- KKR Real Estate Finance Trust will sell troubled assets to restructure its $5.4B portfolio in 2026.
- Multifamily and industrial assets comprise 58% of the portfolio.
- Life sciences exposure remains a concern, with ongoing patience and a five-year recovery outlook.
- New loan originations surpassed repayments in Q4 but repayment focus increases this year.
Portfolio Overhaul Underway
KKR Real Estate Finance Trust (KREF) is launching a substantial restructuring effort for its mortgage REIT in what leadership calls a year of transition, reports Bisnow. The company plans to sell troubled loans and most properties acquired through foreclosure in order to boost its undervalued stock price and improve portfolio quality.
KREF’s portfolio is valued at $5.4B, with multifamily and industrial properties accounting for the majority share. The internal watchlist includes high-risk assets such as life sciences and multifamily buildings in Cambridge, Boston, and San Diego, totaling $572M in principal.
Troubled Asset Sales Planned
The REIT aims to liquidate nearly all watchlist assets this year. Watchlisted properties include a Cambridge life sciences facility, a Boston life sciences property, offices in Minneapolis and Chicago, and a San Diego multifamily complex. The Boston asset, which carries a loan of $229.6M, is expected to undergo modification discussions but likely faces a downgrade.
KREF is also preparing to divest directly owned assets, including properties in West Hollywood, Raleigh, Philadelphia, Portland, and Seattle. Leadership expressed confidence in being able to complete most of these sales within 2026.
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Life Sciences Headwinds Persist
KREF’s exposure to the life sciences sector remains a concern amid ongoing challenges. Despite a five-year recovery outlook, the company is cautiously optimistic about its Seattle and Boston life sciences assets. Alexandria, the sector giant, posted a $1.1B loss in Q4, with vacancy rates only slightly improving to 23.4%. The sluggish recovery reflects broader repositioning trends across major markets. Developers are converting some pandemic-era lab projects into traditional office space as demand recalibrates.
If loan modifications on life sciences properties cannot be achieved, KREF signaled a willingness to sell those loans rather than compromise on risk standards.
Strategic Loan Focus Shifts
Originations were robust in Q4 2025, with $424M in new mortgage loans, surpassing $380M in repayments. For 2026, KREF is pivoting to emphasize repayments, projecting $1.5B in principal repayments—higher than in recent years.
The announcement led to a drop in KREF share price, which fell from $7.88 to $7.24 after the earnings call. The REIT will continue to prioritize balance sheet health amid sector volatility and changing market conditions.
