How Kennedy-Wilson is incorporating Toll Brothers’ development platform

Kennedy-Wilson Holdings hasn’t lacked for activity lately.

Before the February announcement that the Beverly Hills, California-based real estate investment company was being sold to a consortium led by William McMorrow, the company's chairman and CEO, as well as other senior executives and Fairfax Financial Holdings Limited, it made a landmark deal last year by acquiring the Toll Brothers Apartment Living platform.

As part of the transaction, Kennedy-Wilson bought Toll’s general interest in 18 apartment and student housing properties, totaling $2.2 billion of assets under management, and a pipeline of 29 sites in various stages of development, which could be worth approximately $3.6 billion if completed.

And, not to be overshadowed, it brought aboard the Fort Washington, Pennsylvania-based homebuilder’s in-house development team, which includes John McCullough, now president of Kennedy-Wilson’s Multifamily Development Group. At Toll, he led a national platform with a 40,000-plus-unit pipeline and nearly $12 billion in development costs.

McCullough, a 20-year Toll veteran who began building condos at the public company before moving into apartments, sees many advantages in the move to Kennedy-Wilson.

“It [the sale] really was a huge stroke of good luck for us, as well as Kennedy-Wilson,” McCullough told Multifamily Dive. “It was a great fit for what they are trying to do. They essentially were able to operate different types of residential investments all along the risk continuum, with the exception of ground-up development.”

For the roughly 85 people in Toll’s Apartment Living Group who came to Kennedy-Wilson, the transition also has advantages.

“We were thrilled because it was becoming clear that it just didn't make sense for a public homebuilder like Toll Brothers to have a multi-family platform within that public homebuilder,” McCullough said. “So it was a great opportunity. I think it's going to be a tremendous fit.”

Here, McCullough talks with Multifamily Dive about why it's important to look for deals across the map at all times, the equity and debt markets easing and the impact of gas prices on construction.

This interview has been edited for brevity and clarity.

MULTIFAMILY DIVE: Are the markets and products you’re targeting changing under Kennedy-Wilson?

JOHN MCCULLOUGH: I'm a big believer that, one, your development platform should be lean. Two, it should be geographically diverse, as well as product-type diverse. I think we all try to think things through as much as we can and point the ship in the direction that makes the most sense at the time.

But development is a tricky business. It takes a lot of work and a fair bit of capital before you are going to break ground. So I've never been a big fan of trying to say, “Well, this year, we're just going to target this part of the world, and next year we’ll start somewhere else” because it changes so fast. If you're not constantly looking at deals in all of our markets, then you're going to find when it does change in a particular market, it's too late.

Are there any recent examples of that?

I have found San Francisco to be very interesting. For whatever reason, we have not had a big presence in San Francisco. We've spent a little bit of time looking for deals up there, but we've never been fully committed to the Bay Area. We'd like to be.

For the last two or three years, everyone's been very down on the Bay Area. But in the last, probably, six months, that story has changed dramatically, to the point that we're sort of feeling like we missed out.

Picture of John McCullough, president of Kennedy Wilson’s Multifamily Development Group — John McCullough

Permission granted by Kennedy-Wilson Holdings

So that's how I look at things. There are going to be markets that present themselves through the year as better opportunities, or we're going to find more opportunities in those markets. But we can't really say we're going to target this and we're going to target that, because opportunities present themselves in different ways, at different times, in different places, and it's very difficult to predict that. You really just have to be looking at a lot of deals at all times to be ready if the market shifts.

Is the equity environment improving for development?

One of our capital raise guys summed it up best. He said, “When I send out a book, I'm getting a lot less nos.” For a while, we were getting a lot of, “No, we're not doing any deals right now.” It doesn't necessarily mean that you're going to have three or four or five term sheets per deal, but you're getting more interest. They're putting more work in. We're having more good conversations. And I think that's going to continue through the remainder of the year.

What is enticing equity to start to come back into development?

Well, I think a lot of them have a significant amount of capital to deploy. So they're very interested in finding opportunities. I think interest rates have come down. And I think that everybody has seen some of the supply that we experienced in ‘24 or ‘25 start to burn off. Then they see an opportunity.

Has the debt market changed?

We've been able to get debt on our deals, but we are seeing that it's a little cheaper these days as well. So for the last year, debt hasn't been a problem, but now it's even a little bit cheaper, which is nice.

Have other development costs moderated?

I think everybody's concerned about the geopolitical environment, but we're not seeing anything yet. In ‘21, ‘22 and ‘23, we saw the run-up in costs. There was inflationary pressure on materials, but there was also a tremendous amount of demand for ground-up construction. There were a lot of jobs getting started.

We're not in that market right now. A lot of our contractors and subcontractors are hungry right now. We're not seeing a ton of pressure on material costs just yet, and we're seeing a little bit of downward pressure on labor costs. It remains to be seen what happens in the Middle East and how that impacts us beyond the next few months.