Cain Buys PacWest's NY Loan Portfolio for $1.2B

The last shoe has dropped in the sale of PacWest Bancorp’s portfolio of construction loans: Cain International, a privately held investment firm based in London, is partnering with Security Benefit Life Insurance Co. to acquire 10 loans PacWest held in New York for $1.2B.

The aggregate principal balance of the 10-loan portfolio is approximately $500M, the companies said, in a statement released on Friday. The NY loans are primarily backed by multifamily and student housing developments.

Last month, Kennedy-Wilson Holdings (KW) acquired a portfolio of 74 construction loans from struggling regional bank PacWest Bancorp for $2.4B. Last week, KW announced it is handing off the lion’s share of the deal to Fairfax Financial, a Toronto-based insurance company.

KW’s agreement with Fairfax will see the Canadian firm pay $2.1B for 63 of the loans in the portfolio. Kennedy-Wilson said it would fund $100M of the deal, hold a 5% stake, and earn asset management fees from Fairfax, according to an SEC filing.

KW also last week it had entered an agreement with an institutional investor that will assign KW’s right and obligations to buy 10 of the initial 74 loans to the assignee—the NY portfolio that Cain and Security Benefit have now acquired.

According to KW’s statement, KW won’t hold an investment in the assigned loans but will earn a management fee from the investor to manage the assigned loans for up to nine months, Seeking Alpha reported.

Cain has amassed about $15B in assets under management and originated $7B in real estate debt since its founding in 2014. Among the firm’s trophy projects is the $750M construction loan it originated in 2019 for Aman New York’s luxury hotel in the Crown Building.

Jonathan Goldstein, CEO and co-founder of Cain, said in the announcement of the acquisition of the PacWest NY loan portfolio that the firm remains “confident in the tenacity of urban markets.”

“This marks a significant moment of growth for Cain’s US lending platform and underpins our belief that high-quality projects, delivered by high-quality developers, will continue to thrive amidst transitory headwinds,” Jonathan said.

The 63 loans being purchased by Fairfax have floating rate interest and currently carry an average interest rate of 8.6%, with more than 70% of the loans secured by multifamily or student housing development projects. The balance of the loans in the portfolio are a mix of industrial, hotel, and life science office properties.

The acquisition is expected to close in multiple parts, with the first tranche expected to close in early June and the rest to occur through June 2023 and early Q3 2023.

As part of the deal, Beverly Hills-based PacWest will have to pay Kennedy-Wilson a fee equal to 0.15% of the total commitments of the loans.

PacWest has lost three-quarters of its market value since the beginning of the banking crisis in March. The bank has been the focus of concerns following the collapse of three other regional banks, Silicon Valley Bank, Signature Bank and First Republic.

PacWest customers withdrew $2.7B in depositions after the collapse of Silicon Valley Bank. In a move to improve its liquidity, PacWest raised $1.4B in March from Atlas Partners by borrowing against some of its assets.