With its purchase of Bank of Ireland's €1.6 billion ($2.3 billion) property investment management business, Kennedy Wilson has stepped onto the European stage, seemingly out of the blue.
Hardly known outside the US and Japan, Kennedy Wilson announced its takeover of Bank of Ireland’s property platform earlier this week, a mere 24 hours after shares of the bank sunk to an all-time low of just 14 cents. Indeed, the Los Angeles-based real estate firm, which acquired Bank of Ireland Real Estate Management and its senior team for an undisclosed sum, was not on the radar of most private equity real estate players considering an investment in the troubled Irish bank's portfolio.
Still, Kennedy Wilson’s European expansion just may be part-and-parcel of the firm's natural growth. Having built a diversified real estate investment and services organization in the US and created a successful business in Japan, given the right opportunity, a push into Europe seemed like the next logical step. The Bank of Ireland platform, with offices in Dublin and London, will continue to be led by managing director Peter Collins but has been renamed Kennedy Wilson Europe.
In fact, the Bank of Ireland acquisition is very similar to how Kennedy Wilson approached its entry into Japan in 1992. “There are a lot of initial similarities between the Bank of Ireland investment and our entry into Japan,” said Mary Ricks, executive vice chair. With the current investment, the firm is buying into a bank platform with local expertise, whereas in Japan it hired local professionals with banking backgrounds to purchase loans off the balance sheets of major banks. “We are sensitive to local culture and to not come into a market like a bull in a china shop,” she added.
William McMorrow, chairman and chief executive, added: “Kennedy Wilson specializes in offering diversified real estate services to financial institutions, and those relationships allow us to find investment opportunities for the company and our partners. This acquisition allows us to expand our operations to Europe and participate in the current restructuring of the banking system, just as we did in Japan in the early 1990s.”
Such investments are a far cry from Kennedy Wilson’s roots as a humble real estate auction house in 1977. In 1988, the firm’s auction operations evolved into a global business for high-end property sales, and it launched a commercial brokerage business focused on high-value properties in 1995. In 1998, it acquired Heitman Properties, a full-service property management, leasing and construction management company, and attracted a $126 million investment from Colony Capital for its US and Japan businesses.
More recently, Kennedy Wilson launched multifamily value-added investment fund programme in 2000, established a multifamily acquisition platform in Japan in 2005 and formed a $108 million joint venture with Siguler Guff in 2009. In addition, after spending most of its existence as a private company, the firm listing on the Tokyo Stock Exchange in 2002 and the New York Stock Exchange last year.
So, what does this latest chapter in its evolution mean for Kennedy Wilson?
In the short term, the deal simply means the firm will have more assets under management, increasing from $7.4 billion to almost $10 billion. It also means that Kennedy Wilson is establishing a major footprint outside North America and Japan. Indeed, McMorrow said the transaction formed a “base” to develop its asset management business throughout Europe.
But what about the long term?
A great deal of that depends on how Kennedy Wilson is perceived in this new market. Based on its history in such scenarios and an approach similar to how it has built its US and Japan businesses, I wouldn’t bet against their success.