William McMorrow, the chair and chief executive of Kennedy Wilson, wasn’t always in real estate. Prior to joining Kennedy Wilson, McMorrow was in the banking industry for 17 years.

But in 1988, McMorrow made a shift, buying the real estate company and growing it from one office and 11 employees to 13 offices in the U.S. and Europe with $27 billion of assets under management.

Last year, Kennedy Wilson made a nearly $6 billion acquisition of Pacific Western Bank’s loan portfolio. PacWest merged with Banc of California last year.

With the acquisition, roughly 40 people joined Kennedy Wilson, which McMorrow said made the company “one of the preeminent construction lenders in multifamily and student housing, because the banks aren’t doing it.”

McMorrow sat down with the Business Journal to discuss construction lending, what asset types the company is most interested in and its future.

Why did you decide to make a career change from banking to real estate?

There was a bank here in Los Angeles that was controlled by two families and was a very successful bank, but they had a lot of exposure to real estate, and this was 1980 and the interest rates went to 21% and 70% of our lending activity at this bank was real estate-related. When people complain about rates going to 6% here, I would, like, laugh.

We hired 35 people that were not bankers, because I figured that the people that made the loans couldn’t solve the problem. And so, I hired all these people from the real estate industry that were out of jobs. We staffed up a small development company inside the bank…

I saw everybody buying things from us that I thought we were doing a really good job of fixing up and selling, and then they were turning around and selling it for even more. And so I said, ‘Wow, there must be some kind of a business here.’ So I went to George Graziadio, who the Pepperdine school was named after, and I said, ‘Look, I’d like to go out on my own, but I need a capital partner.’ He said, ‘Fine, I want to be your capital partner.’ And so he was my original capital partner.

Shortly after I left the bank, I learned that Kennedy Wilson, was for sale and in 1988 I was lucky enough to buy Kennedy Wilson.

Why did you decide to take the company public?

It was a decision in 2009 that we didn’t have enough capital… Nobody had any money. It was a crazy time, but we said to ourselves, this is a big opportunity, because here are these great assets out there, but there’s no capital, so now we have to go find capital. So part of going and finding capital was going public, and then the second piece of it was meeting Fairfax Financial. And that was just absolutely dumb luck. I went to a Berkshire Hathaway annual meeting, and I met the CEO of Fairfax. And I went and saw him the following week in Toronto, and he’s one of the smartest, kindest businesspeople you’re ever going to meet in your life. But he’s a very contrarian investor, and whenever there’s a crisis, he likes to get going. And I literally had almost 1,000 meetings in 2009 and he was the only one that I found that was willing to take a bet that the world wasn’t going to end. So he allocated a bunch of capital to KW, the company, and then he gave us what we call a separate account for a sizable amount of money, and we started buying things. And once we started buying things, then everybody wanted to get on board. It’s always what happens.

How did you pick the markets you’re currently in (the U.S., the U.K., and Japan)?

The markets that we’re in have to have a high-quality education system that is producing really talented young people. And, when you think about the United States, Japan, the United Kingdom and Ireland, they all check that box.

The second thing is that you have to have a big banking system. So the biggest banks in the world, generally, are in Japan and the United States and the United Kingdom.

The third one was that there has to be a rule of law, you know, where the legal system is transparent in all of those markets, that exists.

What asset types are you most interested in now? Why?

We’ve owned every asset class, and we’ve made really good money in every asset class, but our focus today is really the housing industry. We own about 40,000 apartment units, and then we finance another 25,000 and so we want to grow that 65,000 units we either own or finance, we really want to grow that at a rate of 15% to 20% a year.

We will own other asset classes, but generally they’ll be in partnerships where we’re a smaller investor, we’re managing money for somebody else.

What about L.A. specifically? Is it a market you are interested in now?

I grew up in California. I love California. I’ll start my answer that way, but about 20 years ago, we decided to start diversifying away from California, because we saw jobs leaving, particularly Los Angeles…California just became less appealing to us because of the jobs. They checked the box in terms of the education system, but the box that they didn’t check well was jobs and affordability. And so we started going into these other markets.

How will lower interest rates impact the firm?

They’re going to have to come down way more. It’s still expensive to borrow money. You’re talking about a half a percent rate reduction, but most developers were borrowing for construction at 8% so that math just doesn’t work. If you’re borrowing at 8% and you’re building and taking construction risk, the apartment stabilizing at 6%, you’re going backward.

A half a percent was great as a start. Rates really need to come down. Short term, rates to come down 300 basis points, I think, to really make a difference.

U.S. 10-year bond rates, that’s the rate that everything is indexed to under long-term financing, that today is 3.75%, which is great, but it really needs to come down to 3%. If you can get short-term rates down 3% and you can get the 10-year bond down to 3%, then you will see a tremendous amount of activity. The big difference between ’08 and ’09 is there’s capital all over the place today, but capital is competing against some AI company that goes up 1,000% every minute.

What’s your view on construction lending at the moment?

It’s interesting. Since most of the loans we do are only 55% to cost and the average size loan is almost $90 million, that means somebody has to put in like $80 million directly. So that means that’s either a company that’s the best in class (or) that’s attracting capital. There aren’t a lot of companies that have $80 million, so that means you are loaning to the best companies in America.

It’s a great business. The group of people that came to Kennedy Wilson, 40 people who came here, have been doing this for their whole career, three decades, four decades… It’s a business we’re continuing to grow.

What’s next for the company?

You never know. We have a plan, we are executing the plan that is right in front of us right now. But we have a great, great team of people here at the company globally, and you never know what the next opportunity is. You’ve got to have everybody out there looking for the next opportunity. We do. The next opportunity will come from someplace that you can’t even imagine.

Are you interested in acquisitions or focused on organic growth?

At the moment, we’re really trying to organically grow the company, but we’re talking to a lot of other real estate companies. I had three meetings yesterday, including a dinner, and they’re attracted to Kennedy Wilson.

Every company in our business is capital intensive (and many) want to grow their multifamily business, but they don’t have enough capital. They have a good, solid base, and they’re in markets that we’re not in ownership wise. So it’s very possible that some of these discussions that we’re having could end up in (acquisitions).