Billionaire real estate investor Jeff Greene built his fortune with a lifetime of hustle and no partners. In this interview with Raoul Pal, Greene explains how he transformed himself from a traveling circus ticket salesman to an investment titan putting on billion-dollar credit default swap trades. What began as a hedge turned into the trade of a lifetime when Greene astutely observed that shorting mortgage backed securities was a no-doubter in his first foray with derivatives. Greene also touches on his unique career path, his market outlook for a handful of asset classes, and the philanthropic endeavors that now dominate his focus. Filmed on January 23, in West Palm Beach, Florida.
Transcript
00:01
RAOUL PAL: Jeff, it’s great to be here in Palm Beach and to get you onto Real Vision.
00:06
Just chatting off camera, we’ve got a lot of friends in common we didn’t.
00:09
You’ve got a fascinating story and I think people would love to hear the story of how
00:15
you start your career, how you got into real estate, but even starting before then, you
00:19
as a student, going to university.
00:21
Talk us through a bit about that.
00:22
JEFF GREENE: Well, I don’t know where to begin.
00:23
I grew up, I was born in Worcester, Massachusetts, which is a city about 40 miles from Boston.
00:29
My dad was a textile machinery dealer, which meant you sold these giant machines that were
00:34
longer than this room, they could be 100 feet long, to mills and parts of that also and
00:39
they did it very well.
00:40
We’re a middle class family in like cute little house with a backyard and my mom was pretty
00:45
much a stay at home mom.
00:46
Then in the late ’60s, all the textile mills got unionized in New England and they moved
00:51
to the south.
00:52
My dad lost his livelihood because he didn’t have mills to call and that’s all he’d done.
00:56
He had all this money in this business.
00:58
He had a warehouse with parts and materials.
01:01
My parents picked up and moved to West Palm Beach, actually.
01:05
My dad bought a small rubber stamp business.
01:07
He never really got on his feet again.
01:09
For me, I was just a junior in high school when they moved here, but I was really still
01:16
in junior high school and when our financial fortunes went the wrong way.
01:21
I had to work my way through college, and I had some financial struggles, which probably
01:25
made me hungrier than ever to do well.
01:27
RAOUL PAL: How did you pay your way through university?
01:29
There’s a bit of a story about that, because you went to Harvard, didn’t you?
01:31
JEFF GREENE: Well, I went to college at Johns Hopkins University in Baltimore.
01:35
It’s interesting.
01:36
I applied for scholarships, and I got scholarships and student loans.
01:41
That paid some of my costs and then also, I had been an exchange student in Israel in
01:46
high school.
01:47
I learned to speak Hebrew fluently.
01:48
I taught Hebrew school three days a week.
01:50
I had to ride the bus in Baltimore and I had to change three changes.
01:55
Two transfers.
01:56
Three bus rides to go out there to teach Hebrew school on Tuesday and Thursday.
02:00
Then I rode out with another Hopkins student on Sunday.
02:03
Then I had another job where I checked IDs outside the gym, it was called work study.
02:08
It was a government funded program where you get paid a buck 50 an hour when you’re supposed
02:12
to be able to do your studying while you check the IDs, which you do.
02:15
Then I also, when I came down here to visit my parents, I worked with the Breakers Hotel
02:19
here in Palm Beach.
02:21
I was a busboy, and then a waiter in the main dining room, and I just slogged along and
02:27
made it through college.
02:28
I finished Johns Hopkins in two and a half years, not because I was such a genius.
02:33
I think it was because it was working so hard.
02:35
It wasn’t really a fun college one.
02:37
RAOUL PAL: Then after that, where did your career go?
02:41
JEFF GREENE: Well, so then what happened is I was down here one summer in West Palm Beach.
02:44
I was working at the Breakers, not making any money because who’s here in the summer?
02:47
Nobody, so no tips.
02:49
I signed out of the local papers, had telephone sales and I went to [indiscernible], it was
02:54
to sell circus tickets for the local Riviera Beach Fraternal Order of Police which is a
02:58
nonprofit Police Organization and it’s at $2.50 an hour or commission.
03:04
Well, minimum wage was a $1.60 in 1972.
03:07
$2.50 an hour, you can make 100 bucks a week.
03:10
Tuition at Johns Hopkins in those days was 2700 a year so if I work for 12 weeks, I’ll
03:16
make 1200 bucks.
03:17
Not so bad.
03:18
High stress on these tickets.
03:19
I’ve noticed that I’m selling more than everyone else, if I feel like I’m selling more than
03:22
everyone else in the room so I said to the guy at the end of the day, how much would
03:26
I’ve made on commission?
03:27
He said $93.
03:28
I’ll take commission.
03:29
Instead of making $20, I made 93.
03:31
Anyway, I ended up doing this all through college.
03:36
Wherever I had a break, I then would go on the road and run a telemarketing office for
03:41
the circus.
03:42
After I finished at Hopkins, I went on the road to run these telemarketing operations
03:48
for fundraising circus from Sarasota, Florida, and I would roll into little towns all around
03:55
the country like Bluefield, West Virginia, tangy, you never would have heard of.
04:00
[Indiscernible] 20,000, 30,000.
04:03
Then I had a Pontiac Grand Am.
04:06
I had my clothes on a bar across the backseat, loaded with laundry detergent in the trunk
04:10
to go to the laundromat.
04:12
I would roll into town, check into the Motel 6 or Days-in or whatever it was.
04:18
I set up an office, sell the circus tickets, hire local people.
04:23
I did this.
04:24
It was a lonely life.
04:25
I finished college before I turned 20 so I was just 20 years old, 21, 22 all by myself
04:32
like a traveling salesman in these little towns.
04:34
Forget having a girlfriend, you couldn’t even have friends because you’re always seeing
04:38
different people.
04:39
You’re always on the move.
04:41
I did this and I saved up and I worked so hard.
04:43
I saved up $100,000 in the mid-70s.
04:46
It was just from working, I worked nonstop.
04:50
I lived on nothing.
04:52
I saved every penny because I was determined after what I’d been through going through
04:56
working my way through college, never to be broke again.
05:01
My dad, actually, it’s worse than not losing his livelihood, he actually lost his life.
05:06
When I finished Harvard Business School in 1979, in May, my dad didn’t make it to graduation
05:11
because he was having heart issues.
05:13
He died two months later with a massive heart attack at the age of 51.
05:16
I really believe it was because of the stress of not just losing his life, losing his dignity
05:22
and his sense of worth.
05:25
It puts me in touch today very much and that’s probably one of the reasons I’ve gotten involved
05:29
so much in philanthropically, and politically because I’ve really saw firsthand how somebody
05:38
can get broken when there are economic reality changes.
05:43
Anyway, so I saved up all this money, go back Harvard Business School, I had $100,000 in
05:50
the bank.
05:51
Never had bought any real estate because how could I?
05:53
I was in a different city every two weeks.
05:55
RAOUL PAL: Living out of the car.
05:56
JEFF GREENE: Sorry?
05:57
RAOUL PAL: Living out of the car.
05:58
JEFF GREENE: More or less.
05:59
I did have stuff stored.
06:00
I’d never had an apartment.
06:01
I had stuff stored at my parents’ house, my aunt’s house.
06:04
I was living out of my car more.
06:06
When people say that you think I wasn’t sleeping in my car, but that was my base.
06:10
My Pontiac Grand Am.
06:12
Now, a lot of people I knew had invested in real estate.
06:16
It’s interesting.
06:17
I got into Harvard Business School.
06:19
I didn’t get into the good housing complex, so just field apartments because there was
06:23
a waiting list.
06:24
A friend of mine from Hopkins said, who would have started off with those first so I said
06:28
what do I do?
06:29
He said, well, what you can do is why don’t you go buy one of these three-deckers?
06:33
What’s that?
06:34
It’s like a three family house built in the late 1800s.
06:37
You can live in one, rent out the other two and at the end of the time, you think you’re
06:40
probably going to sell and get your money back and live rent free and I said that’s
06:44
interesting.
06:45
I was set by to discuss– a friend who was broker, also been to the business school and
06:49
who I still know actually.
06:54
I bought a three-decker, and lived in one and the market was so undervalued in 1977
07:00
when I bought this, I could see I was saying, I bought it for $37,000, 7000 down, so that
07:06
would happen as I got approved for the housing.
07:09
I said, what’ll it make me if I rent all three, how does this investment work and by every
07:14
measure I looked at, I was going to end up after my mortgage payment, making $2200 a
07:19
year on my separate thousand dollar investment.
07:21
If that’s a 30% return, I said I got to get more of these.
07:27
While I’m at Harvard Business School, I accumulated 18 properties.
07:30
I bought them.
07:31
RAOUL PAL: You were just buying them out of the cashflow of each property?
07:34
JEFF GREENE: No, I had my hundred thousand.
07:35
RAOUL PAL: Out of school.
07:37
JEFF GREENE: For the first one I wanted when that was perfect, so I’m saying I can’t be
07:41
like dealing with repairs when I’m at Harvard Business School.
07:45
Who’s going to do this work?
07:47
Then I started getting comfortable doing remodeling and for the time I was done, I was buying
07:52
junkie buildings, fixing them up and anyway, that became the beginning of my real estate
07:57
career.
07:58
As it turns out, the market was so undervalued.
08:00
That property I bought for 37,000, I sold three years later for 185,000.
08:06
Another property bought for 38,000, right near the Cambridge line, and somewhat sold
08:14
it for 3380, 330 to 380.
08:15
RAOUL PAL: Is that when interest rates started coming down that suddenly the price of property
08:18
exploded?
08:19
Around ’81, ’82?
08:20
JEFF GREENE: I think you’re right.
08:24
That’s when Reagan was just– RAOUL PAL: Yeah, that’s right.
08:28
Reagan just cut in, there’s the Reagan-Thatcher years, interest rate just peaked and just
08:32
started to come by– JEFF GREENE: The late ’70s, so yeah, so before whatever it was,
08:37
the market just exploded and my 100,000– by the time I finished Harvard Business School,
08:41
I had a million dollar net worth.
08:42
Then I was off to the races.
08:44
It’s interesting because people often– RAOUL PAL: You didn’t use your Harvard education
08:46
at all?
08:47
JEFF GREENE: I always use my Harvard education.
08:51
RAOUL PAL: You leave Harvard, you’ve made a million bucks and I guess you decided real
08:55
estate’s the business you want to be in.
08:56
JEFF GREENE: I fell into it.
08:58
What happened is I decided to move to California.
09:01
I had a great aunt and some cousins there so I moved to LA after I finished at the business
09:06
school and thought I’d do real estate but the prices in LA were very different than
09:10
they were in Boston.
09:11
Boston was– it was before the tech booms and the biotech booms and Boston was a little
09:16
bit sleepy in the early ’80s.
09:19
Slow growth.
09:22
Even after things had started to appreciate, you could still put down when you buy an apartment
09:26
building, you put down 20%, 30% you’d make a nice return on your cashflow 5%, 10%.
09:32
I go to LA and you buy a building, it’s okay, here’s what you do.
09:35
You put 30% down and you’ll lose cashflow.
09:38
Because basically in LA, you are buying the futures because everything was perceived to
09:41
be going like that, and I just didn’t get it.
09:44
I did some other things.
09:45
I bought actually 50% of a clothing manufacturing company, did that for 14 months.
09:52
RAOUL PAL: Why?
09:53
JEFF GREENE: I just finished Harvard Business School, I had to do something for my career.
09:58
I looked at buildings, they all just seemed outrageously expensive, didn’t fit the format.
10:02
I was used to cashflow real estate.
10:06
I just couldn’t figure it out.
10:07
I think, to tell you the truth, I’d taken a class, a business school by small businesses.
10:11
The way you find a small business is you do business brokers, go talk to local accountants.
10:16
What my cousin had was a textile salesman.
10:21
I said, let me go see your accountant.
10:23
Well, the only companies the accountant knows is textile and garment companies.
10:26
He said, well, I got this guy who has half of– he has a company, he’s just fired his
10:31
partner, he’s looking for someone like you to come in and help run the business.
10:37
I bought half of this company, and it was very successful 14 months.
10:42
I hated every minute of it.
10:43
It wasn’t my cup of tea.
10:45
I was thrilled and I’m showing up in my– at the time, Brooks Brothers suits and buttoned
10:49
down shirts and ties and these guys who were working there, gold chains around their necks
10:55
and they were in these spray on printed shirts that just it was aggressive, tough screaming
11:01
and yelling.
11:02
It wasn’t what I was planning on doing with my newly minted Harvard MBA.
11:05
Anyway, I got out, made some money and then I started doing real estate deals and started
11:10
buying.
11:11
I figured out the LA market, started buying properties and had a nice run up till early
11:16
’90s when I participated in the crash like most developers and investors.
11:20
RAOUL PAL: When you said you figured out LA property markets, does that mean you just
11:24
went into the momentum trade and realize it was all about price gains and not about–
11:28
JEFF GREENE: Yeah, I realized that you’re not going to make your cashflow in year one,
11:32
you’ll get your cash flow in year three or four and that’s how it was priced and just
11:36
I started doing things that way and sure enough, you bought one or two so I bought like an
11:40
eight-unit building, a seven-unit building.
11:42
Then you’re seeing there, as the rents go up and I started saying, now, I get this.
11:48
By the time I get to a– that was the starting like in ’82-’83 and by ’91, ’92, ’93, I had
11:55
about 100 million dollar real estate portfolio.
11:57
I never had investors or partners, but I had a lot of debt.
12:01
That’s how I built it.
12:03
I probably had debt on at maybe, I don’t know, 65 million, which is 35% equity, had been
12:10
refinanced and did grow aggressively, and then the market dropped and all the sudden,
12:16
somebody– ’92, ’93, ’94.
12:18
By ’94, my $35 million net worth was like minus $15 million.
12:24
RAOUL PAL: Did that terrify you?
12:27
How did you think about debt from then?
12:28
JEFF GREENE: It was tough, because basically, from my papers and snow shoveling jobs, my
12:34
whole life in business had been straight up.
12:39
The truth is let’s finish Harvard Business School at 24.
12:42
I have a million dollars.
12:44
I’m thinking I’m a genius.
12:45
I’m bored, and people call you, you must be– you’re really boy wonder, you think I’m really
12:49
a smart guy here and basically, I had never been– had not been married.
12:54
I had girlfriends, but I had been single, all I really had was my career, to tell you
12:58
the truth, to hang my hat on.
13:00
In 1994, I was just turning 40 years old and basically, everything I had worked for was
13:08
all of a sudden that and it was traumatic.
13:11
It was a tough few years.
13:12
It was a tough few years, because I’m thinking like I could actually very easily be liquidated
13:18
out back to zero and have nothing at all to show flow for what I’ve been doing in my whole
13:23
career.
13:24
I got good education, but what would it have gotten me?
13:26
RAOUL PAL: How did that affect you psychologically at the time?
13:28
JEFF GREENE: It’s tough.
13:30
It’s interesting, I still– RAOUL PAL: You can’t take risk so easily when you’re thinking
13:33
like that.
13:34
JEFF GREENE: It’s interesting.
13:37
I’ve always been a fundamental– believe in the fundamentals like the way I invest, where
13:41
I do everything and I try to focus on long term and not let noise bother me.
13:46
I knew why that market had happened.
13:50
I understood it very clearly.
13:54
It’s a longer story, but the government empowered savings and loans and then try to allow them
13:59
to make crazy loans.
14:01
Basically, because what happened and if you will remember back, interest rates started
14:06
going up, SNL is having their books, all these fixed rate loans, and they were all in trouble
14:11
so the government said, okay, you want to be able to pay 8% for CDs, we’ll let you do
14:16
anything.
14:17
People were buying McDonald’s franchise with the SNL funds and they will make 100% construction
14:23
loans.
14:24
Of course, you’re going to have this crazy froth in the market.
14:27
I didn’t really feel I would like that.
14:29
Then nothing that I had done, it was the government that did it, and it happened and so when it’s
14:35
so good, I plotted through it.
14:37
I kept renegotiating with lenders.
14:39
Lucky for me, I had one main lender, called Glendale Federal Savings, they were the sixth
14:43
largest SNL in the country and believe it or not– RAOUL PAL: They stayed solvent?
14:48
JEFF GREENE: Barely.
14:49
They had $200 million in capital.
14:51
I owed them like 69 or 59, give or take.
14:53
RAOUL PAL: Okay, so you were too big to fail.
14:55
JEFF GREENE: It’s crazy because they were like, it’s almost a $20 billion SNL, my little
15:00
thing was enough to push them over the hump so they kept working with me and I was– look,
15:04
I was very persistent.
15:05
I’d give them a building, they would cut loans in other buildings.
15:08
We just work together and kept restructuring a few times, then eventually by probably ’95-’96,
15:16
my net worth was zero again, like all my loans equaled my values.
15:21
Then I got lucky and I said, look, I sold one property.
15:23
I had a property on Sunset Boulevard, a nice house at a very nice part of LA, 40-unit building.
15:29
It probably was worth $4 million.
15:32
The loan was for $4 million, but the Getty Museum needed housing for the new faculty.
15:35
They were just finishing the new Getty Museum.
15:38
They had looked at some other land I had, I called them up and I said, how about this
15:42
building?
15:43
I sold it for $6 million, so I get 2 million bucks cash.
15:47
Now, most people having been through what I was, they would have taken that 2 million.
15:52
I said, I’m not going to risk this ever again, but I didn’t.
15:56
I went I bought three new buildings immediately.
15:59
I bought them from the RTC.
16:01
I bought an office building for $30 and cents– RAOUL PAL: I just want to get back a little
16:04
bit.
16:05
How do you– the psychology of doing that.
16:07
Taking a loss or getting close to having to realize a big loss is actually quite hard
16:11
thing to do.
16:12
Trading, investing and I run a hedge fund.
16:14
I know what that’s like, how did you distance yourself from that?
16:17
Let’s do it again.
16:19
You thought you had nothing to lose anyway?
16:21
JEFF GREENE: No, no, I just felt that– I really felt that I understood why this had
16:26
happened.
16:27
I felt that this was a crisis that was brought on by the savings loan excesses and that the
16:34
RTC and the government had it very badly.
16:36
I don’t know if you remember it, the Resolution Trust Corporation.
16:40
They just took everything and liquidated and they caused a lot more havoc than would have
16:44
otherwise been in the market.
16:46
I could see that’s why my properties were dropping in value to those levels, not because
16:50
people were leaving LA or didn’t want to live there anymore.
16:53
I have a chance now to buy these properties at barely pennies on the dollar.
16:58
I snapped up an office building at 30 bucks a foot, that was like eight years old, it
17:02
was what it costs $200 a foot to build then.
17:04
Then I bought another 65-unit apartment building for 2.7 million.
17:10
All townhouses and I’m thinking there’s no way you can lose money on these deals.
17:14
Sure enough, they all like tripled in value.
17:17
Then I was able to get those stabilizes, or refinanced.
17:23
I just started going and buying and honestly, I’d say that my recovery in the late ’90s
17:30
was really relationship oriented.
17:31
I’ve always been very relationship oriented.
17:33
I had one bank that I worked with a lot.
17:37
I figured out what they needed, they figured out what they need to do with me, and they
17:41
were my lender, and I started buying properties very aggressively at very cheap prices.
17:47
RAOUL PAL: All in LA?
17:48
JEFF GREENE: All in LA.
17:49
I was buying apartment buildings, because what you had was you had in this SNL period,
17:54
you had people who had built all these new buildings.
17:58
Hundreds and hundreds, if you drive to LA today, you’d still see these late ’80s, they’re
18:03
four-stories.
18:04
That’s the zoning over two levels of parking.
18:08
Wood frame, stucco.
18:09
They all look the same.
18:10
Basically, these buildings, what happened is moms and pops would have them or people
18:16
would not own them.
18:17
They were shell shocked because they went through rents– because they have a building.
18:22
They may be got it in say, and I’m just guessing they built it maybe in, I don’t know, 1987,
18:27
’88, ’89.
18:28
That’s when the big build– now, this RTC gets the building next door and cuts the rents
18:32
by 40% so now, you cut your rents by 40%.
18:35
By the time you get to ’96, you’re just so happy to have tenants.
18:39
No one’s raising rents, rents are way below market.
18:42
You go into buildings, you just buy them, we clean them up a little bit.
18:45
Change the entire rent roll to market and then refinance and buy more and so I got this
18:51
going again through great broker relationships, lending relationships, and I got up to 8000
18:56
units by 2005.
18:57
RAOUL PAL: 8000 units?
18:59
JEFF GREENE: Yeah, and over a billion dollars’ worth of real estate.
19:01
RAOUL PAL: All in LA.
19:03
JEFF GREENE: All in LA.
19:04
RAOUL PAL: Talk me through the next phase then.
19:07
2005, you’ve now got half of LA, it sounds like.
19:10
JEFF GREENE: It was a great run.
19:12
I’m freaking out, and my debt was probably I’m guessing 500 million.
19:16
I’ve said I’ve gone from minus 15 million to positive 500 million net worth, but I know
19:22
that stuff can happen and even things that you have nothing to do with like the SNL crisis.
19:28
I’m thinking what had happened was the value’s gotten so high because after the dot-com bust,
19:35
interest rates were cut to the lowest since World War II.
19:38
As a result, cap rates on apartment buildings got very low and I’m thinking like, this may
19:44
not be sustainable.
19:45
What can I do?
19:48
As this is happening in like ’04, ’05, I’d go and I’d sell five or six buildings, get
19:52
some cash, then I think, yeah, I’d do an exchange and buy more buildings.
19:56
I’m thinking there’s got to be some hedge because I’m reading about all this stuff on
20:00
Wall Street.
20:01
RAOUL PAL: Which year are we talking about now?
20:03
JEFF GREENE: This is ’06.
20:04
There’s got to be some way rather than just selling buildings and paying and getting nervous
20:08
then buying new ones.
20:09
There’s got to be some way to get a hedge so if the value of the buildings drop, I won’t
20:15
lose as much money.
20:18
I go to talk to Goldman Sachs, JP Morgan, they said, well, you can short the SNL stock
20:24
because if the market collapses, those will drop.
20:25
Then I think, well, if you do that, what happens if the one that you short gets taken over
20:30
or something.
20:32
Then I went to see a very old friend of mine, John Paulson, who was a very close friend.
20:36
I called him up, and I said any ideas on this, he said, come see me and work on something
20:42
you may like, so I went to his office and he showed me how– he said, I’m shorting subprime.
20:47
Subprime?
20:48
What does that mean?
20:49
Well, I’m using derivatives.
20:50
What’s a derivative?
20:51
Well, you use credit deposit?
20:53
What’s a credit deposit?
20:54
Then he shows me some slides.
20:57
I get the idea.
20:58
Housing prices are not going to go up, are going to drop and people won’t be able to
21:03
pay the mortgages and the bonds will default, but these are very complicated instruments.
21:08
I didn’t really know exactly how you get from giving your money to this up to putting your
21:13
money up to you make a profit because the way these bonds work, they were very complex.
21:21
I remember saying, I said JP, can I do this on my own because now, we’re friends and I
21:24
may be– and he said, no, you won’t be able to because you have to sign this.
21:29
It’s an institutional trade.
21:34
His fund wasn’t ready for several months, anyway.
21:36
This is like in March or April of ’06.
21:38
I went back to LA and went to Berlin.
21:40
Then I called up all my bankers, and they told me, absolutely not, you can’t do this.
21:44
I hustled SIP, and I’ve pushed them in then I got approved to do this trade.
21:50
Initially, I went short $650 million worth of subprime mortgage backed securities with
21:57
JP Morgan and Merrill Lynch.
21:59
RAOUL PAL: You then sit it out for a bit, because nothing happens.
22:03
It gets marks against everybody.
22:05
JEFF GREENE: Yeah, a little bit.
22:06
It went down a little bit, and then I went to JP, sent me his fund, finally said, I’d
22:11
like to go in your fund now.
22:13
I told him, I’d done every email, I told him my I’d done some trades, and he got upset
22:17
that I’d done the trades.
22:18
RAOUL PAL: Without him?
22:19
JEFF GREENE: Yeah, but I still wanted to go to his fund.
22:21
We’re still friends now.
22:22
I think it was I should have probably told him I was doing it when I did it.
22:27
I’d say, I just did it.
22:29
I figured he’s running up, at the time, he had $5 or $6 billion in a matter I think,
22:32
he’s got a big business and I’m just doing a relatively small amount of this in the overall
22:37
scheme of things but, and I’d said I should have told him and I couldn’t, I think it caused
22:41
a problem between us for a while, but nevertheless, I ended up doing that.
22:45
The fund dropped in the summer a little bit and then so I was down.
22:53
Then it went up and then it went down again the next January for some reason.
22:56
RAOUL PAL: Have the housing prices have a tipping over at this point?
22:59
JEFF GREENE: Housing prices with– all the fundamentals of housing were going like this,
23:03
the punt’s going like that by January, it made no sense.
23:06
I said I want to do more of this.
23:07
I caught up and I was able to do another 400 million of the short and so I had 1,000,000,050
23:13
on at that point.
23:14
I was going to do more truthfully but by the time I got approved for more at one of the
23:19
two banks, it already started to deteriorate, the prices already dropped against.
23:24
I had this in them.
23:26
Then I just gradually started closing out that trade in, I’d say, 2008 and it was a
23:34
very profitable trade.
23:36
It turns it wasn’t a hedge at all.
23:37
That’s the craziest thing and I knew when I went and started, the more time I spent
23:41
on this trade, it’s faster I realized that this is not a hedge because apartment buildings
23:46
values were a function of rents and interest rates, lower interest rates provide low cap
23:52
rates and high and stable rent markets, people want to buy buildings with stable rental markets,
23:59
but I looked at it, I knew it was an incredible trade because I’m thinking this doesn’t make
24:02
any sense.
24:03
There’s no way that these bonds are getting repaid.
24:06
That’s why I stepped right up and I did over a billion dollars in this stuff.
24:12
RAOUL PAL: That was a hell of an initiation to the world of derivatives.
24:15
JEFF GREENE: Yeah, pretty lucky.
24:17
It could have gone wrong.
24:18
RAOUL PAL: It could have gone wrong.
24:20
There again, in the end, they’re not very expensive trade.
24:23
The good thing is they were relatively cheap to put on but the punt was so ridiculous if
24:28
you get them right.
24:29
JEFF GREENE: Yeah.
24:30
Well, I think I had to put up I think to 5% which made sense because basically I was doing
24:33
it 1.3 over.
24:35
Here’s the problem.
24:37
The problem with this trade is I was very lonely doing this trade.
24:41
I’d never been on– I’m going up against the biggest banks on Wall Street effectively.
24:45
I don’t know anything about the stuff.
24:47
I’m thinking about– am I missing something?
24:49
Just seems all seemed too good to be true.
24:51
I would talk to my smart friends, like my close friends from Harvard Business School
24:56
and some other friends who are on Wall Street.
25:00
I’d say, what do you think of this?
25:02
They would go talk to their advisors.
25:04
Interestingly enough, a lot of very smart people would come back and said, the problem
25:07
is just really stupid that you’re basically agreeing to pay the spread for 30 years on
25:14
these margins.
25:15
If no one pays off the loans, you’ll pay for 30, but that’s completely nonsensical, because
25:20
even normal loans get refinanced and as an average duration of any bond, any pool of
25:26
loans.
25:27
In this case, I focused every– I don’t know if you have seen how these loans business
25:34
is like, so basically, there was one type of loan, it was called a 2/28 loan.
25:41
I would try to find bonds at 80% of this.
25:45
What that meant was for two years, the rate’s fixed at some very low rate, maybe it might
25:49
have been at, in those days, at 6% for a subprime loan, and then in month 25, it can go up to
25:59
300 basis points, then 100 basis points every six months till it peaks at 600 basis point
26:03
increase.
26:04
It means after three and a half years, it’s a good chance that these loans are going up
26:08
6% to 12%.
26:09
On top of that, a number of the loans of the pools that I shorted went from interest only
26:15
to amortizing.
26:16
Imagine you have a 6% interest rate loan, three and a half years later, you’re amortizing
26:21
it at 12%.
26:23
Of course, nobody can afford.
26:25
The only way out is if housing prices keep getting higher and you can refinance, but
26:31
when I did this trade, only 11% of buyers in California could qualify for the median
26:37
priced home loan, means 89% couldn’t qualify.
26:42
Who is going to possibly push prizes for a lift?
26:45
Nobody.
26:46
That’s exactly what happened.
26:47
RAOUL PAL: You get through the housing crisis pretty well, and the value of your real estate
26:51
portfolio didn’t really suffer?
26:53
I guess single family homes got really killed in that.
26:55
JEFF GREENE: Yeah, everything dropped, I’d say, but apartment rents dropped 15%, 20%
27:00
in LA and the value’s the same.
27:03
The thing about LA, it’s a very supply constrained market.
27:07
Even in the worst crash, it never really that bad.
27:09
It was bad in the early ’90s.
27:10
There was such an enormous overbuilding, there wasn’t any overbuilding going into 2000 into
27:15
this crash.
27:16
There was no overbuilding at all of apartment buildings.
27:19
It was a very tight market.
27:21
Of course, people, the economy get bad so rents dropped a little bit.
27:24
It was no big deal, then they came back immediately.
27:28
RAOUL PAL: Then after that housing crisis, and that was the financial crisis, what opportunities
27:34
did you see?
27:35
Because a guy like you sounds like you would have been looking for opportunities in there.
27:37
JEFF GREENE: Well, it’s interesting.
27:39
What happened was I’d never been married.
27:41
I met my wife in the summer of ’06.
27:43
’06 had a pretty good, spring, summer when I did subprime short in April, I met my wife
27:48
in June.
27:49
That’s a pretty good period and I’d never been married.
27:51
RAOUL PAL: Mike Tyson’s party, is it?
27:53
JEFF GREENE: Mike was actually on a boat I owned in Sag Harbor for his 40th birthday.
27:59
I’m like a guy who likes to really figure things out and really plan things out, that
28:04
are going to happen, I don’t know, like depend on random circumstances.
28:06
I don’t go to Vegas and place bets on things.
28:10
I’m really pretty mathematical serious.
28:13
Meanwhile, how do I met my wife?
28:15
I’m having a crazy party for Mike’s 40th birthday.
28:19
Friends of mine go get a DJ.
28:21
DJ says, can I bring a few hot chicks?
28:24
Walked in with the DJ.
28:26
It ended up that’s the mother of my three children, go figure it out.
28:31
You know the plans you have, they sometimes are funny.
28:34
Anyway, so what happened is, so I met my wife that summer, summer ’06, and then we ended
28:42
up getting married in September of ’07, and she’d been living on the East Coast and in
28:47
truth, I knew I was cashing out the subprime debt anyway and I was thinking, you know what,
28:51
I’m going to have 100– I could save 100 million dollars in state income tax if I live in Florida
28:57
versus California.
28:59
The point is I was only in LA three or four months a year, because I was on my boat a
29:02
lot, traveling, so it wasn’t like I was– had kids in school.
29:07
I was only there part time, so I said, and I was already in Florida a month and a half
29:10
a year because I had my boat or something and I went, let’s spend a couple more months
29:13
in Florida, one month in LA and I’ll save 100 million dollars and I’m not doing anything
29:18
illegal, everybody gets that’s the law.
29:20
We end up moving to Florida, getting a place in Miami and this is in early ’08.
29:28
At that point, everything was a mess.
29:31
RAOUL PAL: Miami got murdered in that.
29:33
JEFF GREENE: Interesting enough, well, you couldn’t get anything in Miami because what
29:36
happened is I’d be driving around and I’m giving up, I’ve got like, I’m a real estate
29:40
guy, who truthfully never had any money.
29:43
You don’t go from zero to eight to a billion dollars with a real estate with no investors,
29:48
and no partners and have cash in the bank.
29:49
You do that by you refinance a building, 15 minutes later, that build money is due to
29:54
buy another building.
29:55
It’s like literally you got enough money to pay for lunch but not much else.
29:59
I’m cash poor, asset rich my whole life because I was always moving around.
30:05
Now all of a sudden, I’m sitting with either a million dollars of cash and the real estate
30:10
market has collapsed and everything’s– I’m thinking like, wow, this could really be a
30:15
lot of fun for me, instead of being like all my peers, struggling, I’m just the guy with
30:19
the money.
30:20
What a great reversal that was.
30:21
RAOUL PAL: Somebody told me once very early my career, he said, listen, there’s one piece
30:25
of advice.
30:26
He who has cashed in the recession is king, and it’s so true because then you’ve got the
30:30
opportunity that nobody else has got.
30:31
JEFF GREENE: Anyone else– it’s not saying that like I didn’t need to make more money.
30:34
It’s really more that also, it’s just so much more relaxing years I have in liquidity.
30:40
Just in general, even forgetting opportunity, just not having– it’s nice to build a business
30:45
and grow, and not have partners or investors to worry about, but it’s stressful constantly
30:50
trying to move things around and depending on loans and refis.
30:56
It was certainly like I saw in Miami, I’m there and I’m driving around like some– I’m
31:01
a deal junkie and I’m a serial entrepreneur, I’m looking around and I see all these big
31:04
buildings with all these low lights on and I see all these empty lots next to the big
31:09
buildings.
31:10
I think, how do I get some of these and nothing’s available because it’s early ’08, and they’re
31:15
in the bank portfolios, nobody’s sure what’s happening.
31:19
Then, but we moved here in December of ’09 to Palm Beach.
31:24
By the time we moved here, it was just the time I’d say like 2010 when the property started
31:32
getting sorted out, the lender started getting control of them and they were starting to
31:36
liquidate them.
31:38
I started buying here very aggressively.
31:39
I bought this hotel.
31:40
I bought the note here and foreclosed on it.
31:43
This hotel, I think it cost the former owner, it was over 100 million dollars, I bought
31:48
the note for 41 million from UBS and all kinds of fractured condos and land and it was really,
31:58
there’s a lot of opportunities in this market.
32:01
Originally, I was coming here just thinking, okay, I’m living here in Palm Beach, I’ll
32:05
do a few things to make some money.
32:08
I thought they’ve really great values.
32:10
I didn’t really necessarily think it was a great place to do deals, that it was a good
32:14
place to do deals.
32:15
Then the more time I spent here, realize this is just a great place to live, a great place
32:20
to invest, a great place to develop.
32:22
I was able to snap up all these great opportunities.
32:24
RAOUL PAL: Then the whole hedge fund industry moves here.
32:28
The whole of Greenwich turns up here, and that’s going to help you, the hotel, and of
32:31
the neo taxes and the big move here.
32:34
JEFF GREENE: I don’t think it’s as big as people think.
32:36
As soon as you talk to people in business, first of all, hedge fund people, how many
32:41
do they employ?
32:43
First of all, the kinds of hedge funds that come here, the little ones are on office,
32:47
they have a satellite office.
32:48
RAOUL PAL: Yeah, because people like Paul come here and it’s just him, he stays in his
32:51
office and he didn’t bring any employees then.
32:52
JEFF GREENE: No, of course not, because everyone says us, from these big business developments
32:57
had said, we’ve got all these hedge funds to move.
33:00
People and hedge funds, first of all, if you have a hedge fund in New York City, you’ve
33:03
got mature, serious people, have wives and parents living there and kids in school and
33:10
country clubs.
33:11
They’re not just going to, hey, guys, let’s all moved to Palm Beach, okay, we’ll all just
33:14
go there.
33:15
RAOUL PAL: It’s only the founders and the owners who come down here.
33:16
JEFF GREENE: Of course.
33:18
It’s hard to come here because they still have to keep their presence because people,
33:23
it’s not that that people don’t like, it’s a great quality of life but people have commitments,
33:27
not everybody don’t just going to pick up and moved and uproot themselves.
33:30
You really haven’t seen that.
33:32
On top of that, those aren’t the kinds of companies that employ large numbers of people
33:37
like LA, you got like Snapchat, they open an office, and they employ– they have 200
33:42
people, rent 100,000 a year in one office.
33:45
Google, when those kinds of companies come into New York where I’m building a building
33:49
and about two blocks away, Google’s building a saying jobs terminal, you’re talking about
33:54
6500 jobs and I read the average pay is over $100,000.
33:59
That’s what moves as an economy here.
34:01
We haven’t really seen that.
34:02
RAOUL PAL: Talk to me about the New York real estate market, because I’ve been talking to
34:06
a few people.
34:07
Just the Real Vision offices are in New York and I’m there every two weeks, and there has
34:15
been one of the largest buildups of New York real estate, I think in history, has gone
34:20
in the last four years.
34:21
What do you about all of that?
34:23
What’s in your radar?
34:24
JEFF GREENE: I wish I had another deal I do.
34:28
I’ve just finished a 25-story building.
34:31
It’s when I started doing this, it seemed like a great idea.
34:35
The problem with real estate developers is one developer has a successful building.
34:41
It does really well and then there’s no regulation how many others can do it.
34:45
Then 15 other developers are hired to do the same building and everyone thinks, well, I’ve
34:49
got a better architect, I’ve got a better view.
34:52
I’m a smarter developer.
34:54
Then you end up with 20 buildings, and there really were enough buyers for just the first
34:58
one.
34:59
I think in New York, that’s what have happened.
35:03
For me, look, I don’t use construction loans.
35:05
I don’t have investors.
35:06
I don’t have EB-5 money.
35:07
I don’t have limited partners.
35:09
I try to just do enough, that kind of development that I can afford to pay for with my own cashflow
35:14
and I’ll make it through this cycle.
35:15
I think it could be a long cycle.
35:16
The good thing about the building I’m building, lucky for me, is it’s in an area called Hudson
35:21
Square, which is a little– not Hudson Yards, but Hudson Square, which is a tiny pocket,
35:27
just below the West Village, above Tribeca, between Soho and the river so it’s really
35:32
a five-minute walk to West Village, Tribeca, Soho or the river and that was great because
35:37
you’re in the middle of everything.
35:39
What’s even greater is ABC Disney just in that is building right now.
35:43
The whole operation one block from my building on the same street, it’ll be ready in a few
35:47
years and then Google’s building St. John’s Terminal two blocks away.
35:53
We’re going to have 15,000 new jobs within two blocks.
35:56
That’s very lucky.
35:57
I think that I have to figure out how I’m going to make it till when we’re done in about
36:01
six months till three years from now when the neighborhood really comes into it, but
36:05
New York’s– you know what, you can’t bet against New York because isn’t even as bad
36:08
as it is.
36:10
Just those two projects in my neighborhood are going to have 15,000 jobs and I realized
36:16
the ABC people were working up in the Upper West Side, but those buildings solve a steam
36:21
bottom and they’re going to rebuild them into something.
36:24
New York is like it’s the greatest city in the world.
36:30
It’s our biggest city.
36:32
If you want to do certain things, you want the talent and the resource.
36:37
You want the infrastructure, that’s where you’re going to go.
36:42
Eventually, we’ll figure out a way to get past this cycle, I’m sure and all this real
36:46
estate, they will just– RAOUL PAL: How are you thinking of the real estate market overall
36:49
now?
36:51
I know you’re mainly focused here in Florida, I guess, for most of your investments and
36:54
some in New York, what are you thinking now?
36:57
What’s your senses?
36:58
Because you had amazing timing in 2006-’07.
37:01
JEFF GREENE: Look, I think there’s different kinds of real estate obviously.
37:06
Right now, I’m building a 300,000 industrial building here in West Palm Beach.
37:10
I feel very positive about that, because the movement is clearly towards more industrial
37:14
because everybody’s ordering on their computers and getting it delivered by Walmart or Amazon
37:19
so there’s tremendous demand for industrial space.
37:23
It depends on the category, I would say that the values of things like apartment buildings
37:28
that are in the three to four cap rates, and based on rents which have already gone up
37:33
for the most part a lot, seem pretty high.
37:37 It feels like we’re in an asset bubble in almost every category to be honest with you
37:41
and I think stocks are at an all-time high, bonds low, interest rates are low.
37:47 Those are all close to a high.
37:49 Real estate’s close to a high, and it’s interesting, everyone just seems to be very optimistic.
37:55
I just had lunch with someone today from Merrill Lynch, he was telling me how he thinks all
38:00
the smart people, they were just going to be fine because rates are low.
38:04 When everybody thinks things are going to be fine, that means everybody’s already in
and you’re not going to be so fine.
38:09
RAOUL PAL: That’s one of the things that struck me about Nome Goldsman, who we talked about
38:15
before.
38:16
Nome, he’s had to say he’s had had a sense of some of this.
38:21
His whole, he went over the hedge fund business and a lot of real estate and he ends up buying
38:26
fast food, businesses and frozen food.
38:30
He bought a huge chain of Burger King.
38:33
He built the largest frozen foods business in Europe, just looking for that anticyclical,
38:41
smooth thing.
38:42 It feels like it’s the time to be cautious when nobody else is.
38:48
JEFF GREENE: Yeah, but interesting enough, look, the other side of this, everybody’s
38:50
been saying that now for a long time.
38:53
RAOUL PAL: Yeah.
38:54
It’s been going on.
38:55
JEFF GREENE: People are sitting on a lot of liquidity, stay in the loop of liquidity,
38:58
though is coming from this– you’ve had a rigged economy for 10 years, where basically
39:02
with artificial– you have the central bank balance sheets adding, I don’t know what,
39:08
$15 trillion globally to their balance sheets, and you have rates held artificially at zero
39:14
for almost for a decade and now, again, very low and negative in Europe.
39:20
It obviously cause distortions in the market now.
39:22
I think everyone’s used to the distortions and figures the distortions will keep on going,
39:27
so everything will be just fine.
39:30
Who knows?
39:31
I don’t know if that’s going to– RAOUL PAL: What about the community here?
39:33
There’s a lot of hedge fund managers, a lot of people, entrepreneurs who’ve made a lot
39:35
of wealth, is their sense starting to shift?
39:39
Because some people I know are sensing shift and others are saying, no, still full on,
39:48
aggressive risk taking mode.
39:49
What do you think the mood is here?
39:51
JEFF GREENE: Everybody talks, everybody says you got to be cautious, but I think everybody
is also thinking I can’t– cash is trash.
We got to buy things.
Look, one of my biggest holdings is Apple.
40:04
It’s sitting at 1.3 trillion market cap, I get it.
40:09
It’s no longer a device company.
40:11
It’s now a platform that everyone’s on.
40:14
It’s now the telephone company when I was a kid, everybody has to have one and we’ll
40:18
keep getting them and buying these services.
40:21
The question is, what’s the value of that?
40:23
Is the value, is it more than 1.3 trillion?
40:27
If it’s less than 1.3 trillion, stabilize them, we’re all going to lose money in today’s
40:30
stock price.
40:31
I don’t really, obviously, if you could show me that earnings are going to keep growing
40:37
from today’s levels at that company and they’re going to be making– I guess they’re going
40:42
to have to make 100 billion dollars a year to trade at 13 times earnings, which is what
40:49
you’d want to be at some point, maybe not today.
40:52
It’s a lot of money to make, even a global company with the monopolistic platform like
40:56
the iPhone.
40:59
Who knows where these things are going?
41:00
That’s been real estate to me.
41:01
It definitely feels that a lot of good news are already out there.
41:07
Rents have gone up a lot.
41:09
Unemployment rate’s very low.
41:12
Just to be– I guess the question is how real is this global economy and how much of is
it rigged?
That’s the question.
41:17
If it’s real, and it can get a snide, you can do, we can rig things, but then the rig
41:21
timing can lead to real– RAOUL PAL: Well, the question is does rigging last?
41:26 What fragility is it building?
41:28
It’s like you talked about the SNL crisis.
41:30
That was a rigged situation where the SNLs were just because of the government irresponsible
41:36
of what they’re doing.
41:38
We’re seeing the central bank’s irresponsible with how money’s being thrown around the economy.
41:43
JEFF GREENE: Well, yeah, so no.
41:46
Look, if that’s the issue, like who knows?
41:48
The reality is, I can tell you this, up until two or three years ago, if we had employees
41:54
who in any way, were a substandard, giving us a hard time you’d said, bye-bye.
41:59
There’s another one waiting right now, starting about two years ago probably when Trump became
42:03
president, not because of Trump, I’m saying but at that time in the cycle, the way labor
42:07
market changed dramatically, all of a sudden, carpenters who are making 35 an hour are making
50 an hour and you can’t even get them.
All of a sudden, in hotel, workers that were making 10 an hour, make 15 an hour and wage
didn’t go up 3%, they went up 20%, 30%, 40%.
42:23
Pilots, I have a plane and my pilot salaries went up 30%, 40%, just like that.
42:29
What’s happened is all that liquidity has now led to increased wages.
42:33
Now if that’s just starting to happen, maybe we are more mid-cycle and then maybe we’re
not late cycle because it– RAOUL PAL: If it filters through that is, because people
42:41
can raise prices in the hotel or whatever.
42:44
JEFF GREENE: It is filtering through because everyone’s making more money and Donald Trump,
42:48
lucky for him, gets to take credit for it.
42:51
Whoever the president at the time, he’s the custodian of the economy.
42:58
That’s what seems to be happening.
42:59
Now, I can’t tell you like it does– what’s the consumer debt levels, I don’t know that
they’re necessarily overextended.
A lot of people are refinancing their homes no with lower rates, their 401ks were on all-time
high, they’re going to spend money, it’s going to keep this economy moving.
What is an economy anyway? An economy is it’s a perception and so that’s why people are so confused, because you look
at the reality of all this funding money voodoo stuff going on, and you think, is it real,
but then you think at the end of the day, if everybody believes it’s real and they’re
out spending money, it becomes real.
43:38
RAOUL PAL: Outside of Apple and real estate, what do you invest in?
43:41
Do you have gold, do you think about gold?
43:43
JEFF GREENE: I don’t really, I don’t own gold.
43:45
Because we have a lot of real estate, which is a hard asset, we have a nice art collection,
43:50
which is a hard asset.
43:52
I’ve other, Alibaba is a big possession of mine, Google’s a big position of mine.
43:56
I tend to lay down to one of those tech stocks.
44:00
I have to own the banks and others, too.
44:03
I have a lot of liquidity right now to me, honestly.
44:06
A big chunk of money sitting in a lot of them in these bank prefers that I know are going
44:11
to get taken out because they’re about to roll into very high spread preferreds.
44:19
I’m sitting on a lot of money making 1.7% to 2%.
44:24
I’m happy with it.
44:25
I’m thinking like you know what, when things that move– I often look at a time in the
44:29
cycle, I’d say is morally, if you had to make one bet, it’s two choices.
44:33
Things are going to be 20% higher than today or 20% lower than today a year from now, two
44:37
years from now.
44:38
I think most smart people would say the better chance, they’ll be 20% lower because of where
44:43
we are.
44:44
I’m happy to sit in market, plenty of liquidity.
44:47
Look, everyone’s different.
44:49
If I were 25 years old, maybe I’d filter.
44:51
I’m 65 years old, I’m not assuming and if I have any trouble, I’d be worried but I’ve
44:55
already had that.
44:56
I’m basically just being cautious and I’m ready to have the liquidity available.
45:00
If there’s great opportunities, fine, if not, then I can live fine on my assets and make
45:05
2%.
45:06
RAOUL PAL: Talk to me about your other interests, the institute you set up.
45:09
JEFF GREENE: That was set up because five or six years ago, I could see that a country
45:16
that was solving its inner world, that was solving its problems only with monetary policy,
45:22
was going to leave behind a lot of people and I could see it happening.
45:24
You could see that those were the assets– RAOUL PAL: Is this when you were involved
45:27
in politics as well at the time, or?
45:29
JEFF GREENE: No, I’ve been involved in politics a few times, I actually have lost.
45:32
It’s funny, people say that you learn a lot more from your mistakes than in your successes
45:37
so I must be an expert on politics then because I’ve lost three, three out of three.
45:40
Obviously, I must really be smart in that space.
45:45
I think that you could just see because I could see that wages– I could see as owning
businesses that wages were not going up at all.
45:53
All of this with assets, saw our value’s going up, because with low interest rates, real
45:58
estate prices go up, stock prices go up, bond prices go up, those were the assets who’re
getting richer, those with labor were not getting richer, were struggling.
46:06
I said, this is unsustainable.
46:11
On top of that, with what was happening with technology and AI and machine learning and
46:17
how that was driving people out of the worst workforce and would cause some big disruptions.
46:23
We started a nonprofit and we’ve had some really stimulating conferences, in which we
46:28
brought together some very smart people with Ray Kurzweil, a Tom Friedman, and Larry Summers
46:33
and Tony Blair, and David Cameron’s been here and they’ve all come right to this hotel and
46:38
we’ve had some talk in the old education.
46:41
The list goes on, super smart people convening together to really talk about the future of
46:47
work.
46:48
Again, as I said earlier in this interview, I have a personal experience with what can
46:56
happen to somebody when their work life changes because of my dad.
47:01
I’m very sensitive to that.
47:03
I have friends, honestly, who were highly educated, who have been marginalized and lost
47:07
their jobs and never gotten jobs again.
47:10
If you lose your job and you’re in your 60s, you really got to go get retrained to become
47:16
a welder.
47:17
Of course, you can’t do that.
47:19
I really think that we are going to have a lot of disruptions and we have a lot of work
47:22
to do.
47:23
We talked about that.
47:24
We talked about education.
47:25
I don’t know if you know that we started a school in West Palm Beach.
47:29
We basically were– I have three young boys and we were frustrated with the private and
47:33
public school options so we started the Green School.
47:37
If you ever hear and want to see it, we have to take you by, it’s up to just under 130
47:42
kids, pre-K to eighth grade.
47:44
That school really embodies what I’m talking about and that we want our children to develop
47:50
a love of learning because we realized that kids today were going to going to graduate
47:55
15 years now or five years from now may have five, six, seven,10 career changes and they
48:01
may have to constantly learn and relearn, they can’t hate learning, they have to love
48:06
learning because they may have to learn new skill sets throughout their lives.
48:10
We’ve also have a focus on getting kids digitally influenced.
48:12
They start doing coding in kindergarten like kid coding exercises all the way to building
48:17
robots in the fifth and sixth grade.
48:20
We have enough emphasis teaching the whole child so we have met mindfulness and yoga
48:25
and dance and art.
48:26
We’ve really tried to create– and it’s a nonprofit school.
48:31
My wife and I funded it 100% ourselves.
48:35
We give financial aid so kids pay what they can’t afford what the computer says they can’t
48:41
afford to pay.
48:42
It’s 30%, 40% get financial aid and it’s been very fulfilling for us, as you can probably
48:49
see from our [indiscernible].
48:50
RAOUL PAL: Yeah.
48:51
How do you think we’re going to resolve this rich/poor divide?
48:56
Because it is not getting better.
48:58 Yes, there’s some marginal wage growth, late cycle wage growth that we talked about, but
at a structural level, we’ve still got a huge problem.
49:07
The Fed injecting more liquidity and stock prices exploding higher and your Apple shares
49:11
got 35%.
49:12
JEFF GREENE: Apple’s doubled in the last year.
49:15
RAOUL PAL: Yeah, doesn’t help the average guy.
49:19
How do you see that resolving?
49:20
You’re getting all these people together, they’re talking about it.
49:23
Are they talking about it?
49:24
Is somebody thinking, because you’ve got Trump on one side, you got Bernie Sanders on the
49:29
other.
49:30
That’s how split this is becoming.
49:31
Someone’s got to find a solution somewhere.
49:34
Because if not– JEFF GREENE: We know that the Bernie Sanders socialism doesn’t work.
49:39
As they say, certainly in socialism, the poor will be richer, but you’re not going to make
49:46
the poor richer by making the rich poorer.
49:49
Basically, to me, I think the first thing is education.
49:52
That’s like the absolute no brainer.
49:55
Right now in this country, 14% of Americans are illiterate.
49:59
Now, if you’re illiterate, it’s not an issue.
50:02
It’s not about an income gap.
50:04
It’s about a possibility of you moving forward, it’s virtually impossible.
50:09
We’ve really failed in our education in this country.
50:11
I think that’s the first thing.
50:14
I think that– because you can’t even be as happy if you’re not educated.
50:18
Even if we created a society that people talk about where you have this, you have unlimited
50:26
resources, people only have to work 20 hours a week because you figure out a way to make
50:30
your food more efficiently and your housing, your 3D printing houses don’t need people
50:34
to do stuff.
50:36
If you’re not educated, how are you going to spend your life?
50:39
You can only have opiates, so you’re going to do drugs and drink?
50:42
I think being educated gives you the opportunity and I’m like to do better but to enjoy and
50:47
to thrive in your life.
50:49
I think that there are great examples of successful educational improvements in American.
50:55
States like Massachusetts and New Jersey actually has gone from 35 to three in the country in
51:00
public education by doing a few simple things.
51:02
Two years of pre-K for every child, because like in a lot of the states in the country,
51:07
these kids don’t even get any preschool education at all hardly.
51:11
Then they show up at kindergarten and they have a multi-million word vocabulary deficit.
51:17
You start behind, you stay behind, and I think we’re really failing our children in this
51:21
country.
51:22
That’s the first order of visit.
51:23
If I was president of states, that would be my number one priority.
51:27
Get our kids educated competitively, because if they’re educated then at least we can compete
51:31
with whatever there is in the world.
51:34
Then how do you deal with solving the issue of jobs where we want people to feel good
51:41
about their upward mobility?
51:43
A lot of that, to me is a function of where we are in our cycle.
51:47
People don’t talk about this much, but my grandparents, like most people my age came
51:52
from Eastern Europe or another country.
51:55
Most definitely they were poor, everyone was poor.
51:57
Nobody came with any money.
51:58
They came with a shirt on their back and a dream.
52:01
The only dream my grandparents has probably that my parents will be able to have on their
52:05
table, nothing more than that.
52:06
There’s more than they had when they were in Eastern Europe and maybe a place to sleep
52:11
that was safe and clean.
52:14
Then what did my parents want for their kids?
52:16
They wanted their kids to be able to have every opportunity to follow the other Americans
52:19
who’ve been in for generations.
52:21
They fought hard and worked hard so we can go to good schools, and we had great public
52:25
schools as kids and great, great colleges.
52:27
What do we want for our kids and as it goes forward what?
52:31
The level expectation keeps getting higher and higher, and no one talks about that, but
52:36
from my grandparents’ generation to my kids’ generation, their level of expectation is
52:41
much, much greater for the kids.
52:43
Meanwhile, what’s happened is when my grandparents, after two world wars, we destroyed the industrial
52:49
complex of our competitors.
52:51
We were this global superpower with unlimited numbers of jobs and opportunities when people’s
52:57
expectations were here.
52:59
Now, we’re in a very globally competitive economy where we have to fight with much hungrier
53:05
countries around the world and their explanations are here.
53:08
You say, well, how do you fulfill their expectations?
53:12
It’s a lot harder.
53:13
I think the first thing is get our kids educated so they can be competitive globally.
53:18
Then just try to figure this all out, but it’s going to be a tough challenge.
53:23
I think it’s something– it’s the issue of our time.
53:25
The issue of our time.
53:26
RAOUL PAL: Yeah, I think it is.
53:29 I think politics remain pretty volatile until we figure out some of this stuff.
53:33
I think that seems to be a part of our future that we’re dealing with and it’s across all
53:38
the Western world and a lot of it is transition of the baby boomers, your typical, the baby
53:43
boomer, generation of the baby boomers.
53:46
That generation and the impossibility for the younger people to better afford even the
53:50
housing.
53:51
JEFF GREENE: I really believe we’ll figure it out.
53:54
It’s interesting.
53:55
Whenever I get pessimistic, I always think of our friend, Warren Buffett.
53:58
Warren Buffett, we’ve got to know, he’s members of the Giving Pledge, and we’re sitting around
54:01
a table with them in recent June and, or in late May, we’re talking and somebody said,
54:05
Warren, has it ever been this bad?
54:09
The antagonism and the divisiveness, and he said, these are two things that I have lived
54:15
through for 15 presidents, 14 I invested with.
54:18
He said, seven Republicans, seven Democrats, and there’s no place in America.
54:23
The whole world wants to come here.
54:25
Don’t bet against America.
54:26
Then he said something else, he said, I’m 88 years old, three of my lifetimes, which
54:31
is 264 years, in three of my lifetimes ago, there was nothing here.
54:36
It was dirt roads, and Indians and cowboys driving around and riding around the horses.
54:40
Look at what this system has done here.
54:43
Look what we’ve built.
54:45
In the same, you could say the same for the European countries and the whole Western world,
54:49
and so in the end of the day.
54:51
RAOUL PAL: It’ll figure itself out.
54:52
JEFF GREENE: Yeah, the ship will start to drift a little bit, but we always ride it
54:56
and I think we’ll figure out these issues and this system works.
55:00
If we just stay with our system, there’ll always be people like me who are aggressive
55:05
entrepreneurs, are trying to create and build things.
55:07
There’ll be other people who are more mellow and just want to make a living.
55:11
There’ll be other people who are creative and artists, and they’ll be like you who are
55:14
trying to build your journalism, your media business.
55:22
I think we’ll get through this just fine.
55:24
That’s my view.
55:25
I don’t know.
55:26
RAOUL PAL: Jeff, that’s a perfect way to end.
55:27
Thank you ever so much for giving an optimistic ending amongst all that.
55:30
JEFF GREENE: I really believe it.
55:31
RAOUL PAL: Thank you.
55:32
Thank you.
In 1752 Washington made his first land purchase, 1,459 acres along Bullskin Creek in Frederick County, Virginia. This act inaugurated the second and more profitable phase of his cartographic career, in which he assumed the role of land speculator. Over the next half century Washington would continue to seek out, purchase, patent, and eventually settle numerous properties. His will, executed in 1800, lists 52,194 acres to be sold or distributed in Virginia, Pennsylvania, Maryland, New York, Kentucky, and the Ohio Valley. In addition to these properties, Washington also held title to lots in the Virginia cities of Winchester, Bath (now Berkeley Springs, West Virginia), and Alexandria, and in the newly formed City of Washington.
In 1758 Washington left military service and returned to civilian life and in January 1759 married Martha Custis, a wealthy widow. No sooner had the couple settled at Mount Vernon, which had become Washington’s home, than he begin to expand the estate. In 1760 a neighbor, William Clifton, approached Washington with an offer to sell a 1,806-acre tract on the northern border of the estate, and the two men settled on a price of £1,150 sterling. Shortly afterwards, however, Clifton agreed to sell the same tract of land to another neighbor, Thomson Mason, for a slightly higher price. Despite Clifton’s original agreement and a series of angry letters, Washington eventually paid £1,250 sterling to secure the land for himself.11 The area became the Washingtons’ River Farm.
..
Western Lands and the Bounty of War
Washington’s lifelong interest in land speculation is illustrated in the fight over bounty lands promised to the veterans of the Virginia Regiment who fought with him in the French and Indian War. In this episode Washington acted on behalf of his fellow veterans as well as vigorously, sometimes aggressively, in staking out his own land claims.
In 1754, Lieutenant Governor Dinwiddie issued a proclamation designed to encourage enlistment in the local militia for the war against the French. In addition to their pay, those who enlisted in Lieutenant Colonel George Washington’s fledgling Virginia Regiment were offered a share in two hundred thousand acres west of the Ohio River. Unfortunately for the men who fought under Washington in the Braddock and Forbes expeditions against the enemy at Fort Duquesne, they were not to see these bounty lands until more than twenty years had passed, during which time Washington led the struggle to secure their title.
At first, the formal conclusion in 1763 of the worldwide war between Britain and France, of which the French and Indian War had been a part, aroused hope that the land would be quickly granted. These expectations were overshadowed by the Royal Proclamation of 1763 which (among other provisions) forbade colonial governors from issuing land grants west of the Allegheny Mountains. Yet Washington chose to forge ahead, as evinced by a September 1767 letter to William Crawford, a Pennsylvania surveyor:
. . . I can never look upon the Proclamation in any other light (but this I say between ourselves) than as a temporary expedient to quiet the minds of the Indians. It must fall, of course, in a few years, especially when those Indians consent to our occupying those lands. Any person who neglects hunting out good lands, and in some measure marking and distinguishing them for his own, in order to keep others from settling them will never regain it. If you will be at the trouble of seeking out the lands, I will take upon me the part of securing them, as soon as there is a possibility of doing it and will, moreover, be at all the cost and charges surveying and patenting the same . . . . By this time it be easy for you to discover that my plan is to secure a good deal of land. You will consequently come in for a handsome quantity.12
Washington was clearly willing to take considerable risks in seeking out choice land for himself. In the same letter, however, he warned Crawford “to keep the whole matter a secret, rather than give the alarm to others or allow himself to be censured for the opinion I have given in respect to the King’s Proclamation.” He concluded by offering Crawford an alibi should his behavior be called into question. “All of this can be carried on by silent management and can be carried out by you under the guise of hunting game, which you may, I presume, effectually do, at the same time you are in pursuit of land. When this is fully discovered advise me of it, and if there appears a possibility of succeeding, I will have the land surveyed to keep others off and leave the rest to time and my own assiduity.” In fact, the letter marked the beginning of a very profitable fifteen-year partnership. Less than two weeks after he had received it, Crawford informed Washington about several tracts in the vicinity of Fort Pitt, and the two men continued to collaborate until Crawford’s death in 1782.
Andrea Bernstein is a senior editor at WNYC and co-host of the “Trump, Inc.” podcast. A Peabody and duPont-Columbia award-winning journalist, Bernstein’s new work is an exposé on two families at the pinnacle of American power. American Oligarchs: The Kushners, the Trumps, and the Marriage of Money and Power, is Bernstein’s investigative journey into two emblematic American families—the Kushners and the Trumps.
Jared Kushner and Ivanka Trump enjoy limitless access to the Oval Office, but beyond their marriage, little about the families’ relationship is public knowledge. Throughout American Oligarchs, Bernstein reveals their campaign into the White House by tracing history stretching from the Gilded Age to WWII to the 21st century. Bernstein draws on private interviews, never-before-seen documents and forgotten files in order to expose the families’ accumulated wealth through real estate, manipulation and crime.
Bernstein’s American Oligarchs is a serious examination of the half-truths, secrecy and media manipulation weaponized by the Trumps and the Kushners. Join us as she discusses the Trumps, Kushners, and the marriage of money and power.
The skills that helped fuel We Co.’s breakneck growth are piling up as potential liabilities as the company prepares to go public
Adam Neumann was flying high. Literally.
His office-rental giant WeWork was months away from being valued at $47 billion. Revenue was doubling annually. And Mr. Neumann was zipping across the Atlantic Ocean in a Gulfstream G650 private jet with friends last summer, smoking marijuana.
After the group landed in Israel and left the plane, the flight crew found a sizable chunk of the drug stuffed in a cereal box for the return flight, according to people familiar with the incident. The jet’s owner, upset and fearing repercussions of trans-border marijuana transport, recalled the plane, leaving Mr. Neumann to find his own way back to New York, these people said.
Since Mr. Neumann co-founded WeWork—recently renamed We Co.—with Miguel McKelvey nine years ago, he has led with unusual exuberance and excess. His combination of entrepreneurial vision, personal charisma and brash risk-taking helped the company surpass $2 billion in annual revenue, and made it the country’s most valuable startup.
Now many of the same qualities that helped fuel his company’s breakneck growth in the private market are piling up as potential liabilities as the company prepares to go public—helmed by a CEO who looks little like a typical public-company chief.
Mr. Neumann muses about the implausible:
becoming leader of the world,
living forever,
amassing more than $1 trillion in wealth.
Partying has long been a feature of his work life, heavy on the tequila.
Public investors are increasingly skeptical of the formula that has worked for Mr. Neumann so far: his pitch that We is far more than a real-estate company. With its rapid growth and use of technology, he argued, the company deserves rich valuations normally reserved for tech companies.
Instead, many potential investors now see a fast-growing office subleasing company with losses of more than $1.6 billion last year.
Since We filed the prospectus for its initial public offering last month, it has been besieged with criticism over its governance, business model and ability to turn a profit. It is now expecting an IPO valuation as low as a third of the $47 billion sticker price it garnered in a January funding round—a drop without recent precedent. This week, We postponed the offering until October at the earliest.
Wall Street and Silicon Valley investors have been dismayed by the number of potential conflicts of interest disclosed in the “S-1” IPO prospectus, including Mr. Neumann leasing properties he owns back to the company and borrowing heavily against his stock. Even some of We’s private investors said they were angered to learn that an entity Mr. Neumann controls sold the rights to the word “We” to the company for almost $6 million—before public pressure led him to unwind the deal.
“This is not the way everybody behaves,” said Dick Costolo, former CEO of Twitter Inc., who led the company through one of the larger tech IPOs of the past decade. “The degree of self-dealing in the S-1 is so egregious, and it comes at a time when you’ve got regulators and politicians and folks across the country looking out at Silicon Valley and wondering if there’s the appropriate level of self-awareness.”
Given the prominence of the IPO, he added, “that is a big problem.”
Mr. Neumann, 40, declined to comment through a spokesman, who cited rules surrounding the planned IPO. Mr. Neumann told We employees Tuesday the process had been humbling and he would learn from it, say people who heard him. We executives have previously said he is strongly devoted to the company, and many of his personal transactions were made with the company’s best interests at heart.
This account is based on interviews with current and former employees, investors and friends who interacted with Mr. Neumann as he built We.
For startup investors, the 6-foot-5 Mr. Neumann has always had the qualities they crave in Silicon Valley founders, despite being based in New York. He is intensely ambitious and a masterful storyteller with a magnetic personality who can inspire and sell.
Raised in Israel on a kibbutz, Mr. Neumann moved to the U.S. when he was 22, where he attended Baruch College and tried to start businesses. One was a collapsible heel on women’s shoes that didn’t get off the ground. Working out of his Tribeca apartment, he started Krawlers, which sought to make baby clothes with knee pads to make crawling more comfortable. The slogan, he has said: “Just because they don’t tell you, doesn’t mean they don’t hurt.” It never gained traction.
He and Mr. McKelvey started a small co-working space on the side during the recession that followed the financial crisis and were amazed by the demand.
By 2010, they had started WeWork, with essentially the same core business model that exists today: They lease an office long-term, renovate it to make it hip and inviting, and sublease smaller desks and offices short-term.
Early on, Mr. Neumann painted a picture of how WeWork was connecting entrepreneurs and others who in the past would have worked from home or in coffee shops; how the company would bring a new way of working to a changing world.
The founders planned for the “We” brand to expand beyond office space into other categories such as housing and finance. Mr. Neumann ramped up its image as a tech company as it grew.
It introduced a mobile app for network members, meant to facilitate a “physical social network.” The company emphasized its data and how it was using artificial intelligence to glean insights about buildings.
Past funders and employees tell stories of how an animated Mr. Neumann convinced them within minutes to believe in the company’s epic future.
“When I met him, after a couple of minutes, I wanted to invest,” said Joey Low, whose Star Farm Ventures put money into the company in 2013 and multiple subsequent funding rounds. “He was hungry for success—that was for sure.”
Even former executives who disliked Mr. Neumann give him credit for an extraordinary ability to motivate employees and push the company.
He forgoes many conventions of the standard, buttoned-up CEO. He pushed for rowdy parties in the early days. He often walks barefoot around the office. In an earlier office, he blared songs by pop-star Rihanna while a trainer held a punching bag for him, and then walked around afterward while still sweaty from the exertion.
Like some high-profile CEOs in tech, he hopes to live forever, according to three people who heard him say this, and has invested in life-extension startup Life Biosciences LLC.
It says its mission is “to create a future where age-related decline is not a fact of life.”
As WeWork grew, Mr. Neumann took on ever more investment, bringing in tens of millions of dollars from venture capitalists, then hundreds of millions from mutual funds T. Rowe Price and Fidelity Investments. Crucially, he secured full control of the company in 2014 when investor demand was high—getting shares with 10 times the votes of others.
Ultimately he found a kindred spirit in Masayoshi Son, CEO of SoftBank Group Corp., who, like Mr. Neumann, is a risk-taker who respects giant bets. Mr. Son, a telecom veteran who raised the world’s largest tech fund in 2017, met Mr. Neumann in India in 2016 and pondered an investment.
SoftBank first committed $3.1 billion in new funding in 2017. Mr. Neumann has told others that Mr. Son appreciated how he was crazy—but thought that he needed to be crazier. A SoftBank spokeswoman declined to comment.
Many former employees said they didn’t always know how seriously to take some of Mr. Neumann’s pronouncements. Early on, he would throw out seemingly random ideas, like adding a pool in the basement of the company’s headquarters or starting an airline.
He told at least one person directly that his ambitions included becoming Israel’s prime minister. More recently, he said that if he ran for anything, it would be president of the world, according to another person who spoke with him.
“The influence and impact that we are going to have on this Earth is going to be so big,” he said last year at a “summer camp” southeast of London, where the company’s staff were all flown for a music festival-like event. One day, he proposed, the company could “solve the problem of children without parents,” and from there go onto other causes such as eradicating world hunger.
Alcohol flowed in great quantities; bartenders handed out free rosé by the bottle. Employees from around the globe posed for photos with the CEO. Some seminars had a spiritual component, including one with holistic health expert Deepak Chopra, who advocates regular meditation and yoga.
Mr. Neumann has told several people over the past two years that a personal goal is to become the world’s first trillionaire.
He relishes trips in private jets. Last year, We bought one for more than $60 million, people familiar with the sale said. Mr. Neumann has borrowed more than $740 million against his stock and has sold multiple hundred million dollars of shares, people familiar with those sales say, eliciting widespread criticism from analysts and Silicon Valley investors. These share sales weren’t disclosed in the IPO prospectus.
In a 2015 investment round, Mr. Neumann sold tens of millions of dollars of shares. Soon after, the company launched a buyback program offering to purchase employees’ shares too. But the company gave employees a different arrangement, giving them a payout per share worth substantially less than what Mr. Neumann was paid, people familiar with the sale said. Mr. Neumann’s sale wasn’t publicized within the company.
We executives have said the buyback price couldn’t be higher for tax reasons. More recent stock sales have been more equitable.
A recent change to the company’s corporate structure puts Mr. Neumann and a group of executives in a position to have a lower tax rate on some of their stock compensation than the rest of the employees in the company. We said the new structure was created in part to make it easier to expand into new businesses beyond co-working, according to IPO filings.
In private, Mr. Neumann often talks about the company’s valuation, according to people involved with the conversations. He has insisted that We’s valuation will eventually be many times what it was earlier this year, when it reached $47 billion, the people said.
For Mr. Neumann and the investors, the premise has always been that the market would look at We as more than real estate. The high valuation—twice that of United Airlines Holdings Inc. —has enabled the company to continue to raise money to fund new desks and offices and keep growing, even as losses persisted.
He has created a distinct culture in his mold. T-shirts and signs sport slogans such as “hustle harder” and “Thank God it’s Monday.” Employees are often big company boosters, creating a work-hard, play-hard office, with a millennial hipster vibe.
Alcohol has been a big part of the culture, particularly in We’s first half-decade. Mr. Neumann has told people he likes how it brings people together, and tequila, his favorite, flows freely. Executive retreats sport numerous cases of Don Julio 1942, with a retail price of more than $110 a bottle, and pours sometimes start in the morning.
A few weeks after Mr. Neumann fired 7% of the staff in 2016, he somberly addressed the issue at an evening all-hands meeting at headquarters, telling attendees the move was tough but necessary to cut costs, and the company would be better because of it.
Then employees carrying trays of plastic shot glasses filled with tequila came into the room, followed by toasts and drinks.
Soon after, Darryl McDaniels of hip-hop group Run-DMC entered the room, embraced Mr. Neumann and played a set for the staff. Workers danced to the 1980s hit “It’s Tricky” as the tequila trays made more rounds; some others, still focused on the firings, say they were stunned and confused.
Mr. Neumann also enjoys marijuana, his friends and former executives say. As with the Israel trip, multiple people who have been on planes with him say he often smokes while airborne.
Much of this culture has been pared back as the company has matured. The summer camp was canceled this year.
Mr. Neumann has mellowed some too, friends say. He sometimes stays away from alcohol for weeks or months at a time, and raucous parties are less frequent. His wife, Rebekah Neumann, has helped pare back the partying, former executives say.
Ms. Neumann, a first cousin of actress and wellness guru Gwyneth Paltrow, has said she and Mr. Neumann clicked when they first met, when Mr. Neumann was broke and struggling to make a business.
“It felt like time stopped,” she told a podcast interviewer last year. “I just knew he was the man that was, hopefully, going to help save the world.”
Mr. Neumann and his wife, Rebekah Neumann, in 2018.PHOTO: EVAN AGOSTINI/INVISION/ASSOCIATED PRESS
Former employees who worked with her say she pushes to infuse spiritualism in We—which has a mission statement to “elevate the world’s consciousness”—and enjoys broad autonomy at the company. She is the chief brand officer and head of WeGrow—the private company’s preschool and elementary school that costs up to $42,000 a year and is open to anyone. She is an important counsel for Mr. Neumann, and he has told staff they often make decisions together.
The two split time between some of their many homes—they have at least five—including a 60-acre Tudor-style estate north of New York City. They have told staff they started WeGrow after they were dissatisfied with schooling options for their five children.
The two have committed giving $1 billion to charity over the next decade.
Ms. Neumann had been slated to play a large role in choosing Mr. Neumann’s successor if he were ever incapacitated, but was recently removed from that position amid pushback from investors.
Both Neumanns could be impulsive at times, former executives say. Ms. Neumann has ordered multiple employees fired after meeting them for just minutes, telling staff she didn’t like their energy. She and Mr. Neumann have sent maintenance and IT staff to their homes to fix various items.
When Mr. Neumann announced in July 2018 via video call from Israel that the company was banning meat, executives in New York were caught off guard. With little explanation from Mr. Neumann, a group huddled to determine a rationale—they settled on sustainability—and the mechanics of what would be banned and how.
They determined employees couldn’t expense meals with meat, but they could eat it in company offices, so long as the company didn’t pay. Former employees say they have since seen Mr. Neumann eat meat.
He previously has instructed staff to fire 20% of employees a year, bemoaning the number of “B” players hired amid rapid growth. Managers were unable to hit the target even when they included attrition.
Still, former executives believe his outlandish targets for items such as reducing construction costs have forced better results than more realistic goals—and are a driver of the company’s continued growth.
That growth has remained remarkably consistent, roughly doubling every year for most of We’s history, and remains the main selling point to investors.
“This guy is pushing hard, but he’s all in,” said John Caddedu, managing director at early We investor DAG Ventures. Building something as big as We, he said, “requires extraordinary devotion and focus and will and a lot of the things that throw some people off.”
Mr. Neumann had been expecting the revenue growth rate would also be well received by the public markets. Companies such as Netflix Inc. and Amazon.comInc. were growing at slower rates nearly a decade in, though they were losing far less money.
Instead, after the IPO prospectus was released in mid-August, the company became the butt of jokes in Silicon Valley and among Wall Street crowds. Analysts and competitors critiqued its lack of detail around the economics of its offices. Corporate governance proponents were aghast at the long list of potential conflicts. Some observers noted the irony of personally profiting off the trademark for the word “we.”
Years leading a private company left Mr. Neumann unprepared for the negative reaction, people familiar with the IPO discussions have said. Every time he raised money—often at in-person meetings where check-writers could see Mr. Neumann’s charm—the valuation went up, money rolled in, and the business expanded.
Some investors said when they raised concerns about Mr. Neumann’s self-dealings, he brushed the issues aside. Despite We’s growing size, its losses have been increasing at the same rate as revenue, creating a constant need for fresh investments. That is contrary to earlier projections from Mr. Neumann, who said the company wouldn’t need more money.
Meanwhile, numerous other business lines, including a residential arm, a gym and an office design and management arm, have all been scaled back or failed to deliver the high profit margins once expected, people familiar with the businesses said.
In a videoconference with the whole company Tuesday, Mr. Neumann, dressed uncharacteristically in a gray suit and a white button-down shirt, told the staff it has “played the private market game to perfection,” listeners said.
As for the public markets, he said, the company was still learning the rules of the game.
Shannon McConaghy of Horseman Capital paints a dour picture of the Japanese banking system. He reveals the accounting tricks that have allowed these banks to survive in a predominantly negative-interest-rate world, and discusses why credit costs are finally rising. Shannon warns of a potential meltdown that could have far-reaching ramifications, in this conversation with Real Vision’s Roger Hirst. Filmed on July 11, 2019 in London.
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