Kennedy Wilson sees long-term value in UK deal spree

A busy first half of 2021 has seen US real estate investor Kennedy Wilson put money to work across a variety of strategies in the UK, with more investment lined up in the coming months.

The California-headquartered company has made office investments including the purchase of Ballymore’s One Embassy Gardens and completed a string of deals for an urban logistics joint venture launched last year with Singaporean sovereign wealth fund GIC.

“As you will see by the cash that we have deployed, I think there’s a comfort, a belief in the UK as a place to invest,” says Mike Pegler, Kennedy Wilson’s head of the UK.

“We’ve been more active on the buy side in 2021 than we have been for a while. We’re investing our balance sheet money, we’re investing our value-add money and then we’ve got core-plus strategies with partners as well, both in the industrial space and the office space. We’re seeing opportunities across all of those, and across all of those strategies we’ve completed deals this year.”

The Embassy Gardens acquisition saw Kennedy Wilson pick up the 156,000 sq ft office building in Nine Elms, SW8, for £177.5m two years after a failed sale to DWS led to it being withdrawn from the market.

Opportunistic chance

The deal was an opportunistic chance to recycle the proceeds of its sale of Friars Bridge Court, SE1, to Aberdeen Standard Investments just weeks earlier. Kennedy Wilson offloaded the building for a reported £135m – a 3.5% yield – after replacing WeWork as a tenant with life sciences group Synlab. “What we wanted to do was to reinvest that money in the UK and in London,” Pegler says.

One Embassy Gardens is a “long-term balance sheet commitment”, he adds. “We saw that as a really good-quality building and if we take a 10-year view, we’re looking at Nine Elms and Battersea being a fairly different place down the track. We think that that building is well placed to benefit from that.

“At the moment the rents are fundamentally cheap from a central London perspective, because it’s pretty early days in that story. We’ve got solid income, a great tenant in Penguin Random House, which has taken most of that building… [and] we think that rent will converge to a higher point over time as the Nine Elms story evolves and what’s getting built out there comes to fruition.”

Days before it bought Embassy Gardens the company closed its £47m acquisition of the 173,000 sq ft Capitol Building office scheme in Bracknell from Blackrock, at a yield of 7.7%. The acquisition builds on its holdings in the region. It also owns the five-building Heights campus in Weybridge, Surrey, and sees plenty of opportunity for growth in the area.

Confidence to invest

“The flight to quality feels starker than ever,” Pegler says, highlighting the focus on “good-quality buildings with good amenity, places where people want to come and work”.

“For us it’s either buying those buildings or buying buildings that we think have the ability, post-asset management, to deliver that… The positive levels of demand we’ve seen somewhere like the Heights have given us confidence to invest in better quality suburban offices. With the Capitol [Building] we felt that was a good value building that’s well let – but we think we can make it better.”

Away from offices, Kennedy Wilson has completed 11 add-on acquisitions for its urban logistics venture, the size of which has now doubled to some £400m. Pegler expects deals under offer to lift that figure closer to £500m within the coming months.

Recent purchases include the £42m acquisition of Saxon Way Trading Estate near Heathrow; the expansion of the jv’s Croydon holdings with the acquisition of the 2.2-acre Mill Lane site; and the pick-ups of Royal Mail sites in Peterborough and Wakefield.

“The positive forces in that sector continue,” Pegler says. “It’s an urban logistics [focus], targeting smaller to mid-box sized units close to urban populations where we think there’s good potential for rental growth and potentially some embedded reversion day one. Within that seed portfolio we put in, some of the occupational performance we’ve been seeing this year has been very strong indeed. And that gives us conviction to try to do more.”