Kennedy Wilson Buys 1st Tranche of $5.7B Loan Portfolio
The investment firm paid $1.6 billion to Pacific Western Bank, with the acquisition of another large batch scheduled to close next month.
Photo by Josh Olalde via Unsplash
Kennedy Wilson has closed on the first tranche of loans as part of a $5.7 billion loan portfolio acquisition from Pacific Western Bank. Alongside its Toronto-based affiliate Fairfax Financial Holdings Ltd., the company acquired the loan package for a total of $3.3 billion in commitments and $1.8 billion in current principal balance. Gibson, Dunn & Crutcher advised the buyers in the deal.
The first batch of loans traded for $1.6 billion. Twelve additional notes, valued at $800 million in commitments, will close on a rolling basis by the end of next month. The $5.7 billion deal comprises the $4.1 billion loan portfolio, $1.2 billion of loan commitments that will be purchased by a third-party and $400 million of loans subject to further due diligence. Bloomberg reported that the third party is Cain International in partnership with Security Benefit Life Insurance Co., which will acquire a 10-loan package concentrated on rental apartments and student housing developments in the metropolitan area of New York City.
The portfolio consists of floating-rate construction loans with an average interest rate of 8.6 percent. Approximately 80 percent of the notes are secured by multifamily and student assets while the rest are associated with industrial, hotel and life science properties.
With this purchase, Kennedy Wilson is expanding its footprint in the West and making its entrance in several southern and eastern U.S. markets. As asset manager, the company will own 5 percent of the portfolio and earn customary fees.
Repercussions of recent market volatility
Last month, Pacific Western Bank sold a construction loan portfolio, valued at $2.4 billion, to Kennedy Wilson at a $200 million discount, Reuters reported. Fairfax announced it will acquire the loan package from Kennedy Wilson for $2.1 billion.
The Kennedy Wilson-PacWest Bank deals come in the wake of the spring collapse of Silicon Valley Bank and Signature Bank, as well as the Federal Reserve’s implementation of 10 interest rate hikes in the past 12 months.
Banks are more cautious given the economic headwinds and, consequently, financing in the real estate sector is taking a hit; fewer loans are given for development projects and offering less in proceeds.
