KKR Real Estate Select Trust: Investigating Claims

Non-Traded REIT Investigation – KKR Real Estate Select Trust  

Are you concerned about your investment in KKR Real Estate Select Trust? If so, the securities attorneys at The White Law Group may be able to help you. 

KKR, a non-diversified, closed-end management investment company, focuses on real estate, according to its prospectus. The fund targets three key investment strategies: income-generating commercial real estate, prime single tenant real estate, and private real estate debt and preferred equity interests.  

Non-Traded REITs Potentially Overvalued 

In a report last May, Investment News raised concerns about potential overvaluation in non-traded REITs, especially those specializing in commercial real estate, suggesting an overvaluation of up to 30%. The ongoing trend of remote work in many American businesses post-pandemic, alongside rising interest rates, has adversely affected commercial real estate. 

As per Investment News, the Dow Jones U.S. Real Estate Index witnessed a significant decline of 15.7% over the past year, contrasting with a marginal increase of just over one percentage point in the S&P 500 index during the same period. 

Furthermore, a recent report from real estate data firm CoStar Group Inc. highlighted a record-high U.S. office vacancy rate, reaching 12.9% in the first quarter, surpassing levels observed during the 2008 financial crisis. 

These developments raise concerns for investors in non-traded REITs due to their considerably limited share redemption programs, which exacerbate the inherent “liquidity issue” associated with such products.  

KKR Limits Redemptions 

Last January we reported that KKR Real Estate Select Trust limited redemptions after shareholder redemption requests exceeded the company’s quarterly redemption limit of 5 percent.  

This follows two of the largest non-traded REITs, Starwood REIT and Blackstone Real Estate Income Trust, limited redemptions in December 2022 after an influx of investor redemption requests surpassed quarterly redemption limits.  

KKR Real Estate Select Trust reported that it received repurchase requests of $128 million, or 8.1%, of the fund’s aggregate net asset value as of Dec. 1, 2022, according to filings with the SEC.  

In the past, the company has conducted quarterly tender offers to repurchase up to 5% of NAV of the fund’s outstanding common stock.  

KKR Real Estate Select Trust Risk Factors 

According to the fund’s prospectus, investing in KKR entails certain risks, suitable only for investors comfortable with the uncertainties of private market investments with potential limited liquidity. The Common Stock is best seen as a long-term investment within a diversified portfolio, rather than a standalone investment program. 

Key Risk Factors Include: 

• Distribution Uncertainty: While the Fund aims to provide stable distributions at an attractive yield monthly, there is no guarantee of distributions, and the amount is uncertain. Distributions may be sourced from various sources beyond operational cash flow. 
• Expenses and Fees: Investors are subject to offering and organizational expenses, as well as front-end sales loads for certain share classes. These fees reduce potential returns and must be exceeded for investors to realize actual gains on their investments. 
• Limited Liquidity: The Common Stock lacks a trading history and is not expected to be listed on any public exchange in the foreseeable future. Liquidity is provided through quarterly tender offers at net asset value (NAV) per share, but there is no assurance of repurchases or availability to sell desired shares. Hence, investments are considered illiquid, speculative, and entail high-risk, including leverage-related risks. 

The trouble with non-traded REITs is that they are complex and inherently risky products. Lack of liquidity is often problematic for many investors.  Investors looking to sell often have difficulty finding a buyer, and when they do, can suffer significant losses on the sale. To learn more, see: Non-traded REITs “Liquidity Issue”  

Broker Due Diligence 

Prior to making recommendations to an individual investor, brokerage firms are required by the Financial Industry Regulatory Authority (FINRA) to disclose all the risks of an investment. Recommendations should only be made if the investment is suitable for an individual investor given their age, investment objections, investment experience and risk tolerance.  

Brokerage firms that do not perform adequate due diligence on an investment and/or make unsuitable recommendations can be held accountable for investment losses through FINRA arbitration.  

Free Consultation 

If you are concerned about your investment in KKR Real Estate Select Trust, the securities attorneys at The White Law Group may be able to help. Please call the offices at 888-637-5510 for a free consultation with a securities attorney.  

The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Seattle, Washington  

For more information on The White Law Group and its representation of investors in FINRA arbitration claims, visit whitesecuritieslaw.com.