Fairfax Financial Partners, a Canadian insurance company, finalized a deal to acquire a large portfolio of construction loans previously held by PacWest Bancorp for $2.1B. The seller is Kennedy-Wilson Holdings.

Fairfax is taking 63 of the 74 loans that PacWest sold to investor Kennedy-Wilson in May for $2.4B as part of an effort to reduce its exposure to real estate loans. That sales figure represented a discount of $200M.

Small banks hold 4.4 times more exposure to U.S. CRE loans than larger ones do, according to J.P. Morgan Private Bank. Such loans loans make up 28.7% of small-bank assets, as opposed to 6.5% at large banks.

About 70% of the loans Fairfax acquired are associated with multifamily assets or student housing, with the balance in industrial, life sciences and hospitality assets.

Under the terms of the deal, Fairfax will also assume $1.7B of future funding obligations from the loans, whose average interest rate is 8.6%, according to a Securities and Exchange Commission filing. Fairfax has entered into interest rate swap arrangements to effectively solidify this rate over the life of the loans, which have average remaining terms of about 1.7 years.

Kennedy-Wilson will retain the 5% of the loan portfolio it isn't flipping to Fairfax, while Fairfax is simultaneously making a $200M investment in Kennedy-Wilson preferred stock, which is paying 6%.