Fairfax to buy Pacific Western loans from Kennedy Wilson
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Canadian insurer Fairfax Financial has agreed to buy 95% of the real estate construction loans that Pacific Western Bank had previously agreed to sell to real estate firm Kennedy Wilson.
Fairfax chairman and chief executive Prem Watsa said the $2.1bn investment will benefit the Toronto-based firm “over the next two to three years”.
The aggregate value of the loans is $2.3bn.
More than 70% of the loans relate to multifamily or student housing development projects with the balance being a mix of industrial, hotel and life science office property development projects.
According to Fairfax, the aggregate principal balance of the loans currently carries an average interest rate of approximately 8.6%, and the property and casualty re/insurer has entered into interest rate swap arrangements to effectively fix this rate over the life of the loans.
In addition to the transaction, Fairfax also agreed to make a $200m preferred equity investment in Beverly Hills-headquartered Kennedy Wilson in a form of perpetual preferred stock that carries a 6% annual dividend rate, which is callable by Kennedy Wilson at any time.
“We are excited to continue our great partnership with Kennedy Wilson, led by Bill McMorrow, and to acquire an interest in a stable and attractive loan portfolio that further strengthens the foundation of interest and dividend income-generating assets that will benefit Fairfax over the next two to three years,” said Watsa.
The closing of the transaction and the sale of each loan is subject to the satisfaction of customary closing conditions (including Pacific Western Bank securing certain counterparty consents and waivers), and it currently expected to close in multiple tranches during the second and early part of the third quarter of 2023.
Last month, Los Angeles-headquartered Pacific Western Bank agreed to sell 74 real estate construction loans to Kennedy Wilson, according to a regulatory filing.
Shares of the bank started dropping in March following the collapse of regional mid-sized banks such as Silicon Valley Bank and First Republic, but the situation exacerbated in May after Pacific Western Bank announced it would consider “strategic options” including selling a loan portfolio.
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