Kennedy Wilson Buys Toll Brothers Apartment Platform for $347M

Kennedy Wilson, a global investment firm with $30 billion in assets under management, made a substantial addition to that total with the announcement that it has acquired Toll Brothers’ Apartment Living Platform for $347 million, bringing another $5 billion in assets under the company’s umbrella.

According to an announcement from both companies, the purchase includes Toll Brothers’ general partner interests in 18 apartment and student housing properties with assets under management of $2.2 billion, plus a pipeline of 29 sites in various stages of development that would equal approximately $3.6 billion of invested capital “if completed.” Kennedy Wilson will assume construction responsibility for these developments. 

The purchase also includes Toll Brothers’ in-house development team and the company’s Apartment Living management team. While individual negotiations must still take place, Kennedy Wilson expects to absorb the entire Apartment Living executive team.

A representative for the companies said that this transaction plays into Kennedy Wilson’s desire to become “one of the largest credit, development and operating platforms in the country.” 

The acquisition is expected to close in October, subject to certain closing conditions.

J.P. Morgan Securities acted as Kennedy Wilson’s exclusive financial adviser, and law firm Latham & Watkins served as its legal counsel. Goldman Sachs and Vestra Advisors acted as Toll Brothers’ financial advisers, and Fried, Frank, Harris, Shriver & Jacobson served as its legal counsel.

The transaction was driven by Toll Brothers’ desire to exit the multifamily development space. To help further this goal, the deal will also have Kennedy Wilson take responsibility for the management of 20 apartment and student housing properties that Toll Brothers will continue to own for now, though the company intends to sell off these assets over time. This aspect of the transaction places $3 billion in assets under management for Kennedy Wilson.

Kennedy Wilson expects to make an initial investment of $90 million in the acquired assets, and will assume Toll Brothers’ general partner role in those assets. The remainder of the purchase price will be provided by existing Kennedy Wilson partners. 

The companies say they expect this transaction to lead to additional opportunities for collaboration, with Kennedy Wilson referring prospective for-sale housing opportunities to Toll Brothers, and Toll Brothers sending back opportunities in rental housing.

The companies’ representative noted that while the current state of housing might make this transaction seem like a “contrarian investment thesis,” factors including the nation’s current housing shortfall and limited new supply, which is creating strong demand, and a general affordability crisis make this the right time for such a deal.

William McMorrow, chairman and CEO of Kennedy Wilson, said in a statement that the transaction will “further accelerate the growth of our investment management business and multifamily development capabilities at a time when the country is in true need of new, high-quality housing.

“This purchase helps create an unparalleled national platform within the rental housing space that totals over 80,000 units we own, finance, or manage, and solidifies Kennedy Wilson’s fully integrated capabilities across real estate development, acquisitions, and asset management along with a market-leading housing-focused credit platform,” McMorrow added.

Douglas Yearley Jr., chairman and CEO of Toll Brothers, noted in the statement that this transaction will “unlock significant capital for our stockholders, while allowing us to focus on our core homebuilding business and continue our transformation to a more asset-light homebuilder.”  

Larry Getlen can be reached at lgetlen@commercialobserver.com.