Kennedy Wilson has crossed the $2 billion mark for its debt platform, launched in 2020 against the backdrop of the economic fallout from the global pandemic.
Matt Windisch, executive vice-president at Kennedy Wilson, told affiliate title Real Estate Capital USA that the experience of creating a formal debt platform for the company exceeded expectations through a rapidly evolving lending environment.
He said the platform initially enjoyed a boost from being active at a time when overall lending was down. However, pricing for commercial properties, especially multifamily, has tightened by several hundred basis points and has continued to tighten since the platform was launched.
Kennedy Wilson made commitments of $2.3 billion for assets west of Colorado in the US and in the UK by December. Windisch said the platform is expected to grow to $2.5 billion by June, notwithstanding the recent surge in the Omicron variant of covid. As the firm has allocated capital, it 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 it has been active for more than a decade. Windisch said the firm has also originated mezzanine debt and B notes, financings that 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,” he 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.”
He added that Kennedy Wilson’s debt platform has financed many commercial assets in the suburbs and has little exposure to core markets such as San Francisco, Seattle and downtown Los Angeles.
Although 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 its traditional geography.
The average loan size for Kennedy Wilson’s debt platform is about $70 million. As of December, the firm’s average ownership in the investments of its debt platform was 9 percent. The firm said it expects to own 5-10 percent in investments going forward.