Billionaire Charlie Munger’s Timely Apartment Bet Began With Hebrew Bible

(Bloomberg) -- Billionaire investor Charles Munger made a well-timed bet on suburban apartments -- thanks to a neighborhood teenager who showed up at his house with a Hebrew Bible. 

Munger couldn’t read it. But the encounter led to an improbable friendship and, more than a decade later, an investment in California apartment complexes before the pandemic sent values soaring.

The young man’s business, Afton Properties, has become a force in the market in the past few years. It bought more apartments in California than anyone else in 2020, on its way to building a real estate portfolio with an estimated value of $1.2 billion, according to Real Capital Analytics.

Munger and Afton declined to comment on how much of that growth was funded by the 97-year-old investor, who’s best known as Warren Buffett’s longtime business partner. Still, Munger’s public remarks and other data provide a glimpse into a little-known chapter in his storied investment career.

Afton, run by Avi Mayer and Reuven Gradon, has focused on an unglamorous corner of the real estate market: Garden-style apartment buildings in the vast sprawl of Southern California. 

They spent $423 million last year on more than 1,700 units, and the purchases have continued in 2021, according to RCA data. They’re still on the hunt and prepared to make all-cash offers for apartment complexes.

“Avi and Reuven, they were one of the first to see the secondary markets” had potential, said Otto Ozen, executive vice president at the Mogharebi Group, a multifamily investment banking firm in California that has closed deals with Afton. “They’re buying with a long-term hold strategy.”

With Americans struggling to find affordable properties to buy, demand for apartments is at the highest level since the 1970s. That’s pushing rents higher at a startling pace and boosting the value of apartments. Prices for multifamily buildings gained 15% in the year through August, according to RCA.

In the Antelope Valley and Inland Empire – north and east of Los Angeles, respectively – rents climbed about 16% from April of last year through this June, according to data compiled by Marcus & Millichap, a real estate brokerage and consulting firm. In downtown Los Angeles, rents fell 8.1% during the same period. In all three areas, the prices investors are paying for apartments have jumped since the start of the pandemic. 

The story of how Munger came to invest in apartments began about a decade-and-a-half ago.

“One day, into my house, a very young 17-year-old Hasidic Jew came by and gave me the Hebrew Bible -- in Hebrew,” Munger recalled at an event last year in Redlands, California, referring to Mayer.

They struck up a friendship and, years later, Munger suggested they partner to purchase buildings. 

Loan documents for one of the first properties they bought show how things have improved. Occupancy increased to 98% last year, from 95% in 2019, while net operating income climbed 15% to $6.9 million.

Part of the strategy is to upgrade the complexes they buy, Munger said, noting they spent $600,000 on trees in the first year. There’s more money to be made taking care of the customer, he added.

“It’d be nice if I were Mother Teresa and did something I didn’t like doing, because I’m a noble soul,” Munger said. “But my life is organized so that time after time, what works for my pocketbook works for every moral teaching that I’ve been taught.”

©2021 Bloomberg L.P.