Marvy Finger recently sold half his portfolio of Sunbelt apartments for $2 billion, saying the Covid-crazed rental market has peaked. The buyers, pointing to a 20-year low vacancy rate, disagree.
For a real estate tycoon, Marvy Finger’s second-floor offices in a low-slung Houston office building are as modest as the first apartment buildings he erected nearly 60 years ago — and still owns. “I like simplicity and livability,” says the 5-foot-5-inch, slightly stooped 86-year-old, whose unassuming uniform consists of khakis, oxford shirt, penny loafers and an Hermes tie offset by a Timex watch. His go-to drink is Johnnie Walker Black Scotch and he has a similar taste for value in business too.
“It’s not sustainable,” Finger says, of the 25% increase during the Covid-19 pandemic in apartment rents in key sunbelt cities like Tampa, Austin, Nashville and Houston. He points to rampant new construction nationwide, with so many buildings springing up that 600,000 new units came to market last year — nearly double the previous record. Meanwhile, those federal stimulus checks that fattened renters’ wallets have been mostly spent and price increases for other necessities, like energy and food, are competing for their remaining dollars.
“I am absolutely programming for a major correction,’’ says Finger. That’s why this past December he sold half his portfolio — 15,000 units in Houston, Dallas and Atlanta — to real estate investor Greystar for $2 billion. He thought it was a rich price, equal to about 33 times expected 2022 net operating income (rental income minus expenses) of $60 million. Figuring the package would have fetched some 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 investment director, who admires Finger’s vigor and calls him a “prolific developer of the nicest assets in best locations.” With 54,000 units in Houston, Greystar was already the biggest landlord in town and Kaberna insists the market remains fantastic – he points out the nationwide vacancy rate is down to 5.2%, the lowest in at least 20 years, with outright shortages in the hottest markets. The biggest tailwind trend, says Dallas-based real estate consultant Ron Witten, is the “undoubling” of households as some Millennials (including those who moved home during the early pandemic days) leave their parents’ nests, and others already out on their own jettison annoying roommates.
So what did Finger hold on to? He kept some trophies, like One Park Place, a high-end tower he built in downtown Houston adjacent to Discovery Green park, and 500 Crawford, a luxe mid-rise across the street from Minute Maid Park, where the Astros play. And some properties with sentimental value, like Colony Oaks, the very first two-story walkup complex that he built in Houston in 1960; selling that “would be like selling my first born.”
Significantly, Finger also retained properties that he thought had more appreciation left in their underlying dirt. One fully leased 152-unit complex he built in the 1960s is on seven acres adjacent to the private Duchesne School. “The school now has nowhere to grow but on to that land,” he muses. The land is currently appraised by the county at $30 million, but he thinks it’s worth a lot more, especially in famously un-zoned Houston, “the only major city that really has no restrictions to entry,” he says. “It’s certainly allowed me to develop at will.” And eventually, to redevelop. Which is why he says, “I think what I’m holding on to is worth more than what I’m selling.”
Finger grew up in an entrepreneurial family. In the 1940s his father Hyman moved from the piney woods near Beaumont, Texas and started Finger Furniture. Marvy grew up sweeping floors, selling furniture, and watching as Hyman made 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 Army after a disorder led to 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, brick veneered apartments with 100% financing. “You really could fully leverage them, without any equity at all,’’ he marvels.
After successfully building dozens of middle-class apartments, Finger almost 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 bust. He resolved to stick with apartments but decided to venture beyond the edges of Houston’s endless sprawl—going all the way to Chicago, where he met attorney Barry Nekritz. “The thing that made Chicago interesting to him was that it had the best transportation network in the country. You could get on a train and into the city and live near a food store,’’ says Nekritz. In Schaumburg, Illinois, Finger’s contractors are now putting finishing touches on a new mid-rise complex located nearby an older (but still nice) one he put up 35 years ago. Says Nekritz, “I’m 83, but he won’t let me retire because he won’t retire.” Finger still enjoys tennis, though a fly-fishing accident in Belize claimed one of his eyes a few years ago.