Kayne Anderson sees demographic-driven US real estate resilient to high yields, data center boom

Kayne Anderson Real Estate, a leading US alternative property investment firm, expects investments in demographic-driven assets such as medical offices and senior housing to remain attractive despite elevated yields and the global boom in artificial intelligence data centers.

The benchmark 10-year US Treasury yields hit a 20-year high of 5.045% earlier this month, creating a headwind for real estate sectors, including housing and commercial buildings.

However, Kayne Anderson, which oversees $22 billion in assets under management (AUM), said higher borrowing costs have helped create favorable conditions for niche alternative properties such as medical office, seniors and student housing, as well as light industrial.

“Investors are reassessing allocations that historically were concentrated in the traditional property sectors and looking more closely at sectors supported by durable demographic demand, constrained new supply and differentiated operating fundamentals,” Kayne Anderson said in an email to The Korea Economic Daily.

ATTRACTIVE, BUT SELECTIVE

Rising yields are expected to further exacerbate supply shortages in these demographic-driven properties, making investments in the assets more attractive, Kayne Anderson said.

“Interest rates remain elevated, in comparison to the previous decade, which continues to pressure financing costs and restrict new construction,” said the firm based in Boca Raton, Florida.

“For experienced owners with existing scale and operating capabilities, we believe these conditions can create a particularly attractive competitive environment.”

The strained supply is expected to further reduce competition for certain assets, although the underlying demand fundamentals remain strong, Kayne Anderson said.

“We are willing to deploy capital when the basis, cash flow and underlying fundamentals justify it, but we are not underwriting investments based on an assumption that interest rates must decline or cap rates have to compress,” the firm said.

“Kayne Anderson Real Estate’s target sectors are specifically selected for differentiated demand drivers and historically lower correlation to the broader economy, which we believe becomes especially valuable in periods of macroeconomic uncertainty.”

INVESTOR INTEREST REMAINS

Kayne Anderson, which UK-based alternative asset manager Bridgepoint Group plc has agreed to acquire, increased its AUM from $20 billion at the end of 2025 to $22 billion.

“Investors remain committed to the asset class but are becoming increasingly selective, applying greater discipline and scrutiny when evaluating and allocating capital to individual managers,” Kayne Anderson said.

The firm said higher yields have also shifted the nature of its conversations with limited partners (LPs).

“We have seen investors fundamentally show more interest in alternative real estate because of higher yields, as alternatives tend to have higher rent growth and durable supply/demand fundamentals,” the firm said.

“Higher rates certainly affect the relative attractiveness of different asset classes and have made investors more selective, but the larger conversation we are having with LPs is about where they want their real estate exposure going forward.”

FOCUSED BEYOND DATA CENTERS

While global investors are increasingly rushing to the rapidly growing data center market, Kayne Anderson is not targeting the sector, citing relative-value considerations.

Kayne Anderson, however, plans to remain focused on the sectors in which it specializes.

“Data centers have attracted significant capital and are already served by a number of highly capable owners and operators,” the firm said.

“As a result, we have determined that the sector does not currently offer the relative-value opportunity where Kayne Anderson Real Estate can provide the greatest advantage for our investors.”

Kayne Anderson emphasized that success in alternative real estate requires more than capital, with specialized expertise, sourcing relationships and operating infrastructure playing a critical role.

“Alternative real estate tends to be operationally intensive,” it said. “We only enter sectors where we believe Kayne Anderson Real Estate can develop a differentiated advantage and ultimately be among the best investors and operators in the space.”

CAPITAL ROTATION TO ALTERNATIVE ASSETS

The recent surge in investor demand for data centers underscores a broader capital rotation toward US alternative real estate, with institutional portfolios expanding beyond the traditional office, retail, industrial and multifamily assets, Kayne Anderson said.

The firm noted that its core sectors are supported by demand drivers distinct from those of data centers.

“Data-center demand is closely tied to technology investment, power availability and digital infrastructure growth,” Kayne Anderson said.

“Our core sectors are generally driven by demographics and mission critical demand: an aging population in seniors housing, enrollment growth in major universities in student housing and the continued migration of healthcare delivery toward outpatient settings in medical offices.”

Those demand drivers are difficult to replicate, while new supply remains constrained by construction costs and financing conditions, with the operational complexity required to successfully develop and manage these assets, Kayne Anderson said.

“That combination is one reason we continue to find the opportunity compelling,” the firm said.