Sage Investment Advice From Exhausted Real Estate Billionaire Jeff Greene – Forbes

Jeff Greene started investing in real estate as a side hustle in college and survived a downturn in the 1990s before making his first billion betting against the housing market in 2008. He spoke with Forbes about how he’s managing his investments ahead of a potential recession.

_{By Giacomo Tognini, Forbes Staff}

As a child growing up in Worcester, Massachusetts, Jeff Greene shoveled snow and worked an 86-house paper route for the local newspaper. In college at Johns Hopkins, he worked part-time jobs ranging from teaching Hebrew to checking IDs outside the library. To pay his way through Harvard Business School, he traveled the country as a circus promoter—money that he later invested into three-bedroom houses in a town near Boston, his first foray into real estate.

Disaster struck with the real estate crash in the early 1990s, but Greene managed to scrape by. Then, in 2006, he made an audacious bet against the housing market, buying credit default swaps on subprime mortgage-backed bonds. The ensuing collapse earned him a windfall of $800 million, which he plowed into prime property in Palm Beach. It also made him a billionaire: Forbes now estimates his fortune at $7.5 billion, much of it concentrated in South Florida, Los Angeles and New York.

Forbes spoke with Greene about his knack for surviving crises and his risk-averse approach to investing.

Forbes: How did you get your first start in investing?

Jeff Greene: The way I got into real estate was kind of by accident. I was accepted to Harvard Business School in the spring of 1977, and then I needed a place to live and I wanted to move into Soldiers Field apartments, which was a beautiful modern complex. I’d already been out of college almost three years, I didn’t want to live in a dorm and I didn’t get into that apartment, it was full. So a guy who I’d gone to Johns Hopkins with, I asked him, “what do you do?” He’d gone to Harvard a year before me. He said, “Well, what I did is I bought an old three-family house out in Somerville, the next town to Cambridge. And you can buy one and you can live in one of those, rent out the other two and it’ll probably cover all your costs. You get a mortgage for 80%, so you’ll live rent free for two years and get your money back so you won’t have any rent.”

So I did that. I bought one of these three family houses, and I had worked after college and made $100,000 as a circus promoter. So this house was $37,000 with $7,000 down. I got accepted to the apartment complex, but I thought, “I already bought the house, so maybe I’ll rent out all three.” So I ended up thinking, “Wow, I’m making a 30% return, I’ve got to get more of these.” By the time I finished at Harvard Business School, I had 18 properties in this little town, Somerville, and the markets went way up. And my $100,000 cash was already a $1 million net worth. I was not even 25 and I was suddenly in real estate.

Forbes: How would you say your investment strategy has changed or evolved over the years? What’s your strategy like today?

Greene: Well, it changes as you go through the cycle of life. Starting out, I made my first $100,000 and then my first million. Then you think, “I’d like to make another million or $10 million, then $100 million.” You want to keep buying and building and growing. Now I’m 68 years old, so [my goal is] preservation of capital. The more the better, but I don’t really need to make more money. I was very careful when rates were low to lock in my rates, so I don’t have too much debt. Even the debt I have, it’s 90% locked in at lower rates.

I have five projects going on, but it’s really too much for me. I’m exhausted and I don’t like the workload, even though I know they’re good projects. Where you are in your life, more than anything, dictates how much risk you’re willing to take, how much work you want to have, and everyone’s different. I got married later and I have three young kids, so I want to spend time with my kids while they’re still young enough to enjoy it. Coming out of the financial crisis, honestly, I could have had a net worth three times what I have, because I didn’t leverage myself. I bought all these properties, I didn’t build on them. I just kept the land. I could have gone crazy. And I knew that I was giving up a lot of opportunities, but I just wasn’t that motivated for the workload or to build a bigger organization or to take the financial risk. When I was in my thirties, I wanted to conquer the world. Now I’m in my sixties, and I want to still be active and productive and make money, but I’m not willing to take risks like I was.

I had a big crash in the early ‘90s. My net worth became negative and it was a real eye-opener for me. Truthfully, from my first newspaper delivery route and shoveling snow and mowing lawns to where I was in 1991, it was a straight ride up. And then all of a sudden I wake up and my net worth is negative, and I’m fighting lawsuits. So I learned in that period, don’t be leveraged. Be prepared for slowdowns.

Forbes: We’ve talked about your strategy in the context of real estate. When you’re looking at your stock portfolio, bonds, alternative investments, is your strategy also conservative at the moment?

Greene: I’ve got a fair amount of treasuries. I’ve staggered one month and three month and six months treasuries, and I’m making five percent-ish. We’re in the Giving Pledge with Warren Buffett and Bill Gates, and you listen to [Buffett]. I’ve spent some time with him and I like a lot of the things he says. He’s very wise, that’s why he’s considered such a sage. Things like, “I’d rather buy a great company at a fair price than a fair company at a great price.”

And it’s the same thing [with real estate.] What do I want to own? I want to own great buildings, great companies. A great building is one that has stable, predictable cash flow, not a lot of volatility, that has good long-term prospects because of where it’s located, how it’s built, what it is, and it’s the same with stocks. I own some core stocks, Google and Apple and Meta. And they’ve had their ups and downs, but generally I have core holdings that I own, and you don’t pay attention to the noise of the markets. Those are the kinds of long-term assets. It’s the same with some of the properties that we own. We own some amazing properties around the country, some I’ve had for 30-plus years.

Forbes: Are there any investments that you consider your greatest triumphs? And others that were disappointments, or that you would rather have done differently?

Greene: I’m building these two towers that I’m finishing in West Palm Beach, [called] One West Palm. The market exploded out from under me. I never would’ve predicted that South Florida, during the pandemic, would have had this enormous inward migration. Rents doubled in the last five years, and demand for everything has gone through the roof and everyone’s moving here. It’s slowing a little bit now, but it’s been a big boom. That will be a successful project.

One thing I learned long ago is—and I unfortunately have not followed it as well as I could—but whenever you make a decision, if more than 50% of the reason you’re doing it is for your ego, the odds are you’ll regret it. Why did I build the two tallest buildings in Palm Beach County, over a million square feet? I’d say more than 50% for my ego. In the end, I do regret it because at the end of the day, when I’m building 200-unit apartment buildings, I could do it with my eyes closed. They’re easy. Some projects you do for the wrong reasons. So far, it looks like the market’s really going to make it successful, but not because I did such a great job as a developer.

Being a real estate developer, you’re kind of buying lottery tickets on the economic cycles. If you look at some of the big condo kings around, they make a billion dollars, they lose a billion dollars. How do you know, when you’re conceiving a project, what the market’s going to be two years later, three years later, five years later, when you’re really out trying to monetize it? You can guess. And oftentimes people are most aggressive when things are at the peak—when you should probably be pulling in—and the least aggressive when the world’s coming to an end, when you probably want to be in there, gearing up for the next up cycle.

Forbes: What advice would you give to your 20-year-old self?

Greene: Do things that make sense for you and the way you want to live your life, not for what other people will think about what you’re doing. You only have one life and you only have so much time on the planet. Whether you’re trying to build a net worth or a business, keep your eye on the ball and stay focused on the goals, whatever they may be. If your goal is to make as much money as you can, and you don’t care about anything else, then go work real hard and do everything you can.It’s important that whatever age you are, try to step back, take a deep breath and think, “Hey, is this what I wanted in my life?” Most people are just trying to make ends meet. Most people don’t have the luxury. You get a job, you pay your bills, hopefully you can get a little bit ahead and not be behind the eight ball. That’s most people’s life. But if you do have the luxury of choices, then sit back, think carefully, and make the right choices.

Forbes: What are some of the biggest risks you think investors are facing today?

Greene: We’ve had a very unusual time with this extraordinary amount of liquidity pumped into all the advanced economies. We don’t really know where it’s going to end up. We ended the pandemic with $2.1 trillion of excess savings above average levels. It was excess everything. It was excess construction projects because there was so much liquidity. More apartments were built in the last two years than any time in history.

But now I think we’re at the point where the excess savings are gone. The extraordinary amount of new wealth that people got from the liquidity, that caused housing prices to go up, and stock prices to go up and everything else, that’s dropping a little bit, so people don’t have the same wealth and the same savings. Now’s the time where these high rates could really rear their ugly head. I just had lunch with my banker and they said they haven’t made any construction loans in the last year. So everything we see out here is from the extraordinary liquidity period we had.

But now what happens when one of my properties finishes, where are these guys going to go work? Nobody’s starting any new ones. There’s no financing. There’s nobody buying houses, nobody’s buying condos, no one’s building office buildings. It was a long runoff from the excess period, and it’s now coming to an end. That’s why a lot of people are thinking we could have a significant economic downturn, starting now or early next year, as people run out of excess savings and don’t feel as wealthy.

Forbes: Given that environment, what are the particular micro or macro factors that people should pay attention to when they’re deciding how to invest their money?

Greene: If you think that we’re coming into a slowdown, then you certainly want to have as much liquidity as possible because you’ve got to be ready. You’ve got to be prepared to start making less money. If you’re a real estate investor, maybe if things slow down, your rents are not going to go up, they’re going to go down. If you’re a waiter, you’re not going to be making as many tips. If you’re a construction worker who is making $50 an hour plus overtime, maybe you’re going to be making $25 an hour with no overtime.

Be as liquid as possible. On a long-term basis, for most people, it pays to just have a diverse pool of investments because you want to be ready for anything to happen. Have diversity in your investment portfolio, so if one thing goes up, the other thing goes down.

Forbes: You mentioned Warren Buffett as someone you look to for advice. Do you have any investing mentors?

Greene: His investing style works for almost everyone. Spend all the time you have to make sure that you’re making prudent, good investments in great businesses, great real estate, and then keep your eye on them and be patient.

The other thing that he said, which I thought was very good advice, was wait for the big fat pitch. A mistake I made is too many deals. As soon as I feel like I’ve been pitched, I feel like I’m in a batting cage and I’m just swinging at everything just coming at me so fast. But sometimes, [you have to] let them go by, and that’s what he does. He lets his cash get up to billions of dollars. But then when Goldman Sachs needs money in the financial crisis, he steps up and he just waits for that big fat pitch.

All these expressions are very valuable. You want to be greedy when people are fearful, and fearful when people are greedy. And it’s hard when everyone’s greedy, and all your friends are buying and flipping houses, right? But that’s the time when you probably want to sit back and let that crazy, greedy excess pass and wait until things calm down. And then when everybody’s panicked, like is happening now in real estate to some extent, that’s the time when no one wants to touch it because it’s going to go down forever. That’s the time you want to start being greedy.

Forbes: Are there any books that you’d recommend every investor should read?

Greene: I really don’t. I can’t say I’ve got a lot of people’s books, because most books on investing really can be summed up in a couple of pages. You could read all these how to make money in real estate books, and there’ll be 100, 200 pages on it but the general gist of it is: buy quickly, put as much debt on it as possible, use the money to go buy another one, sell it, buy another one, refinance, try to turn your money quickly.

MORE FROM FORBES

Adblock test (Why?)

Source link