Bridgepoint buys into the real estate slump, not around it

Bridgepoint Group isn't running from real estate. The London-based firm, with $125 billion in assets, is leaning in — and it just bought its way into the U.S. property market. This summer it announced the acquisition of Kayne Anderson Real Estate, a real-estate investment firm managing more than $22 billion.

CEO Raoul Hughes told CNBC's Inside Alts that the deal handed Bridgepoint a real-estate piece it simply didn't have before, calling the combined offering 'category-killing' and a bigger foothold in the U.S. 'All the products we have are the go-to products within their niche,' Hughes said.

The timing is contrarian. Funds that piled into commercial and residential property in 2021, when rates sat near zero, are now wrestling with costlier debt, compressed valuations, thinner transaction volumes and rising defaults. Kayne Anderson Real Estate CEO and co-founder Al Rabil said that pain is the point. 'People say oh interest rates up, real estate bad,' he said. 'It's actually not quite that simple.'

Rabil named three pockets he likes. Medical office keeps outperforming as the population ages — he said the asset class hasn't dropped below 90% occupancy in more than 20 years, and that Kayne Anderson targets the higher-margin niches of oncology, neurology, cardiology and diagnostics. 'People age 65 or over need seven times more doctor visits than those 45 and under,' he said.

He also pointed to 'small-bay industrial' space used by small businesses and e-commerce retailers, noting small businesses make up 47% of GDP. On residential, he flagged a reckoning: billions poured into multi-family in 2021 and 2022, much of it financed with a 10-year Treasury around 1%. 'Much of that debt is coming due today,' he said, creating 'a huge opportunity for very good assets that are structurally broken.'

Hughes said higher rates shouldn't rattle Bridgepoint's private credit and private equity portfolio companies, which he described as high-growth and high-margin. 'You'd rather rates were stabilizing where they are rather than going up,' he said. 'But from an investing perspective, I don't think it materially damages our ability to drive returns from our equity portfolio.'