The Wall Street Journal-20080115-In Beverly Hills- A Meltdown Mogul Is Living Large- Jeff Greene Buys -Palazzo-- Scores --36-500 Million Gain- Erotica and Bowling Lanes
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In Beverly Hills, A Meltdown Mogul Is Living Large; Jeff Greene Buys 'Palazzo,' Scores $500 Million Gain; Erotica and Bowling Lanes
BEVERLY HILLS, Calif. -- Relaxing at his 40,000-square-foot mansion, Palazzo di Amore, Jeff Greene reflects on a stellar 12-month run. He snatched the estate out of receivership for $35 million in a bidding war. He got married in a spectacular wedding here with boxer Mike Tyson as his best man. And he is up more than half a billion dollars on a bet that the housing market would crater.
He may have lost a friend in the process: John Paulson, a hedge-fund manager who devised what proved to be a wildly profitable strategy for betting against risky mortgages.
It was the spring of 2006, and Mr. Paulson, seeking investors for a new fund, gave Mr. Greene a peek at his plan. Mr. Greene didn't wait for the fund to open. He beat his friend to the punch by doing the same complex mortgage-market trade on his own.
"He never told me: 'Don't do it,'" Mr. Greene says. Mr. Paulson won't discuss the matter.
If Mr. Paulson is the pensive, low-key mastermind of the lucrative bearish bet, 53-year-old Mr. Greene is the strategy's most flamboyant exemplar. A Los Angeles real-estate investor who made and lost a bundle 15 years ago, bounced back, bought himself three airplanes and a yacht, and entertains celebrities in his multiple homes, Mr. Greene has hired a P.R. firm to raise his profile and help him move into new business spheres.
"Jeff lives on the edge. He made a fortune, lost a fortune and made it back," says Fred Sands, a Los Angeles real-estate developer who got to know him through late-night parties Mr. Greene threw at his Malibu and Hollywood Hills homes. The latter pad is known for its pillow- lined penthouse den, the Moroccan room. His soirees attracted an eclectic crowd, from Paris Hilton to Mr. Tyson.
For the artwork in Mr. Greene's new Beverly Hills mansion, money is one motif. A dark metal rendering of a dollar bill hangs over the bar.
Eroticism is another. In the east wing are two huge erotic paintings that Mr. Greene waited to hang until after his September wedding there.
Mr. Greene grew up middle class in Worcester, Mass. After a 2 1/2- year run through Johns Hopkins University, he saved up $100,000 in three years managing telemarketing centers, which he used to make his first property investment: a three-family house in the Boston area. He lived in it while getting a Harvard M.B.A., acquiring 17 more homes while at the business school.
Moving to California, he dabbled in politics, trying unsuccessfully to get nominated as a Republican candidate for Congress. He bought and developed low-slung apartment buildings in the Los Angeles area, using loads of borrowed money. "My early windfall was a result of the excesses of the S&L era," Mr. Greene says. He says he had pushed his net worth to $35 million before the savings-and-loan crisis all but wiped him out in the early 1990s.
"I went through a very tough time. I didn't know how I would get out of it," he says. But by the late 1990s, as the California economy recovered, he was on his way to an even bigger fortune, eventually including 7,000 apartments.
He bought three jets, most recently a Gulfstream. Though he paid just $2 million for an older model, "I certainly could afford" a $50 million one, he says. He adds, in a telephone interview from his 145- foot yacht: "I tend to be pretty conservative in the way I spend money."
The September wedding at his estate was Mr. Greene's first, and he pulled out all the stops. Guests sat beside a long reflecting pool, wandered marbled halls snacking on hors d'oeuvres, dined around the fountain in the motor court and boogied on a revolving dance floor in the 24-car garage. In late December, the party moved to Mr. Greene's yacht off the Caribbean island of St. Barts.
Sitting in the mansion's study during an interview, Mr. Greene marvels at a fireplace framed by lions that he says were carved by Peruvian woodworkers. Outside, the Pacific shimmers in the distance as contractors work on a pool and a 15,000-square-foot recreation center, to have a screening room and two bowling lanes.
A vineyard covers six of the estate's 27 acres. His wine will bear a label using the name that he and his 32-year-old bride, Mei Sze Chan, chose for their sprawling nest. "Palazzo di Amore," Mr. Greene says -- "it's a bit cheesy, but that's what it means to us."
Yet two years ago, an undercurrent of concern about the economy had begun to trouble him. Recalling the pain of losing his first fortune, he consulted a range of smart people in search of a way to hedge his bets. One was Mr. Paulson, whom he'd met decades earlier in New York's Hamptons, the same playground of the affluent where he later met Ms. Chan.
Mr. Paulson was convinced the market for risky "subprime" home loans would implode. He outlined a sophisticated securities trade he was crafting for a new hedge fund. It involved derivatives -- contracts whose value shifts with some other asset's value -- and would need an investment bank's participation. The bank would have to be convinced that a mere individual, as opposed to an institution, qualified to be a counterparty in such a transaction. Mr. Greene says he asked Mr. Paulson, "Can I do this trade myself?" and was told, "You'll never get approved."
Banks did turn Mr. Greene down at first. But after he produced enough paperwork, Merrill Lynch & Co. and J.P. Morgan Chase & Co. agreed. He was the first individual either bank had approved for this type of trade, involving what's called an asset-backed credit-default swap, say people familiar with the matter.
Mr. Greene dived into the riskiest type of the trade by betting on derivatives backed by a single pool of subprime mortgages. He says he analyzed lots of mortgage bundles before placing his bets. But, belying the financial sophistication he aims to project, he adds: "A lot of this stuff is anyone's guess."
Mr. Greene says his positions rose only a little until the spring of 2007, when troubles at a lender rattled the market. In recent months, he has cashed out some positions, locking in $72 million in profit, according to financial records. As of early this month, his positions at Merrill Lynch and J.P. Morgan were up about $466 million combined. Because the market for the riskiest derivatives is thin, Mr. Greene says, he is waiting for better pricing before he sells more.
His hedge-fund friend, Mr. Paulson, didn't want other investors duplicating his trades. "When I mentioned to him that I had already done some of this on my own, he kind of was surprised and seemed to be upset," Mr. Greene says, adding that Mr. Paulson didn't allow him into his new fund.
Mr. Greene says he wishes he could have invested in the fund as well as doing his own trades. He also holds out hope for their friendship. Mr. Paulson, he says, "did send me a nice card on my wedding."
