one of only a handful of developers with its own construction team. It has 116 employees, 75 of which are in the construction team.
De Friend said: “The joint venture will provide significant opportunities for growth, returns and delivery and this additional funding stream will confirm Regal as one of London’s leading developers.”