Kennedy-Wilson Is Expected to Buy Heitman
Diversifying Santa Monica real estate firm Kennedy-Wilson International Inc. is expected to acquire Heitman Properties, a prominent nationwide commercial real estate management and leasing organization, in a deal that could close as early as today.
Executives of Kennedy-Wilson and Heitman Properties parent Heitman Financial in Chicago declined comment, but reliable real estate sources valued the sale at about $20 million.
The acquisition would be the latest in the rapidly consolidating commercial property services arena. It would thrust Kennedy-Wilson into national prominence in the property management and leasing disciplines. Adding Heitman’s team and portfolio would boost the Kennedy-Wilson management portfolio from about 3 million square feet of Southern California office properties mostly owned by the company and its partners, to more than 60 million square feet of offices, industrial buildings and apartments across the U.S.
Heitman manages several Los Angeles area properties, including 1999 Avenue of the Stars in Century City and Gateway Plaza in Pasadena.
The deal would also bring Kennedy-Wilson key relationships with Heitman’s clients, primarily institutional investors that own the real estate through pooled investments or separate accounts. Heitman Financial, a unit of Boston’s publicly traded United Asset Management Corp., is one of the nation’s oldest and biggest institutional real estate investment advisors, with about $8.7 billion in assets under management. The firm’s investment management operations have struggled during the last couple of years, prompting restructuring efforts, as some of its institutional clients have declined to reinvest funds after contracts expired.
While Heitman Financial’s headquarters is in Chicago, senior executives of the Heitman Properties unit are based in Beverly Hills. The 600-employee group’s president is Barry Schlesinger, who is expected to continue running the combined Heitman/Kennedy-Wilson management organization, to be known as Kennedy-Wilson Properties. Sources said Schlesinger and other top executives were involved in seeking a buyer with complementary functional capabilities supporting an easily expandable, multiple-service organization.
Heitman is said to be building up its “third-party” clientele, such as building owners who are not Heitman Financial investment clients, and its corporate facilities management business as well. Several of the nation’s largest property management organizations have traded hands during the last three years, and more mergers and acquisitions are thought to be in the works.
Kennedy-Wilson President Bill McMorrow “is a very entrepreneurial fellow who has really been building his own model of a multinational, full-service franchise,” said Jack Rodman, director of national accounts with the real estate accounting firm E&Y; Kenneth Leventhal in Los Angeles upon hearing of the Heitman acquisition. “So it’s a nice coup for him.”
Because Kennedy-Wilson is not really in the competitive property management business, the deal brings instant size and legitimacy through “a group of veteran professionals who will come in and do it right,” Rodman continued.
Until the last few years, Kennedy-Wilson had been known primarily for its real estate marketing operations, especially its auctions of homes and income properties. Its management team took the company public in 1992, when it appeared that the auction business would expand as developers sought a more efficient process for selling new homes under tough economic conditions, and as big realty finance groups sought to resell the over-leveraged properties they were getting back from borrowers.
However, Kennedy-Wilson’s fortunes took a tumble amid the deepest part of the recession earlier in the decade, with the company suffering through years of meager earnings and red ink. But under the leadership of McMorrow and Executive Managing Director Lew Halpert, Kennedy-Wilson has mounted a comeback during the last couple of years.
While continuing to offer property marketing and investment banking services to a variety of domestic and offshore clients, the company has embarked on its own real estate investment ventures. A recent SEC filing cites successful property investments and sales in justifying the continuation of McMorrow’s heavily incentive-based compensation structure--a structure that brought him a bonus exceeding $1.25 million on top of last year’s $300,000 base salary.
Kennedy-Wilson’s has been a thinly traded stock, as management owns more than half of the outstanding shares--with McMorrow and Halpert each owning nearly a quarter of them. Kennedy-Wilson shares jumped 24% over the last two trading days, from $10.13 at the beginning of last Friday’s trading session, to $12.56 at the end of Monday’s. Trading volume each day was about five times the norm.