Kennedy-Wilson Holdings Inc., the U.S. real estate company buying a U.K. loan portfolio from Bank of Ireland Plc, expects Europe to become the largest part of its business in the next five years as lenders in the region sell assets, Chief Executive Officer William McMorrow said.
“The biggest opportunities are in Europe,” he said in a telephone interview yesterday. “The U.S. banks have all raised capital and they’re not under as much pressure right now to sell assets.”
Kennedy Wilson and institutional partners purchased $1.4 billion of loans made by Bank of Ireland last week and expect to acquire $400 million more at the end of November, the Beverly Hills, California-based company said in a statement yesterday. The loans are backed by office, retail and apartment buildings, mostly in London. The transaction, made at an almost 20 percent discount to the loans’ face value, is being financed entirely with equity, McMorrow said.
U.S. property investors are chasing deals in Europe as banks there unload the record loans they made during the boom years. Lenders are trying to reduce debt in the wake of the global credit crisis and mounting pressure for larger government bailouts in euro zone countries.
In August, JPMorgan Chase & Co., Wells Fargo & Co. and Lone Star Funds won the bidding for Anglo Irish Bank Corp.’s $9.65 billion portfolio of U.S. real estate loans.
Ricks to London
At Kennedy Wilson, Executive Vice Chair Mary Ricks will move to London in the next two months to oversee the company’s European expansion, McMorrow said. The disarray in the European banking industry may allow the company to pick up experienced professionals from local firms, he said.
“When the banks get into these situations, it creates more opportunities for a company like us to hire very high-quality people,” said McMorrow, who’s also chairman of Kennedy Wilson.
The company did a reverse merger in November 2009 with Prospect Acquisition Corp., which had gone public in November 2007 at the end of the U.S. commercial real estate boom.
Kennedy Wilson stock returned 8.6 percent with dividends in the past year, compared with an 8.2 percent gain for the Standard & Poor’s 500 Index.
Kennedy Wilson shares rose 35 cents to $11.62 in New York trading yesterday. McMorrow owns about 30 percent of the firm, according to data compiled by Bloomberg.
The company had more than $7 billion of assets under management in the U.S. and Japan as of the end of last year, according to its annual report. The Bank of Ireland acquisitions will increase assets under management to $12 billion.
In 2010 and 2011, Kennedy Wilson and its partners acquired about $5 billion of real estate and secured debt through joint venture and consolidated investments.
Analyzing Loan Portfolios
In June, Kennedy Wilson announced the acquisition of Bank of Ireland’s real estate investment management division, adding $2.3 billion of properties and 14 employees. The purchase gave the company expertise in analyzing loan portfolios, which it used in buying the Bank of Ireland loans, McMorrow said.
“As you get towards the end of the year, you will see a lot of these transactions” in Europe as banks clean up their books, he said.
In Europe, Kennedy Wilson plans to repeat what it did in Japan, where it opened an office in the 1990s to buy soured loans from Japanese banks when the real estate market there collapsed, McMorrow said. Starting with “one guy and a secretary,” it hired almost 100 Japanese employees starting in 1995 and took that business public in 2002, he said.