Kearny Buys $89M Loan Portfolio

With the acquisition of an $89 million loan portfolio, Kearny Real Estate Co. and Morgan Stanley Real Estate Investing are more than halfway to their goal of purchasing $1 billion in loans.

With the acquisition of an $89 million loan portfolio, Kearny Real Estate Co. and Morgan Stanley Real Estate Investing are more than halfway to their goal of purchasing $1 billion in loans.

The most recent loan portfolio acquisition, the fourth since September 2010, was purchased from SunLife Assurance, an international financial services company, and comprises 17 performing, sub- and non-performing loans. The loans are secured by 1.65 million square feet of office, industrial and retail assets located in California, Texas, Washington, Pennsylania, New Mexico, Illinois, Oregon, Ohio, Tennessee and Florida.

Kearny managing director Jeff Dritley said the loan portfolio comprises approximately 50 percent performing loans, 20 percent sub-performing loans and 30 percent non-performing loans. He said the assets contained about 50 percent industrial properties, 25 percent office properties and 25 percent retail.

He noted that in the previous three loan portfolio acquisitions industrial had only comprised about 10 percent in each. There were also no multi-family loans in this portfolio while previous loan acquisitions had included about 10 percent multi-family, some of which had been projects that started as for-sale condominiums and ended up being converted to rentals, Dritley said.

In the last 20 months, Kearny has closed on more than $500 million of loan acquisitions and is aiming for a total of at least $1 billion, Dritley said.

Loan portfolios are an important part of our acquisition strategy, which focuses on value-add real estate, Dritley said. Kearny cut its teeth successfully working out $2 billion in troubled real estate loans in the early 1990s. We feel we are only in the fifth inning of the current workout cycle and see plenty of opportunity where we can create value with our non- and sub-performing loans.

Dritley said there are still lots of distressed assets on the banks’ balance sheets and predicts there will still be several years of fairly active loan sales either one off or through the portfolios.

He said they are actively seeking out the next loan portfolio deal, but will start pursuing other distressed assets during the next year.

Our acquisition efforts over the last three years have been 100 percent focused on loan portfolios, he noted. Going forward, over the next 12 months, I’d say 50 percent will be focused more on loan portfolios and 50 percent will be on buying large, complicated value-add projects.

Dritley said when buying for its own account, Kearny seeks out mostly California-based and industrial and office assets.

If we build, it is industrial and office, he added.

Eastdil Secured represented the buyer and seller in the SunLife transaction.

Based in Los Angeles, Kearny started out as a unit of the Morgan Stanley Real Estate Fund in 1993. It was spun off in 2001 to Dritley, who owns Kearny along with senior management. The firm has managed and developed over 200 assets with values over $4.4 billion.  MSREI is the global real estate investment management arm of Morgan Stanley. It was established in the early 1990s and has acquired over $175 billion of assets in 36 countries.