During the Feb. 8, 2023 Walker Webcast, Walker & Dunlop Chairman and CEO Willy Walker asked Chris Lee the one takeaway. Lee, who is KKR’s Partner, Head of Real Estate Americas, responded with this: “We’re much more constructive in terms of putting capital at work to start the year.” Not that the uncertainties from the latter part of 2022 are gone. But “we feel like it’s a pretty attractive risk-reward environment that we’re sitting in right now,” Lee said.

Walker and Lee spent much the webcast discussing KKR’s overall strategy, commercial real estate trends, China-America relationships and the importance of mentoring young talent (especially women and minorities.

When it came to commercial real estate investment, Lee said that KKR focuses on three broad categories. “You’ve got the fundamentals, then you have capital flows and then you have the macro,” he commented. “All of these are things that we’re observing outside of our real estate business.”

The fundamentals are consumer- and corporate-driven, Lee went on to say. In the area of capital flows, “we’ve seen some constructive activity to start the year,” he said. And on the macro side of things, inflation is declining. And while the Federal Reserve continues increasing the effective federal funds rates, Lee acknowledged that there are positives with high yields, and CMBS spreads.

“We’re seeing signs that say that people are coming back into the market; people are taking risks,” Lee said. “And by the way, there are a lot of institutions that have to put their cash to work.” Additionally, while there’s been a scarcity of capital because of bank pull-back, Lee said there are signals that this might change. “Right now, we definitely think it’s a lender’s market,” he said, while also noting that on KKR’s equity side, “we’re starting to see assets that are pricing at levels that we are starting to get excited about.”

Walker and Lee’s discussion delved into different asset classes as well. Lee acknowledged that office fundamentals remained challenged and that office is going through changes, similar to that of retail real estate. “Everyone’s looking at their real estate footprints as well as their head counts and are trying to figure out how to optimize that in a environment in which companies are more focused on margins,” Lee observed.

Meanwhile, fundamentals remain strong in the industrial arena, even with macro shifts including supply chain changes and “moving from just-in-time to just-in-case,” Lee said. “We’re still seeing very strong leasing demand,” he added. “We have quite a large platform. We’re leasing every day, and we’re buying and selling in more than a dozen markets. We have a good feel for what’s going on, and it’s still quite positive.”

Multifamily and BTR/SFR are also in positive territory, he commented, noting that KKR’s interest in many markets includes both Class A and workforce housing.

Though there are some uncertainty hiccups in commercial real estate, Lee indicated that KKR’s position is of cautious optimism. Risk-rewards seems attractive, while yields are at higher levels than they’ve been. Additionally, supply pipelines aren’t all that over-saturated. As such, “we’re looking at a bunch of different factors that give us more of a green light than a red light in a market like this,” Lee said.