Kennedy Wilson may feel the brunt of high inflation, high interest rates and geopolitical issues, but it still wants to make a name for itself as a provider of credit.
“We are currently one of the few active construction lenders in the U.S. market, and our team has a strong pipeline of new loans, of which a significant amount will close here in the fourth quarter,” CEO Bill McMorrow said on an earnings call last week, adding the firm is looking to grow its credit business.
Many regional banks, once a go-to funding source for developers, have cut back on construction lending as they struggle with outsized exposure to commercial real estate. Some have also failed — First Republic Bank, which collapsed and was subsequently acquired by JPMorgan earlier this year, was a prominent construction lender.
Kennedy Wilson’s move to credit also comes as it has adjusted the values of some assets to reflect current market conditions — the accounting practice known as mark-to-market. Those adjustments contributed to a significant loss in the third quarter.
The Beverly Hills-based investment firm reported a $92 million loss in the third quarter, compared to a net loss of $47.3 million the prior quarter, according to an earnings release last week.
Last year was more profitable — Kennedy Wilson reported $16.4 million in net income in the third quarter of 2022.
The firm is looking to take advantage of opportunities that come from “market dislocations,” McMorrow said on the call.
For example, in June the firm teamed up with Fairfax Financial to buy $4 billion worth of construction loans from Pacific Western Bank at a roughly 50 percent discount. That deal also allowed Kennedy Wilson to boost its lending arm with 40 new employees.
Kennedy Wilson is one of many firms that have made a credit push over the last year, as interest rates have soared.
Earlier this year, TPG announced it would buy Angelo Gordon for $2.7 billion, as part of its effort to boost its private real estate lending business.
Apart from lending more, Kennedy Wilson is looking to grow its multifamily and industrial books. Its industrial portfolio now outsizes its office holdings. At the end of September, the firm had 10.4 million square feet of industrial assets under management, compared to 9.6 million square feet of office.
Despite wanting to increase its loan book, McMorrow said Kennedy Wilson planned a “major reduction” in how much it spent on new development.
So far this year, Kennedy Wilson has spent $300 million on new construction and value-add projects. By 2024, McMorrow said, the firm is planning to spend less than $100 million.