Will your rent skyrocket? Not if this billionaire is right
Marvy Finger recently sold half of its Sunbelt apartment portfolio for $2 billion, saying the crazy Covid rental market has peaked. Buyers, pointing to a low vacancy rate for 20 years, disagree.
For a real estate mogul, Marvy Finger’s second-floor offices in a low-rise Houston office building are as modest as the first apartment buildings he built nearly 60 years ago – and that he still owns. “I like the simplicity and the roominess,” says the 86-year-old, slightly stooped, 5ft 5in, whose unassuming uniform consists of a khaki, oxford shirt, loafers and a Hermès tie offset by a Timex watch. His favorite drink is Johnnie Walker Black Scotch and he also has a similar taste for value in business.
‘It’s not sustainable,’ Finger says of the 25% rise during the Covid-19 pandemic in apartment rents in key Sunbelt cities like Tampa, Austin, Nashville and Houston . He points to the surge in new construction across the country, with so many buildings sprung up that 600,000 new units hit the market last year, nearly double the previous record. Meanwhile, these federal stimulus checks fattening tenants’ wallets have mostly been spent and price increases for other necessities, like energy and food, competing for their remaining dollars.
“I’m absolutely planning a major fix,” says Finger. That’s why last December he sold half of his portfolio – 15,000 units in Houston, Dallas and Atlanta – to real estate investor Greystar for $2 billion. He thought that was a rich price, equal to about 33 times the projected 2022 net operating income (rental income minus expenses) of $60 million. Estimating that the package would have cost around 75% less before Covid-19, Finger concluded, “it would be irresponsible not to sell”.
Yet while Finger was a happy seller, Greystar was a happy buyer, says Kevin Kaberna, its chief investment officer, who admires Finger’s vigor and calls him “a prolific developer of the finest assets in the best locations.” With 54,000 units in Houston, Greystar was already the biggest landlord in the city and Kaberna insists the market remains fantastic – he points out that the national vacancy rate fell to 5.2%, the lowest since at least 20 years, with outright shortages in the hottest markets. . According to Dallas-based real estate consultant Ron Witten, the biggest favorable trend is “splitting” households, as some millennials (including those who moved during the early days of the pandemic) leave their parents’ nests, and d others are already alone. dump annoying roommates.
How high can the rent go?
With apartment vacancy rates low and falling, landlords have pushed record rent increases in 2021. Billionaire Marvy Finger thinks a flood of new rental units will dampen future increases, but other developers are more optimists.
So what did Finger cling to? He’s kept a few trophies, like One Park Place, an upscale tower he built in downtown Houston next to Discovery Green Park, and 500 Crawford, a luxury mid-rise building across from Minute Maid. Park, where the Astros play. And some properties with sentimental value, like Colony Oaks, the very first two-story walk-up complex he built in Houston in 1960; selling it “would be like selling my first-born”.
Significantly, Finger also retained properties that he felt had more appreciation in their underlying dirtiness. A fully leased 152-unit complex he built in the 1960s is on seven acres adjacent to the private Duchesne School. “The school no longer has any other place to develop than on this earth”, he thinks. The land is currently valued by the county at $30 million, but it believes it’s worth much more, especially in famed unzoned Houston, “the only major city that really has no restrictions on entry.” , he said. “It certainly allowed me to develop at will.” And possibly, to redevelop. That’s why he says, “I think what I want is worth more than what I sell.
Finger grew up in a family of entrepreneurs. In the 1940s, his father Hyman left the pine woods near Beaumont, Texas and started Finger Furniture. Marvy grew up sweeping floors, selling furniture, and watching Hyman make the mistake of bringing his brothers into his business. “I saw the clashes he had with his family and I knew I didn’t want to be a part of it,” says Finger, whose two brothers died years ago. Finger received an early discharge from the military after a disorder resulted in most of his stomach being removed. In his early 20s, he learned from mentor Ben McGuire how to combine loans from insurance companies with mortgage insurance from the Federal Housing Administration to build two-story wood-frame and brick-veneer apartments with financing. 100%. “You could really exploit them fully, without any equity,” he marvels.
After successfully building dozens of middle-class apartments, Finger nearly lost his shirt on his first office building project, which became one of the infamous “see-through” towers that languished empty, with unfinished interiors after the 1982 oil crisis. He decided to stick with apartments, but decided to venture beyond the bounds of Houston’s endless sprawl, all the way to Chicago, where he met with attorney Barry Nekritz. “What made Chicago interesting to him was that it had the best transportation system in the country. You could get on a train and go downtown and live near a grocery store,” says Nekritz. In Schaumburg, Illinois, Finger contractors are currently putting the finishing touches on a new mid-rise resort located near an older (but still nice) resort he built 35 years ago. Nekritz, “I’m 83, but he won’t let me retire because he won’t retire.” Finger still loves tennis, although a fly-fishing accident in Belize cost him an eye a few years ago.
Nearly 30 years ago, Finger’s projects caught the eye of managers of Harvard University’s $54 billion endowment, who, beginning in 1994, partnered with him to build 16 projects , including many in South Florida. Chip Douglas, who headed Harvard’s real estate investments at the time, remembers Finger’s pursuit of “the art of building with quality and making the numbers work.” In one building, “he didn’t like the way the pool turned out, so he tore it up and started over.” After a decade, Finger bought out most of Harvard’s interests, but that high-profile relationship opened the doors to all the capital he would ever need. “They didn’t know Finger from Adam, but they certainly knew about the Harvard seal,” Finger says.
Since then, the builder has signed other high-profile partners, including Houston billionaire Fayez Sarofim and the children of late pipeline tycoon Dan Duncan. He also built bigger and taller projects, like the Museum Tower in Houston, valued by Harris County at $100 million.
In addition to tapping Texas money, Finger relied on his deep connections with Houston. In 2006, he learned from his daughter Jill Jewett, then Houston Mayor Bill White’s cultural affairs officer, that billionaire Rich Kinder was working with the city to build a city park called Discovery Green that would transform downtown. Tipped off, Finger picked up a lot and got to work on a 340-unit tower called One Park Place that would overlook the new park. Eyebrows raised; there had not been a residential tower built downtown for 20 years. He outfitted it with a replica of the Ritz-Carlton pool in Maui and drew an upscale grocery store downstairs. “Equipment number one is a food concession,” he says. Yet after the global financial crisis of 2008, tenants were hard to find and it took years to fill units. “I never thought about the risk on this project,” he says now. The building is valued at $158 million. As Houston boomed after the Great Recession, it followed up with a series of luxury projects like the eight-story 500 Crawford, across from Minute Maid Park, home of the Astros, and now valued at $91 million. No vacation.
Finger likes to dream of what might one day replace the 20 acres with 540 garden apartments at Creole On Yorktown that he built in the early 1970s with funding from Ace Greenberg at Bear Stearns. It was the first and last time it incorporated a bar on site (a security nightmare). He nearly lost the resort to bankruptcy in the wake of the 1973 oil crisis, “but nobody wanted to buy a negative cash flow property.” Eventually, “the Houston market transformed”, and he’s owned it ever since, along with the Tony Galleria neighborhood that grew around it. After the next oil crisis in the early 1980s and the savings and loans crisis, Finger salvaged some gems at bargain prices from the Resolution Trust Corporation, set up to liquidate bankrupt S&Ls. His purchases included a three-acre parcel in the Galleria where he built a modest resort (valued at $10 million). The site, now adjacent to an Omni hotel and the Tony Houstonian Golf Club & Spa, may one day yield to redevelopment worth many times the value.
In late 2019, Finger raised $90 million to erect a new luxury tower on another piece of land nearby. But he called off the project even before Covid-19 hit, fearing an inverted yield curve could signal economic trouble ahead. With today’s high demand, this building would have quickly filled up, but he does not regret having retired. “The fundamentals must make sense.” When they do, Finger (plus heiress daughter Jill and son Edward) have the land on which to erect a number of high-rise redevelopments. He is not in a hurry. “What’s happening now can’t last,” he says, referring to the rampant construction of apartment buildings. In Houston, for example, builders currently hold permits to build 42,000 units, more than double the normal number. Labor and material prices are skyrocketing. Having seen bubbles before, Finger is content to wait. “We are still going to be overbuilt. Glut definitely happens.