Kingston Properties burned by US foreclosure

Kingston Properties Limited, KPREIT, has been forced to write off a US$1.38-million investment following the foreclosure on a United States-based real estate asset, marking a rare setback for the real estate investment trust.

The company disclosed that its equity interest in Polaris at East Point Partners LLC – a 118-unit multifamily property in East Point, Atlanta – has been wiped out after the property was seized by its lender. The foreclosure was confirmed by Apex Development Group LLC, the manager of the investment, on September 5.

Kingston Properties CEO Kevin Richards said the company has a 36 per cent stake in the development, but was not involved in managing it.

“This is a limited partnership investment. We were not involved in the day-to-day operations,” Richards said in an interview with the Financial Gleaner.

KPREIT entered the partnership with Apex in July 2022 through its US subsidiary, Kingston Properties Miami LLC. The acquisition was part of a broader strategy to deepen KPREIT’s US operations, with the Polaris property purchased for US$12.7 million and financed through a mix of debt and equity

“They had a loan on the property. Part of the acquisition was some equity from other equity investors, of which we were included. There are quite a number of others,” he told the Financial Gleaner.

“They had a loan, the loan matured and they weren’t able to renew the facility,” Richards said. “Unfortunately, the property’s financial structure could not withstand market pressures,” he added.

The write-off represented 1.63 per cent of KPREIT’s total investment assets. Richards noted that despite prior downward revaluation of the asset, the current outlook necessitated a full impairment, as recovery of the investment was now considered “remote”.

The Polaris property was part of a value-add strategy aimed at upgrading older buildings to improve tenant quality and increase rental income. However, the plan was derailed by rising interest rates and tightening credit conditions in the US multifamily housing market, which have led to a wave of foreclosures across similar properties.

“Prolonged high interest rates in the market has created a bit of distress in a lot of multifamily properties,” Richards said.

“A lot of multifamily property had three-year loans and those loans have matured. Rates are still high, so it’s been very hard for them to refinance,” he added.

Kingston Properties has investments in various markets, inclusive of its home base Jamaica, Cayman Islands, United Kingdom and the US.

The company reported a net profit of US$0.64 million for the June second quarter, up 33.7 per cent year-on-year, with total assets climbing to US$88.84 million The group is in the process of expanding its footprint in the UK and continues to develop new projects in Jamaica, including a mini-warehouse complex on Rousseau Road.

Financial analysts say the impact of the Polaris write-off is manageable for KPREIT, but caution that it underscores the importance of due diligence and risk-sharing mechanisms in cross-border investments.

“This is a setback, but not a crisis,” said one analyst. “KPREIT’s diversified portfolio and conservative valuation approach have helped cushion the blow. The key now is how they adjust their strategy going forward,” the person said.

KPREIT has indicated that it is actively pursuing strategies to offset the loss and maintain growth in asset value and profitability. The company reaffirmed its commitment to transparency and prudent financial management, promising further updates as necessary.

“We are looking at strategies to offset the impact of this until we meet our target for the year,” Richards said.

neville.graham@gleanerjm.com