Kennedy Wilson has crossed the $2 billion mark for its debt platform, launched in 2020 against the backdrop of the global finance crisis.
Matt Windisch, executive vice-president at Kennedy Wilson, told Real Estate Capital USA that the experience of creating a formal debt platform for the company exceeded expectations through a rapidly evolving lending environment.
The platform initially enjoyed a boost from being active at a time when overall lending was down, Windisch said. But pricing for commercial properties, especially multifamily, has tightened by several hundred basis points and has continued to tighten since the platform was launched in 2020.
Kennedy Wilson made commitments of $2.3 billion for assets west of Colorado in the US and the UK by December and Windisch says the platform is expected to grow to $2.5 billion by June despite a surge in the covid-19 pandemic. As it has allocated capital, the firm has had strong awareness of the challenges in the office, retail and hospitality sectors.
“Even though we’ve done hospitality loans and one retail loan, we’re very focused on both the asset and quality of the sponsorship, as well as keeping our LTVs relatively low for those product types that are most affected by the pandemic,” Windisch said. “Similar to our thesis on the equity side, we continue to be much more bullish on the low-rise office park model than the hi-rise downtown skyscraper. We feel it’s more in line with the future of office.”
Kennedy Wilson funds floating-rate mortgages of three to five years in markets where the firm has been active for more than a decade. Windisch said the firm has also originated mezzanine debt and B notes, financings that typically tend to be fixed-rate.
“We were making loans in transitional multifamily in the early days of 2020 and we were getting [pricing of] 6 percent on a mortgage on a brand-new multifamily property,” Windisch said. “Those days are gone, so we’ve had to adjust a little bit and our partners have been willing to understand the market conditions and adjust our pricing accordingly. That loan that we made at 6 percent today would be 3.5 percent.”
Kennedy Wilson’s debt platform has financed many commercial assets in the suburbs and has very little exposure to core markets like San Francisco, Seattle and downtown Los Angeles, Windisch said.
While the firm is willing to work with repeat borrowers in new markets not in the western US, Windisch said Kennedy Wilson’s debt platform is not actively pursuing opportunities outside of its traditional geography.
The average loan size for Kennedy Wilson’s debt platform is about $70 million. As of December, KW’s average ownership in its the investments of its debt platform was 9 percent. The firm said it expects to own 5 percent to 10 percent in investments going forward.