Where the cautious fear to tread

BUSINESS INTERVIEW:BILL McMORROW has to be one of the most upbeat businessmen you are ever likely to meet.

He bought Kennedy Wilson in 1988, when it had just $57,000 in capital, and started investing in markets when few would venture.

He invested in property in Santa Monica in 1993 and downtown Los Angeles in 1995 when there were few buyers. He went into business in Japan in 1994 when the country’s property market was still reeling from a bursting bubble.

He arrived into a snow-covered Dublin in late November 2010 when the Government had succumbed to outside pressure and applied for an EU-IMF bailout. He filled a week-long schedule with meetings, believing that it was the right time to invest in Ireland. He was in a tiny minority.

“It was my first week here and I had 25 meetings,” he says. “Everyone I met was so down on Ireland. They said, ‘Bill, what the hell are you thinking about? Are you crazy?’ I kept telling people, ‘Look, I heard the same story in Japan when we went there in 1994’, and so I became convinced after that that there was an opportunity.”

While many in property and finance believed the world was falling apart in 2007 and 2008, McMorrow had a different view; he believed in that old dictum that in a crisis, there was opportunity.

“When you go through the kind of cycles we have gone through, starting in 2007, that is a period of opportunity for us, because assets are getting re-marked to lower prices – and that is when we are active investors,” he says.

Kennedy Wilson had avoided the excesses and over-leverage of the booming noughties in the US that has sunk many in his business. He didn’t have any legacy problems as the markets nose-dived.

“I said to everybody at Kennedy Wilson in 2008 when Bear Stearns and Lehman were going down that this could be a great opportunity. I told everybody that this could in fact be the greatest opportunity we could have as a company, and it has really turned out that way,” he said in his Californian drawl sitting in Kennedy Wilson’s Irish offices on the south Dublin docklands.

It may have been the right time to invest, but McMorrow had a problem – the usual sources of capital had dried up. He says he spent 70 per cent of 2009 on the road, living “with a suitcase in my hand” as he sought cash from his “capital partners” to start co-investing in property from the following year.

Swimming against the tide, Kennedy Wilson floated on the New York Stock Exchange in 2009 and now has a market worth of about $1.5 billion (€1.1 billion); McMorrow owns 22 per cent.

Kennedy Wilson set itself a target of $7 billion to invest over a three-year period and McMorrow and his team started looking at where would be best to invest. They looked at Europe’s prospects and Ireland radiated brightly on Kennedy Wilson’s radar.

“With Ireland, what attracted us here was, we had examined the whole European banking system, starting really in the beginning of 2010. In order for a country or a banking system to heal itself there have to be write-downs taken. You can’t just hope that everything is going to get better. When we looked around Europe it just had impressed me that the one place in Europe that met us and we were taken with was here,” he said.

The National Asset Management Agency’s 57 per cent discounting of €74 billion of loans and the subsequent nationalisation of most of the banking system was proof that Ireland had taken its medicine, as tough as that was.

His experience in Japan had taught him that there was no point contemplating deals in a market unless Kennedy Wilson had a local team in that market gathering intelligence on opportunities.

Of the 20 US property companies that tried to establish “beach-heads” in Japan in 1994, only five, including Kennedy Wilson, succeeded. The Californian firm was the first US real estate company to float when Kennedy Wilson’s Japanese business went public in 2002.

“You can’t be like an astronaut investor where you are flying in every two months and racing around. You have to have a local presence,” said McMorrow.

To open doors in Ireland, McMorrow enlisted his friend Bobby Shriver, nephew of US president John F Kennedy and the former mayor of Santa Monica in California. McMorrow and Shriver met most Sundays for coffee in Starbucks in Santa Monica.

One weekend, he called up his pal and said he was keen on Ireland and wanted Shriver, who “has a global rolodex of contacts that won’t quit”, to help him out.

The “Kennedy” in the name of McMorrow’s firm is coincidental, he says; the firm was set up by a Don Kennedy (unrelated to Shriver) and John Wilson in 1977.

McMorrow’s “beach-head” for Ireland was Bank of Ireland Real Estate Investment Management, which managed about €1.6 billion of commercial property, mostly in Europe, for Bank of Ireland clients. Kennedy Wilson bought the business as part of Bank of Ireland’s bank’s deleveraging of “non-core” assets. This gave McMorrow a 15-strong local team led by managing director Peter Collins and an Irish base from where he would pick up local intelligence to invest.

The deal closed on June 29th, 2011. McMorrow asked for a courtesy meeting with Bank of Ireland chief executive Richie Boucher to thank him for agreeing the sale.

Being a former banker – and having started his career as a chief credit officer for a troubled southern Californian property bank in 1980 – McMorrow asked Boucher how life was at the bank.