Fairfax Financial Holdings Ltd. is expecting double-digit returns from a multibillion-dollar deal to fund the construction of multifamily and student housing developments in the United States.will spend US$2-billion on a collection of 63 loans from Beverly Hills, Calif.-based Kennedy-Wilson Holdings Inc., Fairfax announced Monday.
Fairfax will buy a 95-per-cent interest in the loans from Kennedy-Wilson, which have a total of US$2.3-billion in balances owed. Despite an average annualof 8.6 per cent on the loans, Fairfax said it “expects the average annual return on the capital deployed by Fairfax in connection with the loans to exceed 10 per cent” once the discount the company received is taken into account.
All the loans are secured by real property in the U.S., the company said, with an average loan-to-value ratio of 51 per cent. That means the properties have an average market value of nearly twice the total value of the loans. The deal comes as construction of high-density residences in the U.S. has surged in response to the higher interest rate environment. Construction spending shot up 7.2 per cent in April on a year-over-year basis, the U.S. Commerce Department announced on June 1, with the monthly data coming in 1.2 per cent above March levels.