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BEVERLY HILLS, CA-Kennedy Wilson Inc., which will become a subsidiary of Naples, FL-based Prospect Acquisition Corp. under a recently announced merger, plans to combine the new capital from its merger partner with its existing capital, its auction business and its property management business, to “support and acquire distressed assets” in a business plan designed to take advantage of market conditions created by the latest downturn in the real estate cycle. Officials from Kennedy Wilson and Prospect outlined those plans in a conference call this week in which they also detailed the proposed merger, which is expected to close by Nov. 14, subject to customary stockholder and regulatory approvals.

Prospect is a special purpose acquisition company with approximately $248 million of cash that it raised in an IPO in November 2007. The merger agreement calls for Prospect to change its name to Kennedy Wilson Holdings Inc. and for Kennedy Wilson to become the surviving entity as a wholly owned subsidary of Prospect.

William J. McMorrow, chairman and CEO of Kennedy Wilson, in outlining the business plan for the merged company during the conference call, noted that the Beverly Hills-based firm has extensive experience in operating during downturns. “Most of us at Kennedy Wilson have now been through three real estate correction cycles–1980 to 1985, 1989 to 1992 and the one that we’re currently in, which started in 2007,” McMorrow said.

Like many others who see opportunities in the downturn, Kennedy Wilson and Prospect noted in their merger announcement that one area of opportunity will be the more than $1 trillion of commercial real estate loans that will reach maturity in the next five years. “Additionally, in the State of California alone, Kennedy Wilson believes that there are approximately 450 condominium projects with more than 37,000 unsold units, worth in excess of $10 billion, that are currently being marketed by developers and/or lenders,” the announcement said. “These looming debt maturities and the expected re-pricing of real estate assets present a compelling opportunity for well-capitalized investors.” David A. Minella, chairman and CEO of Prospect, said in the announcement that Prospect’s capital “will allow Kennedy Wilson to accelerate the growth it has already experienced in its businesses.”

McMorrow noted in the conference call that, following the merger with Prospect, the company iss going to have significant liquidity in it and virtually no debt. “The remaining debt is primarily mortgage debt and a piece of debt that matures in 2037. So all the cash that we’ve got is all for offensive dry powder,” McMorrow said. Kennedy Wilson plans to co-invest with institutional investors, with the cash to serve as its 5% to 7% co-investment pieces in its fund and separate account management platforms.

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