Term Sheet: Kennedy-Wilson’s PacWest loan book flip to Fairfax; Second annual Debt Fund 40 rankings revealed; Park Hotel & Resorts REIT’s $725m CMBS loan payments

Kennedy-Wilson offloads majority stake in PacWest construction loans to Fairfax Financial in a notably quick flip; Real Estate Capital USA publishes its second annual Debt Fund 40 ranking; Park Hotel & Resorts REIT halts payments on $725 million CMBS loan tied to San Francisco hotels; and more in today’s Term Sheet, exclusively for our valued subscribers.

They said it

“Once there is a general consensus, usually it’s too late for investors like us”

John Grayken, Lone Star founder, speaking to affiliate publication PERE, on why the herd mentality being adopted across the market is just what the global investment firm wants to avoid. Read the full story here.

What’s new

Kennedy-Wilson sold a majority stake in a portfolio of construction loans it acquired from PacWest two weeks after finalizing the initial acquistion. (Image Source: Getty)

Quick flip
Beverly Hills-based manager Kennedy-Wilson Holdings this week sold a majority stake in the 74-asset construction loan portfolio it acquired just 14 days ago from PacWest Bancorp. Toronto-based insurer Fairfax Financial Holdings said in a June 5 announcement it is buying a 95 percent interest in the portfolio for $2.1 billion and will assume all future funding obligations, which total about $1.7 billion. Fairfax will also make a $200 million preferred equity investment in Kennedy Wilson as part of the deal. The transaction is subject to conditions including counterparty consents and waivers via PacWest but is expected to close in multiple tranches through the third quarter 2023.

Better footing
US regulators are poised to introduce guidelines which would increase the capital requirements for the largest banks by an average of 20 percent, according to a June 6 report in The Wall Street Journal. Specific increases likely will be tied to a bank’s business, with institutions that have large trading or fee-based businesses expected to see the highest rises. While there is no timeline or specifics about the potential impact on commercial real estate, the consensus is that any increase in regulation would further reduce banking liquidity for the sector.

Automatic for the people
Commercial real estate firms are increasingly moving to bring real estate credit products to retail and high-net-worth investors. Last week, Fundrise, a Washington, DC-based alternative asset manager geared toward individual investors, rolled out its first dedicated real estate debt strategy, while Fortress Management is gearing up for a major expansion of its credit offerings in the wealth management space. “The demand from real estate companies for funding the gap in capital stacks became so acute that we decided to build a fund specifically designed to address the need,” Ben Miller, co-founder of chief executive of Fundrise, told Real Estate Capital USA.

The hunt begins
Washington, DC-based Artemis Real Estate Partners is on the hunt for opportunities after closing on $2.2 billion of commitments for Artemis Real Estate Partners IV. The firm will use the fourth fund to initially focus more on debt investments, co-chief executives Deborah Harmon and Alex Gilbert told affiliate title PERE. “In the transitionary phase where, with increasing rates and more difficulty providing equity, it’s made the most sense in the capital stack to be in that position,” Gilbert said. “As pricing does correct, we would expect to be doing a lot more equity.” Ultimately, the fund is expected to contain mezzanine or preferred equity positions, provide joint venture equity and have a collection of non-performing loans. Look out for more coverage this week.

Debt fund 30

Meet the Debt Fund 40
Real Estate Capital USA this week published its second annual ranking of the leading commercial real estate private credit providers in the US. The Real Estate Capital USA Debt Fund 40, compiled by PEI Group’s in-house research and analytics team, ranks managers by the level of capital raised from external investors in the preceding five years with the express purpose of providing credit to US property owners. The 40 largest firms raised $164.8 billion for the five years ending in 2022 – an uptick from the $132.1 billion raised for the five years ending in 2021. Click here to find out who came out on top.


Parking loan payments
Tysons, Virginia-based real estate investment trust Park Hotels & Resorts has stopped making payments on a $725 million commercial mortgage-backed securities loan slated to mature in November. The loan is secured by two of the REIT’s San Francisco hotels, the 1,921-room Hilton San Francisco Union Square and the 1,024-room Parc 55 San Francisco. Thomas Baltimore, Jr, chairman and chief executive at Park Hotels, said the REIT was working with the loan’s special servicer and expects to ultimately cede both properties as it materially reduces its exposure to San Francisco. Office vacancies and a weaker convention calendar affecting hospitality demand both factored into the REIT’s decision.

New templates
Bill Shopoff, founder and chief executive of Irvine, California-based investment manager Shopoff Realty Investors, believes developers need to think creatively about new uses for old properties. Speaking at this week’s National Association of Real Estate Editor’s 2023 conference in Las Vegas, Shopoff described an agreement his firm negotiated with the local government to redevelop an Orange County retail center. The firm, which wanted to build a 175-room hotel on the site, struck a deal through which each key in the hotel would count as 1,000 square feet of retail space. This allowed the firm to fulfil the required retail footprint for the site while also making sure the deal would be a commercial success, he said. The bottom line: lenders and borrowers need to think outside of the retail box as asset conversions rise.

Data snapshot

Test case: Miami
The cost of insuring commercial real estate properties has spiked over the past two years as properties in coastal markets like Miami have been affected by hurricanes, floods and other natural disasters, per a June 5 report from New York-based data provider Trepp.


CBRE stacks FHA team
Dallas-based manager CBRE has hired David Armitage this week as senior vice-president in its capital markets division. Armitage, based in Seattle, will focus on affordable housing across the US. According to a June 7 announcement, Armitage is expected to expand the firm’s advisory capabilities in affordable housing by supporting merger and acquisition transactions, portfolio sales and capital solutions. Armitage has participated in more than $23 billion in transactions during his 17-year career and most recently worked as head of asset management at Seattle-based advisory and investment firm Heartland, per his LinkedIn profile.

Borrower’s corner

Harboring no doubts
Harbor Group International this week secured $440 million of financing through KKR, Freddie Mac and Fannie Mae to refinance debt on 25 multifamily properties. The Norfolk, Virginia-based investment manager secured mid-to long-range fixed-rate debt, while retaining some prepayment flexibility. “The lending market is still very much in flux, indexes are up, and spreads are out,” HGI managing director Lane Shea told Real Estate Capital USA on Wednesday. “HGI’s focus is about seizing the moment and taking the market risk off the table. We believe in accepting the rate now and knowing where you are instead of trying to guess the future.”

Loan in focus

A syndicate led by Wells Fargo and a fund managed by an affiliate of Ares Management originated a $287 million construction loan for Douglaston Development for the creation of 1057 Atlantic Avenue. (Image Source: Dencity Works)

Constructing a capital stack
A syndicate led by San Francisco-based bank Wells Fargo and a fund managed by an affiliate of Ares Management this week teamed up to originate a $287 million construction financing package for New York-based manager Douglaston Development. Douglaston will use the financing for 1057 Atlantic Avenue, a planned 474,000-square-foot, 456-unit mixed-income asset in Brooklyn. The Greystone-arranged financing is comprised of a $187 million loan from Wells Fargo, New York-based M&T Bank and Miami Lakes, Florida-based Bank United, and a $102 million preferred equity tranche from the Ares affiliate. Port Washington, New York-based BEB Capital and Brooklyn-based Totem co-invested in the $320 million development alongside Douglaston.

Today’s Term Sheet was prepared by Randy Plavajka, with Anna-Marie Beal, Shihao Feng, Peter Benson and Samantha Rowan contributing