KKR Limits REIT Withdrawals as Investors Ask for 8% of KREST

KKR became the latest non-traded REIT to close the spigot on redemptions after revealing in a regulatory filing this week that investors sought to withdraw more than 8% of KKR Real Estate Select Trust’s (KREST) estimated $1.6B in assets during the past three months.

KKR said the KREST redemption requests far exceeded its 5% quarterly limit in the past three months. The REIT limited withdrawals to 62% of the requests, the company said in its filing, Barron’s reported.

KREST joins Blackstone Real Estate Income Trust (BREIT), the largest non-traded REIT by far, and Starwood Real Estate Income Trust (SREIT) in limiting withdrawals after quarterly and monthly redemption limits were breached.

Investors have been racing for the exits at non-traded REITs, triggering withdrawal limits the REITs use as guardrails to prevent them from having to make forced sales of assets.

The non-traded REITs say they need the redemption caps to protect investors because their CRE assets generally have limited liquidity, but the SEC is scrutinizing whether the companies favor affiliates over individual investors in allocating limited withdrawals. No complaints have been filed to date.

Non-traded REITs have been marketed to retail investors—a.k.a. wealthy individuals based on distribution yields of 4% to 5%.

In its regulatory filing, KREST CEO Billy Butcher said the company is striving to maintain “a strong liquidity position” by limiting withdrawals.

The REIT reported year-end liquid holdings of 36% of net asset value, generating a net total return of more than 8% in 2022, with nearly $950M in subscriptions, Barron’s reported.

“Within KREST, we are balancing providing access to private real estate, which is an illiquid asset class, with the recognition and understanding that regular liquidity is an important feature for KREST shareholders, Butcher said, in the filing.

SREIT also disclosed in regulatory filings last week that investors holding 4.2% of the $14.2B fund requested redemptions in December, and that the fund honored 20% of those requests based on a quarterly redemption cap of 5% of its net asset value. The 4.2% figure implies that holders of more than $500 million of the fund wanted their money back in December.

The $69B BREIT fund only paid out 4% of its investor redemption requests in December to stay within its 5% quarterly cap.

Blackstone sought to insulated itself from further liquidity issues by cutting a $4B deal with the University of California earlier this month.

According to the terms of the deal, UC Investments will acquire $4B in BREIT Class I common shares, the largest existing share class, and BREIT will contribute $1B of its current BREIT holdings as part of a specified strategic venture with UC investments. UC’s investment partnership with Blackstone dates back more than a decade and encompassed more than $2B before this month’s investment, Bloomberg reported.

In a statement, Blackstone CEO Stephen Schwarzman said UC’s $4B commitment, which according to BREIT has an effective minimum hold period of six years, would give BREIT “increased balance sheet flexibility and capital,” a reference to the investment giant’s liquidity issues last month.

Unions representing an estimated 110,000 workers in the University of California system, the nation’s largest, demanded in a letter made public on Friday that UC divest its Blackstone holdings, including the $4B pension fund investment.