9601 Wilshire Boulevard, Suite 220
Beverly Hills, California 90210
Telephone: (310) 887-6400
Fax: (310) 887-3410
Web site: http://www.kennedywilson.com
Sales: $40.6 million (2002)
Stock Exchanges: NASDAQ
Ticker Symbol: KWIC
NAIC: 531210 Offices of Real Estate Agents and Brokers
Kennedy-Wilson, Inc. is an international real estate services company based in Beverly Hills, California. It maintains a boutique commercial brokerage division; operates a property management division responsible for some 200 office, industrial, and multifamily properties totaling more than 75 million square feet; and invests through joint ventures in both commercial and residential real estate. Internationally, Kennedy-Wilson owns office properties in Japan and maintains operations in five foreign cities. In addition, the company owns eProperty.com, an Internet real estate auction site. It also provides traditional real estate auction services, the company's original business.
Kennedy-Wilson Founded in 1977
Kennedy-Wilson was founded in 1977 in Santa Monica, California, by auctioneers Donald F. Kennedy, John Wilson, and William Stevenson. While Kennedy and Wilson provided the firm's name, Stevenson brought the administrative ability. He had worked as an asset manager for Los Angeles-based Union America, where he oversaw 25 major real estate projects and was involved in the sale of $100 million in properties. This experience convinced him that there was an opportunity, requiring only a modest amount of funding, to build a dominant real estate auctioning company. He also sought to bring legitimacy to real estate auctioning, drawing on the example of what international auction houses Christie's and Sotheby's did for art (20 years before the reputation of both firms would be sullied by a price-fixing scandal). At the time, real estate auctioning services were in high demand in the company's home market of southern California due to overbuilding in the region, which in turn led to a number of foreclosures. After two years, Stevenson bought out his partners, although Kennedy stayed on to serve as the company's auctioneer.
During the 1980s, Kennedy-Wilson spearheaded the rise in popularity of real estate auctioning across the country. In doing this they had to overcome a prejudice held by many bankers that such a selling method was both sleazy and demeaning, conjuring up images of plants in the audience driving up prices. However, as the real estate industry suffered a major collapse during the decade, many lenders found themselves with an excess of OREO ("other real estate owned") added to their portfolios because of default, and the advantages of auctioning off these properties gradually outweighed the shame factor. Auctioning offered a quick way to simultaneously unload a large number of unwanted properties, resulting in the lender saving on maintenance, insurance, utilities, property taxes, and other costs. Auctioning also helped banks to bring in new business by allowing them to offer financing to qualified buyers, thus converting a bad loan into a new loan. Kennedy-Wilson, which carefully developed a reputation as an honest broker, was not the only real estate auction house looking to drum up business in a distressed market, but it became the best known, due in large part to some well publicized major sales it conducted using satellite technology. In 1985, it organized a sale of Punta Gorda, Florida, residential lots, attended by 1,000 in Florida and another 500 in an Atlantic City, New Jersey, casino, Caesar's World, where an orchestra played and waitresses attired in tuxedos served cocktails. Several months later, Kennedy-Wilson established a satellite hookup between Hawaii and hotels in Los Angeles and San Francisco to auction off condominiums and home sites on the islands.
William McMorrow Assumes Leadership in 1988
Control of Kennedy-Wilson changed hands in 1988 when William J. McMorrow bought in with an investor group that included Lewis Halpert and Kenneth Stevens. Stevenson retained a significant stake in the business and stayed on as president, with McMorrow becoming chairman and chief executive officer. McMorrow, who held an MBA from the University of Southern California, boasted 17 years of experience in finance and had handled problem real estate matters for insurance companies and various financial institutions. Like Stevenson, he shared the desire to upgrade the image of real estate auctioneers and was determined to bring professionalism to the business. The firm numbered just 30 employees when McMorrow launched a period of aggressive growth. As early as 1989, Kennedy-Wilson became involved in the Japanese market. Nevertheless, the significant revenue was to be found in the United States, where troubled real estate conditions and a subsequent recession led to the firm's greatest opportunities. From 1989 to 1991, Kennedy-Wilson's sales grew from $4.27 million to $19.62 million and net income improved from a loss of $529,000 to a profit of $3.31 million. A major development for the company occurred in 1991 when it signed a one-year contract with the Resolution Trust Corp. (RTC), which was set up in the wake of the Savings and Loan scandal of the 1980s. The three RTC auctions conducted by Kennedy-Wilson included one in Texas that was regarded as the largest real estate auction ever held. Over a seven-day period the firm sold all but four of 1,450 Texas residential and commercial properties as well as raw parcels. Perhaps even more impressive was the fact that the company was given just six weeks to prepare for the sale, half of the lead time normally provided. All told, in 1991 Kennedy-Wilson auctioned off more than $790 million in property.
The poor economy and widespread real estate slump of the 1990s appeared to bode well for the continued prosperity of Kennedy-Wilson, leading its management in 1992 to take the company public. The hope was to raise more than $29 million in order to expand the company's regional and branch office network and to add brokerage operations. When the offering was completed, Kennedy-Wilson raised just $26.3 million, a harbinger of what was to follow, as it soon became apparent that changing economic conditions no longer favored the company's business model. Just as Kennedy-Wilson's stock began to trade on the NASDAQ, the auction business began to slow down. At the same time, the company was facing new competition. Moreover, lenders were rapidly clearing their books of foreclosed properties, RTC was starting to wrap up its work, and, with the economy starting to rebound, sellers were less reluctant to pursue the auction route, which generally resulted in lower prices. Nevertheless, Kennedy-Wilson pressed on with its plans for expansion. The firm, which had just one office when McMorrow took charge in 1988, soon had 20, including operations in New York and Boston, as well as London and Australia. Less than a week after Kennedy-Wilson went public, its stock peaked at $8.50, then slowly lost ground as the company reported a string of disappointing results. By April 1994, the price dipped below $2.
Management began to adjust to the changing realities as early as 1993, taking steps to transform Kennedy-Wilson from a real estate auction house to a diversified real estate services company. The company did not give up the auction trade, however. In fact, it pioneered a new concept, auction-to-build, in which an auction was held on a property even before construction began. In this way, contractors received loans based on the winning bids. Kennedy-Wilson also purchased buildings itself and auctioned them, an unusual step for an auctioneer. The company even became involved in investment banking in order to offer financing to further stimulate auction sales. It also tried its hand at auctioning off manufacturing equipment. For the most part, however, Kennedy-Wilson cut back on its traditional business, becoming more involved in brokerage services and the operation of a trading business, buying and selling commercial and residential properties. To trim costs, management closed offices, froze some salaries, cut other salaries, reduced some full-time workers to part-time, and eliminated positions. While it closed offices in some markets, Kennedy-Wilson opened a branch in Tokyo in 1995 to take advantage of the company's experience in Japan's real estate market. Overall, however, the fortunes of Kennedy-Wilson touched bottom in 1995, when it posted a net loss of $13 million.
The company offers a comprehensive array of real estate services, including brokerage, investment sales, asset management, property management, construction management, engineering management, development, and acquisition.
Colony Capital Provides New Funding in 1998
It took several years for Kennedy-Wilson to complete its transformation into an international real estate marketing and investment services company. In 1998, a pivotal year for the company, Colony Capital, a Los Angeles-based private real estate investment firm, provided $26 million in new funding, which allowed Kennedy-Wilson to acquire Heitman Properties for $21 million in cash. Founded in 1969, Heitman Properties, a national property management and leasing operation, was a subsidiary of Heitman Financial, an established firm that originated and serviced commercial real estate mortgage loans for institutional lenders such as pension funds and life insurance companies. Selling its property management and leasing business to Kennedy-Wilson was part of an effort to focus on the firm's core business. Taking over Heitman's national portfolio of 52 million square feet of office, industrial, and residential contracts worth $6.5 billion gave Kennedy-Wilson immediate status as a property management company. Moreover, the new division, called KennedyWilson Properties Ltd., had an alliance with Colony that called for Colony to provide further funding and Kennedy-Wilson to provide brokerage and property management services for Colony's investments. Kennedy-Wilson now looked to sell off its own property portfolio in order to concentrate on property and investment management services. It also planned to take on partners, such as Colony, to invest in real estate assets, which its management arm could then service. Also in 1998, Kennedy-Wilson paid $225,000 in cash and a comparable amount in stock to acquire TechSource Services, Inc., a construction management firm that, among other services, helped owners and managers to customize property services, thus reducing operating expenses and increasing the value of a real estate investment. Overseas, Kennedy-Wilson received further financial help from Colony in the form of a $100 million joint venture the partners created to invest in Japanese real estate and distressed notes backed by Japanese real estate. Kennedy-Wilson then forged a joint venture with a subsidiary of Cargill, Inc. to trade in Japanese distressed notes. As a result of these developments, Kennedy-Wilson saw its revenues almost double, improving from $26.9 million in 1997 to $50.8 million in 1998. Over this period, net income grew from $4 million to $5.3 million. The price of the company's stock also enjoyed a bump, trading in the $10 range.
In 1999, Kennedy-Wilson added to its property management business. During April of that year, it closed on the acquisition of Los Angeles-based R&B Commercial Real Estate Services, paying an undisclosed amount for more than 6 million square feet in management properties. Later in the year, Kennedy-Wilson acquired San Francisco-based Jones Lang Wooton California Inc., adding another 7 million square feet of office and industrial properties. The company was also active outside of California, increasing its national presence in property management. It picked up 4 million square feet from TRF Management, Inc., a Bellevue, Washington, company. In the Southwest market, Kennedy-Wilson acquired Dallas-based Fults & Associates and its 8 million square feet of properties, as well as SynerMark Companies, an Austin-based firm with 6.4 million square feet of management properties located in Texas, New Mexico, and Oklahoma. Late in 1999, Kennedy-Wilson launched a new initiative, one that hearkened back to the company's early years: the first online real estate auction site, eProperty.com. Although management initially compared eProperty to eBay, rather than becoming an open marketplace for real estate, the venture evolved into an application service provider to build, host, and manage Web applications for the "marketing and disposition of fee owned and leasehold real estate for corporation, institutional owners, and real estate services providers."
Kennedy-Wilson continued its aggressive play in the Japanese market. In 2000, it bought two office buildings, a 27,000-square-foot property in Tokyo and an 86,000-square-foot property in Yokohama, worth a combined $36.7 million. In October 2001, the company announced that it planned to take its Kennedy-Wilson Japan subsidiary public, and in February 2002 it completed an initial public offering that grossed some $23 million. The stock began trading on the Osaka Securities Exchange's NASDAQ Japan stock market. A secondary offering was then conducted later in the year, resulting in the gross proceeds of an additional $11.7 million. Other developments in 2000 included the formation of Kennedy-Wilson Global Technology Corp. The purpose of the venture was to manage the company's business-to-business venture capital investments with the hope of spurring new investments in both the United States and Asia. Kennedy-Wilson also established a hospitality division that targeted select U.S. markets for acquisition and development as well as management opportunities. The division intended to focus on high-end, full service hotels with 200 to 500 rooms.
Hoping to duplicate its success with investment ventures in Japan, Kennedy-Wilson, in conjunction with Congress Asset Management Company, launched a $25 million fund (KWI Property Fund I, L.P.) to focus on the purchase of suburban office properties located in the South and Southwest. A second fund was formed in 2003, a $600 million, ten-year life, value-added investment fund that would take advantage of difficult economic conditions to target distressed commercial properties located in select West Coast markets as well as such southeastern cities as Atlanta and Miami. The goal was to buy properties, fix problems, and sell the properties at a profit.
In 2003, Kennedy was active on a number of fronts, entering into new markets and opening a regional office in Portland, Oregon. In Japan, its subsidiary was forming a real estate investment trust to buy up distribution facilities. In a matter of ten years, Kennedy-Wilson had undergone an impressive evolution from auctioneer to an international firm providing a myriad of real estate services.
- The company is founded.
- William J. McMorrow buys in and becomes chair and CEO.
- Kennedy-Wilson begins doing business in Japan.
- The company goes public.
- A Tokyo office is opened.
- Heitman Properties is acquired.
- Kennedy-Wilson's first investment fund is launched.
- Kennedy-Wilson Japan is taken public.
Kennedy Wilson International; Kennedy-Wilson Property Services, Inc.; Techsource Services, Inc.
CBRE Holdings, Inc.; Grubb & Ellis Company; Lincoln Property Company.
Garbarino, Steve, "Properties for Sale Via Satellite," St. Petersburg Times, February 1, 1987, p. 1H.
Hamashige, Hope, "Santa Monica Auction Company Struggles to Adapt," Los Angeles Business Journal, April 25, 1994, p. S31.
Hayes, Elizabeth, "Kennedy-Wilson Post Big Returns, On Comeback Trail," Los Angeles Business Journal, May 10, 1999, p. 34.
Howard, Bob, "Kennedy-Wilson Bids for New Direction," Los Angeles Business Journal, July 24, 1995, p. 12A
Marshall, Jeffrey, "Going, Going Gone (We Hope), United States Banker, June 1991, p. 32.
Tobenkin, David, "Auction Company Hits Paydirt on real Estate Slump," Los Angeles Business Journal, July 22, 1991, p. 32.
Thompson, Terri, "Real Estate Roulette with a New Spin," Business Week, April 22, 1965, p. 69.