The folks at Santa Monica-based Kennedy-Wilson Inc. think they have a smarter strategy than the real estate investment trusts that have been buying up so many office buildings and they have $200 million in financing to find out whether they're right.

President Bill McMorrow said the company, once primarily an auction house but now more diversified, plans to spend the money on under-leased office properties that Kennedy-Wilson will then improve and market aggressively. The idea is then to sell the fully leased properties for a profit.

McMorrow said publicly held Kennedy-Wilson is taking the opposite tack from the strategy pursued by most REITs which tend to buy fully leased properties.

"They need the cash flow to pay dividends," McMorrow said. "We buy properties that are only 40 to 50 percent leased."

For example, two downtown buildings Kennedy-Wilson bought last year, 818 W. Seventh St. and 611 Wilshire Blvd., were only 35 percent leased when the company purchased them. They are now about 75 percent leased.

"It usually takes us about 18 months to two years to get them fully leased," McMorrow said. The company now owns about 1 million square feet of office property, primarily in Southern California.

Kennedy-Wilson's $200 million in financing includes commitments from a number of lenders, the largest being Nomura Asset Capital Corp., with $100 million.

McMorrow said some of the funding also will go to the company's residential development arm, KW Properties, which has about 400 new homes under construction.

Kennedy-Wilson was noted for conducting some of the country's largest auctions of foreclosed properties after the collapse of the savings and loan industry. McMorrow said auctions now represent only 10 percent of the company's business.

Law firm to stay downtown

One of the oldest and largest law firms in Los Angeles, Loeb & Loeb LLP, recently considered moving from its downtown L.A. offices, but has decided to extend its lease for another five years.

Jim Friedman, a Loeb & Loeb partner specializing in real estate leasing, said downtown's lower rents was the major factor that convinced the partners to extend their lease on 82,000 square feet of space at 1000 Wilshire Blvd. to the year 2007.

Among other locations, the firm considered a move to Century City, where Loeb & Loeb already has an office. But the difference in rents and several other factors entered into the decision to stay downtown, Friedman said.


For reprint and licensing requests for this article, CLICK HERE.