Jeff Greene, who made his first fortune shorting subprime mortgages during the Great Recession, sees trouble ahead for real estate and no relief for crypto or tech stocks.
During the last Great Recession from 2007 to 2009, a little-known entrepreneur named Jeff Greene made billions of dollars buying credit default swaps on bonds backed by subprime mortgages as the housing bubble sagged. was collapsing.
Now Greene, a Palm Beach-based real estate mogul with an estimated fortune of $5.1 billion, believes the economy is going through another asset bubble ranging from crypto and SPACs to tech stocks and… overvalued real estate. “We’ve been in an omnibubble, there’s no doubt about it,” Greene, 67, said. Forbes in a phone call from his Hamptons estate, something he’s been saying for months now. “If you’re spending trillions and trillions of dollars in all the advanced economies of the world and you’ve coordinated fiscal and monetary stimulus, obviously you’re going to create bubbles and inflation.”
When asked when he thinks a recession will hit, Greene guessed it could come in the first or second quarter of 2023. “Next spring [we’ll] definitely be in a much slower economy,” he said. “If this recession really happens, you will have all kinds of people stopping their construction projects and laying off people and [you’ll] start to see unemployment rise rapidly.
More than a decade ago, Greene made his fortune from the wreckage of the housing market and reinvested some of his profits in apartments and condominiums, eventually building a residential real estate empire concentrated in South Florida and in Los Angeles. But despite skyrocketing house prices across the country, Greene believes the boom will soon turn into a bust. “The real estate market is in a bubble,” he said. “We’re oversized and you’re going to see a lot of people having trouble with their property developments,” he postulated, referring to residential real estate.
He also sees a parallel between the subprime crisis of 2007 and the rise of the stock market and the crypto wave of 2021. [betting that the value of subprime mortgages would fall] and I remember saying, “Who’s on the other side of this trade?” These mortgage-backed securities had virtually no chance of being repaid,” he said.
“It’s the same with people who say, ‘Well, I have to buy stocks because I don’t want to make a percent. [return with low interest rates] so I’m going to put my money in something that’s very inflated,” Greene said. “And they bought crypto, SPAC stocks, flip houses, stocks and private equity investments at unprecedented earnings multiples, with no prospect of profits.”
Although he still invests in a range of equities and private equity, he said Forbes he is now more risk averse than a decade ago, with little debt on his real estate projects in Florida and New York, where he recently completed construction of a 30-story apartment building in lower Manhattan . He also turned down several offers to sell his buildings for cash or invest in high-value private companies in early rounds of financing. (He won’t say which specific companies approached him.)
Unlike his successful bets against the housing market during the Great Recession, Greene isn’t shorting anything this time around. When asked what he would do if he was more open to taking risks, he sketched out a potential strategy. “If I was more aggressive, because I saw that [bubble] pass, I would have sold more at the top. I would’ve built a war chest and sat here waiting for opportunities [to buy at lower values]”, Greene said. “The kind of deals that people were bringing me to invest in some of these tech companies, I was getting calls [saying] “I can get you on this special billion dollar round, the company is doing $40 million in revenue.”
He found those deals too expensive: Greene thinks many of these tech companies will struggle as the stock market continues to slide and the economy slips into recession next year. “[I’m] thinking, ‘Who’s doing this?’ he said, referring to investing in startups at exorbitant valuations.
“I have friends who are very smart people who were doing this and everyone thought they were going to be the next Zoom. A lot of these companies are losing money and now they’re cutting back and trying to get through this. “, he said. “You can be sure that there are companies that will find themselves up against the wall. You will be able to participate in some of these projects, what I call “science projects”. [because] they are just sorts of ideas that are unlikely to become huge, on very favorable terms. And people will make a lot of money, one of them will be the next Google or Amazon. In these spaces, there will be opportunities.
Yet there is no doubt that Greene is a beneficiary of the bubble. Greene, who has lived in Palm Beach since 2009, pointed to the growing exodus of billionaires and wealthy investors from northern states to South Florida, where real estate prices have skyrocketed. since 2020. And it’s not just billionaires moving to the Sunshine State: Miami rents rose nearly 26% year-over-year in the second quarter of 2022, more than all major US metro areas. States, and demand for apartments is near record highs, according to Marcus & Millichap.
“There is just an extraordinary migration in our region, which has put enormous pressure on [real estate] values,” said Greene, who cited the recent announcement that billionaire Ken Griffin plans to move his Citadel hedge fund from Chicago to Miami as another boost to the local economy.
The influx of the super-rich to Palm Beach has also boosted enrollment at The Greene School, a nonprofit kindergarten through high school in Palm Beach that Greene founded with his wife, Mei Sze, in 2016. There now has 150 students enrolled in the school, up from 123 in the 2019-20 school year.
“The kind of families that move to our town and put their kids in our school are like the all-star team,” he said, citing a pre-K class with parents including several founders of Ivy League-trained hedge funds. “These are people who are going to create all kinds of jobs and businesses that are going to drive the economy of Palm Beach County. I’m very optimistic about long-term economic growth and the value of my holdings there. ”
Greene believes he owns “virtually all of the remaining high-rise development sites on the water” in Palm Beach, much of which he acquired after the real estate market crashed in 2009 when land values were cheap. But even though the South Florida real estate market is still booming, Greene sees dark clouds ahead if, as he expects, the economy tips into a recession in early 2023, especially for highly indebted real estate investors.
Even among his fellow billionaires, Greene has seen the impact of recession fears on their spendthrift lifestyles. “I was at the Hotel du Cap with a bunch of super rich [two weeks ago], one of the most expensive hotels in the world in Antibes, France, and everyone says “Oh my god, I lost 30% of my net worth”. But they had already booked the hotel,” he said. “Those days are going to be over this winter. You’re going to start seeing people spending less money and the recession is going to start.”