S&P views KKR Real Estate negatively

S&P said it revised its outlook for KKR Real Estate Finance Trust Inc. (KREF) to negative from stable and affirmed its B+ rating on the company and its senior secured debt.

The agency noted KREF’s faces a weak commercial real estate market and tighter liquidity.

Tough CRE market conditions have led to increasing credit loss reserves, S&P noted. KREF ended 2023 with $210 million in allowance for credit losses, up from $107 million at year-end 2022. The company wrote off $74 million in 2023. As of Dec. 31, three loans amounting to about $435 million are on nonaccrual and $159 million is real estate owned, including a $77 million loan secured by an office property in Philadelphia, which KREF took title to in the fourth quarter of 2023.

S&P warned a downgrade is possible over the next year if KREF’s asset quality continues to weaken.

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