Billionaire Jeff Greene: Inflation is transitory

A very curious development in the housing space, or worrisome if you’re a home builder. March housing data starts. They’re called the housing starts, came in with a very startling downside. Surprise ground breaking on new homes. While estimates were for a decline of 2.2%, new home construction actually plummeted 14.7%. Housing starts are very often an important leading economic indicator. A significant decline like the one we just saw could be the Canary in a coal mine, indicating A slowing economy. But is that really the case? Let’s bring in real estate entrepreneur and billionaire Jeff Green. He has 8000 rental units across five states, including Florida, California, New York, Massachusetts and New Hampshire. Jeff, what do you think is behind this big drop in housing starts? Well, interest rates are the obviously the culprit. I mean you know basically houses were being given away, they were free almost when you are when you think about it, interest rates were 2 1/2 percent fixed with interest only payments from 10/15/20 years. So basically it was, it was a giveaway for housing and now you triple interest rates. Of course this is going to happen. People can’t qualify for loans anymore. You know what, there is this mobility issue. In other words people who got those very low rates 2 to 3% are stuck in essence waiting if they want to buy a new home or they want to move waiting because they don’t want to buy a new place and then be facing a 7% thirty year fixed rate of some sort. What needs to happen before that dynamic changes? Well, it’s yeah, it means in a for a lot of people their low interest rate loan is their greatest asset and it’s actually having a big, a big impact on migration of Florida. Because when you think about it in the during the pandemic people were selling their homes and buying homes here with 2 1/2 percent loans and now they have to sell their homes in the Northeast with with 2 1/2 percent loans and buy a house here with a 7% loan. So it’s really impacted the number of people coming here. But I think that’s only going to change with two things happen, people’s income go half, half, half incomes have to go way, way up to be able to pay these mortgages and that’s not going to happen very quickly or rates have to come down. And so I think rates will come down. I think that what we’re seeing now with the inflation is it really is transitory at this point. You know we came into the member when we entered the entered the entered this slowdown, we had an extraordinary amount of excess savings, excess economic activity. And so this is to the economy just lingered and gone very well. But I think the economy is heading into a big slowdown and with that will come a drop in rates and none of that will be will lead to the revival of the housing market. You have a project in West Palm Beach that is nearly complete rentals. Tell me about how rentals will be affected when people. I mean, it seems obvious that people would rush to rent while they wait for rates to come down. Today we had Jerome Powell of the Federal Reserve saying, you know, we’re we’re disappointed that the progress has slowed on bringing down inflation. Therefore we can’t cut rates at the moment. You didn’t say it in that many words, but that’s what we read. How are the rentals starting to stack up where you have buildings, including when you’re ready to open One W Pond? Well, rent, look the rental market and like all real estate is very much low. It’s a local market. So here in Florida we have an enormous amount of over building going on. Just in Palm Beach County alone, there are 7000 apartments being built right now and without people moving here, what does that mean to a landlord? All the landlords are having to share in the same group of tenants. So what that means is rents are dropping, vacancy rates are going up and that’s going to be disinflationary for housing because rents are going to actually drop in markets like these of course that people, people can’t move to home, so they are there. That does provide some support to the rental market because if you can’t get a mortgage you have to just keep renting. But I think other markets like LA which are really supply constrained markets. So we have a big position because they’re they’re very anti development and there’s no land in those markets. The rental market still is is stronger, but in areas where you’ve had the growth in the Sunbelt, places in Texas and Florida and Arizona, we’re seeing a lot of overbuilding and declining rents. Jeff, the state of New York is reportedly getting close to a housing deal that aims to make housing more affordable because it’s just impossible here. The agreement would include significant tax breaks for developers. Do you think the incentives will attract developers to build more housing because there is such an incredible shortage? What look, I mean I think I think it will. The problem is in some of these states they have just become so anti business that a lot of developers just won’t go there. I mean honestly I’ve done some stuff in New York City and it’s been very tough. I’m doing things in Los Angeles, it’s very hard. Florida, I have to tell you is a very probusiness state, easy to work. The problem with that is that you get overbuilt because they make it too easy to build. So I would say that look tax incentives will definitely get people to do to develop more housing. But there are some people that I think have just been so burnt by you know the rent stabilization laws and just the, you know the in in Los Angeles we weren’t able to even collect our rents for two or three years. You weren’t yet there was a no eviction policy. So I think a lot of people have just left that field and are feeling like this. These are tough places to do business but it’ll definitely help in the they’ll be better than not having the incentives. Well, are you concerned about 1 W Palm and I bring this up because it’s mixed-use development. You have a whole bunch of luxury apartments in it. You also have storefront, 201 hotel rooms, 200,000 square feet of Class A office space. What do you expect will happen? When and how will these numbers look when you fling open the doors? Well, it’s going to be much tougher than it would have been if we were. That would have been a couple of years ago for me. I’m a look I’m a I’m a I’m I’m building this with no debt. So I don’t have forget higher interest rates or don’t have any interest rates. So I have the the, the long term staying power which you have to have in real estate And I think unfortunately a lot of people who got into real estate deals in this last cycle and they bought apartment buildings with three and four cap rates and low interest rate loans. They’re going to go to refinancing and have a tough time. You know at this point in my life I’m not leveraging myself so I’m able to with to withstand the storm. I’m a huge believer in this market. I think that West Palm Beach and Palm Beach is just an amazing place to live in. It’s we’re going to have extraordinary growth over the long term, but it’s going to be a rough couple of years. So we’ll just have when we open the hotel rooms up and the office space and the apartments, it may be a little challenging, but remember also we are building the tallest buildings in Palm Beach County. The views are extraordinary. We have three swimming pools. We have a two the only indoor tennis courts in all of Palm Beach County. So we’re going to offer something very, very special for people who are looking for housing. But I can assure, I’m absolutely sure certain that it’s not going to be as easy as it would have been when the trillions of dollars were floating around from the fiscal and monetary stimulus a few years ago. Yeah, look here, you don’t have a mortgage or debt and it’s a lot big problem for a lot of commercial real estate people. Jeff, for a guy who started with one apartment in Charlestown, MA, you’re doing pretty well. Thank you very much for coming on. It was a it was a three-year building in Somerville, actually when I was at Harvard Business School. I want to give, I want to give Somerville the proper shout it out, ’cause it did give me my start. Somerville. OK Aren’t they close? Thank you very much.