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. He likes to drink Johnnie Walker Black Scotch because of his taste for value in business.
Finger says that the 25% increase in apartment rents in key sunbelt cities is not sustainable. He points to the fact that 600,000 new units came to market last year, nearly doubling the previous record. The federalStimulus checks that fattened renters have mostly been spent and price increases for other necessities, like energy and food, are competing for their remaining dollars.
Finger says that he is programming for a major correction. He sold half of his portfolio to Greystar for $2 billion. He thought it was worth about 33 times the expected net operating income of $60 million. It would be irresponsible to not sell the package since it would have sold for 75% less before Covid-19.
Greystar was a happy buyer of Finger, who was a happy seller, says Kevin Kaberna, its investment director, who admires Finger's vigor and calls him a prolific developer of the nicest assets in best locations. The biggest trend, according to Dallas-based real estate consultant Ron Witten, is the increase in the number of households that leave their parents' nest.
Finger held on to something. One Park Place, a high-end tower he built in downtown Houston adjacent to Discovery Green park, and 500 Crawford, a mid-rise across the street from Minute Maid Park, were some of the trophies he kept. Colony Oaks, the first two-story walkup complex that he built in Houston in 1960, would be like selling my first born.
Finger retained properties that he thought had more appreciation left in their underlying dirt. The private Duchesne School is located on seven acres next to a fully leased apartment complex. He thinks the land is worth a lot more than the $30 million it is currently valued at. I think what I'm holding on to is worth more than what I'm selling.
Finger was raised in an entrepreneurial family. Finger Furniture was started by his father in the 1940s. Marvy grew up watching his brother bring his brothers into his business, and knew he didn't want to be a part of it. Finger was discharged from the Army early because of a disorder that led to most of his stomach being removed. He learned 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.
After successfully building dozens of middle-class apartments, Finger almost lost his shirt on his first office building project, which became one of the notorious "see-through" towers that sat empty after the 1982 oil bust. He decided to go all the way to Chicago, where he met an attorney. You could live near a food store if you got on a train. Finger's contractors are putting finishing touches on a new mid-rise complex that is close to an older one he put up 35 years ago. I'm 83, but he won't let me retire because he still enjoys tennis.
From the top-right: 1900 Yorktown, 500 Crawford, 1000 Skokie, Colony Oaks.
Courtesy of The Finger CompaniesThe managers of Harvard University's $54 billion endowment began teaming up with Finger in 1994 to build 16 projects, many of them in south Florida. Chip Douglas, who ran Harvard's real estate investments back then, recalls Finger's pursuit of the art of building with quality and making the numbers work.
The builder has signed on other big name equity partners, including Houston billionaire Fayez Sarofim and the children of the late Dan Duncan. The Museum Tower in Houston was built for $100 million by him.
Finger has built off of his Houston connections. In 2006 he heard from his daughter, who was the head of cultural affairs for Houston Mayor Bill White, that Rich Kinder was working with the city to build a park that would transform downtown. Finger was ready to start work on One Park Place, a high rise that would overlook the new park. There hadn't been a residential tower built in 20 years. He put a replica of the pool at the Ritz-Carlton in Maui on the ground floor to lure a high-end grocery store. After the global financial crisis hit in 2008, tenants were hard to find, and it took years to fill the units. The building is worth more than $150 million. He followed up with a number of high-end projects, including the eight-story 500 Crawford, across from Minute Maid Park, which is now worth $91 million. There are no vacancies.
Finger built 540 garden apartments at the Creole On Yorktown in the early 1970s with financing from Bear Stearns, and he likes to daydream about what might replace the 20 acres. It was the first time he ever had an on- premises bar. After the 1973 oil crisis, he almost lost the complex, but nobody wanted to buy a negative cash flowing property. Finger picked up some gems at bargain prices from the Resolution Trust Corporation, formed to liquidate the failed S&Ls. He built a $10 million complex on a three-acre parcel in the Galleria. The site is currently next to a hotel and a golf club.
Finger raised $90 million to build a new tower. He called off the project because he was concerned that an inverted yield curve signaled economic trouble. He doesn't regret pulling back because the building would have filled up fast. He says that what is happening now can last. In Houston, builders currently hold permits to build 42,000 units, more than the normal number. The prices for labor and materials are increasing. Finger is content to wait. It is definitely coming.
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