Graham Centre Value Investing Conference: Buying “Value” in Real Estate

By Travis Johnson, Stock Gumshoe, April 30, 2018

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William McMorrow of Kennedy-Wilson spoke at the conference with a talk called, “lessons learned from 30 years of real estate value investing.”

This is a company I’ve been keeping an eye on for a while, they were very opportunistic at building up real estate investments during the various Euro crises over the past decade, particularly in taking on distressed properties that banks were desperate to sell, and they’ve been followed by quite a few value investors over the years. I’ve written about it before, particularly when Chris Mayer has pitched them in teaser ads or at conferences (he recommended it at the Fall 2013 Value Investing Congress, for example, and teased it as one of the five “buy and hold forever” stocks in 2015 for his old Capital and Crisis newsletter), and I haven’t felt comfortable enough with the valuation to buy in the past… but after McMorrow’s presentation I went in and assessed it again, with the shares well below the 2014-2015 highs, and decided to open a position for the first time.

So these are my notes from that presentation…

Kennedy-Wilson is a property investor, developer and manager, with 25 offices around the world and $18 billion in AUM (they manage outside real estate money as well as their own equity, so generate management fees in addition to property returns).

They led the Irish bank recovery and resurgence in real estate investing. Fairfax invested with them and is a large shareholder, with incredible returns since the 2011 investment.

KW is an opportunistic but long-term global real estate owner and operator. Has spun off other investments, including KW Japan when that country was weak. Went to Ireland in 2011, bought the Bank of Ireland’s real estate division on the cheap, and that was the biggest surge for their portfolio — still reaping dividends, since they’re just now developing some of the land they bought.

Most of their real estate comes from relationships with financial institutions, buying properties or debt from those banks. They will invest in almost any real estate product, though they have been focused primarily on multifamily and offices.

Value approach to real estate
1: Invest in areas with high barriers to entry — limited land supply or high degree of difficulty in getting approval.
2: identify markets with strong drivers of ...

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