Why real estate billionaire Jeff Greene is betting on South Florida apartments

Real estate investor Jeff Greene bought his first properties in 1977 while a student at Harvard Business School. He bought three apartments in humble Somerville, Massachusetts for a total of $36,900, living in one of them.

“I was just looking for free rent,” the 67-year-old Palm Beach, Florida resident said in an interview with TheStreet. “I wasn’t looking for a career in real estate.

Greene estimates that his current real estate portfolio – mostly apartments in South Florida – is worth more than $5 billion. Forbes pegs his fortune at $7.2 billion.

TheStreet.com spoke with Greene on October 12 to get his thoughts on real estate investing and the current market. Here’s what he had to say.

TheStreet.com: What is your general philosophy for investing in real estate?

Green: I’m a long-term investor — 10+ years. There are pinball machines trying to time the market. But I try to take advantage of long-term trends, something that can withstand the cycle. Real estate is very cyclical. I don’t want to be influenced either.

TheStreet.com: In which cities and which sectors do you invest?

Over 80% of my investments are in South Florida [primarily in West Palm Beach]. It’s best to buy properties close to where you live and work. This way you can be active and pay attention without getting on a plane or video meeting. I believe in Florida: it’s always growing.

I lived in LA for over 20 years, so I still have a few properties there too.

In terms of sectors, over 80% of my portfolio is in multi-family units. It’s good to be specialized. You can know one thing better [than you’ll know a lot of things].

Real estate investor Jeff Greene focuses on apartment investments in South Florida

TheStreet.com: Why do you like the multi-family sector?

Green: People need a place to live. There has been a general housing shortage for a long time, and it looks like it will continue across the country. Regulations discourage construction. It’s always better to own something rare.

On the management side, it is easier to find tenants for apartments than for shops or offices. In commercial real estate, you might get a long-term lease with a good tenant. But when they move out, you may not have a tenant. It may take years to find a new one.

If your apartments are in a dynamic location, you will always have tenants at a certain price. This has been easy in recent years, as fiscal and monetary stimulus has put a lot of money in people’s pockets. Now that money has been taken out and some areas are in question.

Los Angeles is not overbuilt, as there is restrictive zoning. If you own apartments there, there aren’t many new competitors.

But all over Florida there’s a lot of new [multi-family] development. As the economy slows, there will be more and more competition for tenants.

TheStreet.com: Do you think individuals are better off investing in REITs or individual properties?

Green: It depends on the person. If you want to own a building, you have to be entrepreneurial. You have to manage it and make repairs. If you want to rent apartments, you must have a business personality.

You can hire a management company, but many don’t want small properties. If it’s an eight-to-20-unit building, a management company will charge around 3-5%. And they probably won’t put much effort into it.

If you want to do this for a career, buy a small building, rent it out yourself, see how it works, then maybe build.

With REITs, you don’t have to worry about day-to-day management, you can get regular income and eventually capital appreciation. You have to decide which sector you want to invest in and of course you want to pay a low price. Do your homework.

Two vouchers are AvalonBay Communities AVB for apartments and Apple Hospitality REIT APLE, a hotel SCPI.

AvalonBay buys good properties and manages them well. And Apple is a great manager of limited-service hotels.

The author owns shares of AvalonBay.

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