KKR in Talks to Sell Two Philadelphia Office Buildings

Investment giant KKR is looking to sell a part of a Philadelphia office portfolio which its real estate investment trust took over towards the end of last year.

KKR Real Estate Finance Trust is in discussions to sell two Philadelphia office properties, the Philadelphia Business Journal reported. Lubert-Adler Real Estate Funds is reportedly interested in a portion of the four-building office portfolio last owned by MRP Realty.

KKR’s REIT took control of the portfolio at the end of last year through a deed in lieu of foreclosure, it disclosed to the Securities and Exchange Commission last month. The buildings in the portfolio include the 13-story 400 Market Street, the 12-story 325 Chestnut Street and 10-story 400 Ranstead Street, which includes a 469-spot parking garage and ground-floor retail space, according to public records.

The three Old City buildings, which span a combined 713,000 square feet, are part of a four-building portfolio MRP put up for sale last year. The other property is a 10-story, 303,000-square-foot building at 111 South Independence Mall E.

It’s not clear which two buildings KKR are in discussions to sell.

MRP purchased the portfolio alongside Walton Street Capital in 2016 for $110 million. While MRP invested in upgrading the properties, office occupancies cratered in recent years.

KKR’s REIT became the grantor of the properties in 2019, when MRP announced that it refinanced the four-building portfolio without naming the investor involved. KKR disclosed that it originated a $183 million loan, which moved to nonaccrual status in December 2022.

KKR’s unit lost $59 million on its investment, according to its chief operating officer. The investor has estimated a fair market value of $76.5 million for the properties being held for sale.

KKR, MRP and Lubert-Adler did not comment to the Business Journal.

KKR’s sale of two of the office properties could bring clarity to an office market dogged by high interest rates and declining occupancy, setting the stage for what other property owners may look for when marketing their buildings.

Last month, KKR Real Estate Finance Trust slashed its dividend to 25 cents a share after realizing the Philadelphia office loan loss, according to Bloomberg.

— Holden Walter-Warner