Kennedy Wilson Expanding Debt Platform Reach With PacWest Loan Acquisition
Kennedy Wilson’s Beverly Hills office was just five blocks from PacWest Bancorp when the investment firm decided to acquire the bank’s $2.6 billion construction loan portfolio in May. But it was more than just geography that made this marriage make sense.
Matt Windisch, president of Kennedy Wilson, and Thomas Whitesell, who headed up PacWest’s real estate group for four years, knew each other for decades prior to the acquisition. That paved the way for a smooth transition already aided by close geographic proximity.
“We’ve known the key people on the team and I think the mindset and the culture that Tom has built within his organization aligned extremely well with Kennedy Wilson,” Windisch said. “It also helps that they were literally down the street, which made for a seamless transition, and the proof is in the pudding as we have been able to transact on hundreds of millions of dollars of deals since they’ve joined the organization.”
The blending of Kennedy Wilson and PacWest started in the spring when the bank was faced with steep deposit outflows triggered by a sinking stock price in the midst of a wider regional banking crisis. Kennedy Wilson Holdings acquired PacWest’s construction loan portfolio of 74 deals with a total outstanding principal balance of $2.6 billion on May 19, two months before PacWest was acquired by rival Banc of California.
By July 11, Whitesell and his PacWest team moved to Kennedy Wilson’s offices on 151 South El Camino Drive. PacWest coincidentally had been operating out of space previously utilized by Kennedy Wilson on Wilshire Boulevard in Los Angeles, and Whitesell’s office was the same one Windisch occupied.
The short distance between Windisch and Whitesell’s offices certainly helped the deal close in less than two months, with plenty of walks between buildings during that short stretch. The trust of Whitesell’s team also enabled a quick close to the deal, according to Windisch.
“It came down to the people and the trust,” Windisch said. “It came down to whether we believe in Tom and his team and do we trust that they know what they’re doing; and ultimately we came to that conclusion, and Tom has now proven over the last couple of months that they actually know what they’re doing and the portfolio is exactly what they said it was.”
Adding PacWest’s construction lending arm has enabled Kennedy Wilson to stretch its debt business, which historically had been tied mostly to buying discounted distressed loans — a strategy heavily implemented in the wake of the 2008 credit crisis. Windisch said Kennedy Wilson’s vision of launching a credit lending business beyond just distressed debt was formed during the onset of the COVID-19 pandemic in anticipation of banks pulling back.
After launching a credit business through some of its insurance and sovereign wealth partners, Kennedy Wilson mainly concentrated on bridge loans while also supplying some permanent debt through first-mortgage and mezzanine loans. It had executed just one construction loan on the platform prior to joining forces with Whitesell’s team.
“We were kind of covering half of the lending space, but we were missing a huge part, which is construction lending, so it was really a perfect fit,” Windisch said. “It really filled out our ability to now provide capital across the entire capital structure in the credit space.”
The loan portfolio Kennedy Wilson assumed has remained healthy despite the many market headwinds that unfolded over the past 18 months due largely to rising interest rates. Whitesell said there are zero losses in the portfolio as a result of low leverage and a strong asset management team that actively works with borrowers to rebalance loans as needed. The portfolio is facing some looming maturities, with about half of the loans positioned for an immediate paydown and the rest expected to receive extensions, according to Whitesell.
While there is less competition for construction loans as many banks pull back in the current climate, Kennedy Wilson still faces a competitive landscape going after new transactions. That’s because there are fewer deals in the market to go after and longer periods needed to line up equity. Whitesell said most of the competition now derives from debt funds and life insurance companies looking to get more into the construction lending space, but the decision by Kennedy Wilson to bring over PacWest’s asset management team was critical to giving it a competitive advantage.
“You need to have hands on these deals,” said Whitesell of the importance of having boots on the ground to navigate challenges that often pop up with construction loans, like cost overruns and lawsuits. “If you’re not willing to spend the money and put the people there, you’re not going to be successful in construction.”
Being a non-bank lender that is also not a traditional debt fund, because it doesn’t take on leverage with loans, makes Kennedy Wilson stand out in the market, according to Windisch. All of Kennedy Wilson’s loans are on balance sheet and, as owners of 40,000 apartment units, the firm is armed with strong institutional knowledge about where the market is headed.
The bulk of Kennedy Wilson’s lending activity derives from the multifamily sector with a strong focus of late on student and age-
restricted housing as well as built-to-rent. The platform has targeted primary and secondary markets on the West Coast that Kennedy Wilson has had presence in along with major markets in the Eastern U.S. Deal sizes usually range from a minimum of $40 million up to $200 million.
Whitesell said he has no set origination goals but is constantly seeking ways for his team to bolster best practices with better efficiencies working with borrowers.
“We talk once a week as an overall team going through the pipeline, but also seeing what needs to be improved and how we can make this process better,” Whitesell said. “We want to take advantage of the dislocation in the market and establish ourselves as a premier construction lender.”
After working in a banking culture, Whitesell says he has enjoyed the culture of leading a non-bank lender’s debt platform without regulators hovering over his head and with far less bureaucracy. The strong bond formed with Windisch during those short walks last spring paved the way for Kennedy Wilson to expand its reach.
“It’s been a breath of fresh air to come over here,” Whitesell said. “This is a very positive company always looking at the positive and the glass is always half full, not half empty; and I think at banks you tend to think half empty.”