Archive for April, 2011

Twitter Signs 200k HQ Lease in San Fran

Sunday, April 24th, 2011
The popular social networking site Twitter has signed a new 200,000 sq. ft. office lease for its headquarters move in downtown San Francisco.
Here’s the official word from a blog posting by Twitter CFO Ali Rowghani:
The Tweets of San Francisco
Friday, April 22, 2011
The city where we have started and grown will remain our future home. Twitter is staying in San Francisco and has signed a lease to move our headquarters to Market Square, a historic building in San Francisco’s Central Market neighborhood that is being managed by our new partner and landlord, Shorenstein Properties.
We would like to extend our heartfelt thanks to Mayor Ed Lee; the San Francisco Board of Supervisors (in particular Supervisor Jane Kim and Supervisor David Chiu); Jennifer Matz and Amy Cohen from the city’s Office of Economic and Workforce Development; Charlie Malet from Shorenstein Properties; and, everyone who worked with them for their vision, effort and perseverance in spearheading legislation that will help revitalize an area of San Francisco where office space has sat vacant for decades.
We are proud that Twitter will be among the first companies moving into the Central Market area and will be playing a role in its renewal with the city and with other businesses, arts organizations, and the numerous community organizations that have been doing hard work in the neighborhood for many years.
San Francisco’s unique creativity and inventiveness is a part of Twitter’s DNA, and we feel like we are part of San Francisco. Three-quarters of our employees who live in San Francisco are involved in causes and charities in the city. Our employees are excited to be active members of our future neighborhood as volunteers, customers, diners and patrons of the arts.

Two New Marriotts Coming to L.A. LIVE

Saturday, April 23rd, 2011
Selective hotel development is obviously not dead, it was just on life support there for awhile.
A group of developers have announced plans to kick off construction early next year on a new 377-room $118 million hotel tower next to downtown Los Angeles’ popular L.A. LIVE entertainment district.
The 22-story tower will house both a 180-room Courtyard by Marriott and a 197-room Residence Inn by Marriott. Completion of the building, located at the Northwest corner of Olympic Boulevard and Francisco Street, is scheduled for March 2014. Marriott International will manage the property.
The partnership is led by Williams/Dame and Associates, the firm behind the city’s innovative "South Park" residential towers (EVO, Luma, and Elleven); American Life, Inc., a Seattle investment firm that specializes in EB-5 equity funding, along with Regional Center Management Los Angeles, the U.S. Citizenship and Immigration Services approved EB-5 Regional Center for Los Angeles and Hollywood; and commercial real estate firm Nomad Ventures LLC.
Equity funding will be provided through the EB-5 Investor Green Card Program
The new tower will join two hotels opened in 2010, the 123-room Ritz Carlton Los Angeles and the 878-room JW Marriott.
Opened in October 2007, the $2.5 billion L.A. LIVE is considered a “world-class” sports and entertainment district including attractions such as the STAPLES Center (home of the Los Angeles. Lakers, Los Angeles Clippers and Los Angeles Kings), the Nokia Theatre L.A. LIVE, the GRAMMY Museum, the Los Angeles Convention Center, several residential condominiums, the Regal Cinemas L.A. Live Stadium 14 theatres, restaurants and night clubs.
The hotels are expected to help the Los Angeles convention center draw more major meetings and conventions. "This is one of the most important announcements in the continuing revitalization of downtown Los Angeles and the Convention Center District," said Timothy J. Leiweke, president and CEO of AEG, which owns the land on which the new hotel will be built. "From AEG’s standpoint, the highest priority for Los Angeles has to be creating more hotels in and around our Convention Center. If we can fix our Convention Center and, in turn, find other hotels like this, we can singlehandedly put tens of thousands of people back to work and change the dynamics of our city forever."

Recently AEG proposed building a 72,000-seat football stadium in downtown Los Angeles to attract a National Football League franchise.

“This announcement coupled with the announcement of a potential NFL stadium and modernization of the Los Angeles Convention Center has already created great new interest in downtown from a variety of investors in the hotel and hospitality industries,” said Carol Schatz, president and CEO of the Central City Association and Downtown Center Business Improvement District.

New Houston Office Tower Breaks Cover

Saturday, April 16th, 2011
Who says there’s no new office building construction in the U.S.?
New York City has steel rising on its new World Trade Center. Oklahoma City has its Devon Energy headquarters nearly topped out at 50 stories. And now Houston has been targeted for a spanking new addition to its skyline.
BBVA Compass announced that it will anchor a new 20-story, 380,000-sq.-ft. office building to be built in the Galleria area by Redstone Cos. and Stream Realty Partners LP. The bank will lease the top six floors of the new tower at 2200 Post Oak Blvd.  Ground breaking is expected in May with completion set for Q1 of 2013.
This represents a local consolidation of four offices for BBVA USA Bancshares Inc., the holding company that oversees the bank’s operations and is headquartered in Houston. According to reports, the bank is hoping to consolidate its Dallas-Fort Worth offices as well.
The new Houston tower will be part of a redevelopment to include a hotel with residences, a second office building and parking garages.
The Galleria area has become hot property lately. In February, Unilev Capital Corp. plunked down $176 million to buy three high-profile office buildings at the Galleria from an affiliate of Walton Street Capital LLC. The buildings, totaling 1.1 million sq. ft., were developed in the 1970s by Houston-based Hines, and include the 25-story Galleria I, the 22-floor Galleria Tower II and the seven-story Galleria Financial Center.

Enid Renaissance Project Goes to Carter

Wednesday, April 13th, 2011
The Enid board of commissioners voted 7-0 to approve a contract with Atlanta-based Carter for project management services for the Enid Renaissance project which includes a new event center and renovations to the existing convention hall.
Enid citizens voted down a $40 million bond referendum for the Gateway Enid project last August, but the project was never declared officially dead. In an effort to revitalize Enid’s downtown, the Gateway Enid project plan included a new event center, renovation of the convention hall, expansion of Cherokee Strip conference center and a large public green area.
The vote late last summer has forced the project to be scaled back to a $20 million investment. It will still include the event center construction, which contains an exhibit, concert and multipurpose hall. The new center will be an ideal location for conventions and athletic events. Carter will also complete renovations to the existing convention hall as funding allows. Convergence Design is the architecture firm and Flintco is the construction manager for the project.
In February, Carter was asked by the city to help in the negotiations with Flintco. By taking the lead in this process and staying engaged, Carter now serves as the owner’s representative and will provide onsite project management for the city.
Construction is expected to commence in early May and the project is scheduled for completion by Oct. 1, 2012.
“Due to our successful project with the Enid public schools, we have a proven track record in this community,” says Danny Jardine, senior vice president at Carter. “We are excited about bringing jobs to Enid for the project’s construction and stimulating Enid’s current businesses.”

$600M Cincinnati Development Hits Home Run

Saturday, April 9th, 2011
Atlanta developer Carter recently hosted the inaugural Meet Up Tweet Up at “The Banks”, its spanking new $600 million mixed-use development in downtown Cincinnati.
Scores of people arrived at the Holy Grail Tavern & Grill’s new location at The Banks to see the development for themselves, and of course, to tweet about it.
The Banks is an 18-acre, mixed-use development on the riverfront in downtown Cincinnati between Great American Ball Park, home to Major League Baseball’s Cincinnati Reds, and Paul Brown Stadium, home of the National Football League Cincinnati Bengals.
This multi-phase project features an underground public parking garage with 3,300 parking spaces, 300 rental apartments, 80,000 sq. ft. of street-level retail space, and two stand-alone restaurants. Future phases will include a 300-000-sq. ft. office building and a 200-room luxury hotel. In all, the development will total a whopping 3 million sq. ft. of space.
The first apartment residents at Current@The Banks are scheduled to move in April 18.
Attendees at the tweet up included Carter Chairman and CEO Bob Peterson, USAA Real Estate Chairman and CEO Pat Duncan, Carter Vice Chairman Jim Shelton, Brasfield & Gorrie executive Roddy McCrory and Chris Kemper of the Cincinnati USA Regional Chamber.
See more from the event, including some lovely photography, here.

Race is on to Build in Big D

Saturday, April 9th, 2011
Four developers are jockeying for position to build new office towers in downtown Dallas. With the leases of many of downtown’s largest office tenants such as legal and accounting firms up for renewal in the next few years, developers are eager to gain a foothold now.
One estimate by Dallas-based Billingsley Co., one of the developers hoping to build new space, finds a possible 7.2 million sq. ft. of leases up for renewal from 2012 to 2015. “It will be a race to see who can tie up these tenants that are currently in the market,” says Michael Caffey, senior managing director of CB Richard Ellis in Dallas.
Those downtown tenants have two main options: remain in their existing space, or move to one of the planned new buildings in the $600 million downtown Arts District or in nearby Uptown. This area on the northern fringe of downtown Dallas has been given new life in recent years thanks to the completion of several major entertainment venues.
See the full story from National Real Estate Investor here.

Letter from the Chairman

Friday, April 8th, 2011

It’s not often that real estate company chairmen, let alone top executives in any industry, present such carefully crafted, well-written and forthright prose as that just issued by William Ackman, chairman of The Howard Hughes Corporation. HHC as it’s known, was spun off from the original General Growth Properties and owns a fair bit of Class-A assets.

While it’s definitely lengthy, take the time to read this, it’s good stuff.

 To the Shareholders of The Howard Hughes Corporation:

DALLAS–(BUSINESS WIRE)–The Howard Hughes Corporation (‘HHC’) began its existence as a public company when it was spun off from General Growth Properties Inc. (‘GGP’) when it emerged from bankruptcy on November 9th of last year. Having joined the board of GGP shortly after the company filed for bankruptcy, my first priority was to work with the other directors of GGP to stabilize the company, extend the maturity of its debts and raise sufficient capital to emerge from bankruptcy as an independent publicly traded real estate investment trust. During that process, as I learned more about the disparate assets of GGP, I considered the idea of creating a new company to own certain assets hidden within GGP whose value would not likely be realized while these properties remained at GGP.

While the REIT structure is an excellent corporate form with which to own stabilized income producing assets like GGP’s mall properties, it is less than ideal for owning development assets, master planned communities (‘MPCs’), and other assets whose current cash flows are not reflective of their long-term potential. This is due to REIT ownership limitations on assets held for sale in the ordinary course of business, the large amount of capital and time required for development assets, and the fact that investors principally value REITs based on their distributable free cash flow.

We decided to set up a new company to own these assets so we could realize their long-term potential while maximizing the value of GGP in the short term. While the short term is not usually a time period that most public company executives are willing to acknowledge that they even consider, in this case it was critical for GGP shareholders to create value in the short term so we could participate in value creation over the long term. GGP was subject to a series of takeover bids from Simon Properties that undervalued the company and had material risk of transaction failure because of antitrust issues. By creating and then committing to spin off HHC, we were able to create about $7 per share in value for GGP shareholders for a total combined value of approximately $22 per pre-bankruptcy GGP share.

Once we had selected the assets that were to be contributed to HHC and negotiated the separation arrangements with GGP, our highest priority was identifying the senior management team that would run the company. Typically, such a process involves hiring a search firm, which then attempts to recruit executives at competitors with relevant experience. In this case, there are few truly comparable companies to HHC and a less than obvious pool of candidates to select from. While there are a number of publicly traded non-REIT real estate corporations (so-called C corporations) that own development assets in some cases that are similar to HHC, their track records in creating shareholder value leave much to be desired.

While I believed that so-called real estate opportunity fund managers had the experience to oversee HHC’s assets, I had no interest in hiring an external manager on a 2% and 20% basis to run the company, particularly in light of the ongoing conflicts they would have with other investments in their portfolios. The key criteria we used to find senior management were: character, energy, intelligence, and experience profitably investing in a diverse collection of real estate assets. In addition, I wanted someone who had made money already, without having lost any of the passion and drive to succeed, and without significant outside interests and assets that would compete for his or her attention.

We found our leader in David Weinreb, a Dallas-based real estate entrepreneur, whom I had known (but not well) since high school, but only in recent years gotten to know in a business and personal context. David had contacted me a year or so ago for advice on raising a real estate opportunity fund about which we had an ongoing dialogue. He had been investing and developing real estate assets largely on his own since leaving college (just like Bill Gates but in real estate) more than 25 years ago and had sold or monetized the vast majority of his assets before the recent downturn in the markets.

While over the last 10 or so years he had largely been investing his own capital in real estate and investment securities with his partner, Grant Herlitz, and a team based in Dallas, Houston and Los Angeles, David was considering raising a larger pool of capital to participate in opportunities created by the credit crisis. It was in this context that I mentioned the assets that would become HHC, and David and Grant were intrigued. They spent the next 30 or so days inspecting the properties that would be contributed to HHC. They then worked on spec to assist Pershing Square in negotiating the best possible deal for old GGP shareholders in setting up HHC.

As we worked together on the HHC portfolio and negotiated arrangements for the company’s eventual spinoff, it became clear to us that these were the right partners to oversee the company going forward. David and Grant are moneymakers with a clear understanding of risk and reward. While there are real estate executives with more public company experience, more master planned community experience, and/or more development experience, we were principally interested in selecting a management team we trusted with relevant experience, who would think of the corporation’s capital as their own, and who were willing to invest a meaningful amount of their own money alongside shareholders.

To date, David, Grant, and our new CFO Andy Richardson have committed $19 million of their own capital to purchase long-term warrants on HHC at their fair value at the time of purchase. Under the terms of the warrants, they cannot be sold or hedged for the first six years of their seven-year life, a provision which meaningfully reduces their value compared with warrants without liquidity or hedging restrictions. In light of the long-term nature of the company’s assets, I cannot think of a better way to align the interests of and incentivize our management team to create value for shareholders. If the stock price stays flat from the time they joined the company, they will lose their entire investment in the warrants. If the stock price makes a sustained increase in value over the next seven years, management will participate to a leveraged extent in the increase in the stock price. Other than the warrants, our senior management receives relatively modest cash compensation particularly when compared with real estate private equity compensation levels.

While on the subject of compensation and alignment of incentives, I thought it worth mentioning that the funds that I manage currently own a 23.6% fully diluted economic interest in HHC including stock, total return swaps, and seven-year warrants that we received in exchange for our backstop commitment to HHC. I receive no salary for serving as your chairman, and I have waived all board compensation. As a result, you can be comfortable that my interests are aligned with yours. That is not a guarantee of success, but rather it will ensure that we will succeed or fail together. In a partnership, getting the right team in place with the right incentives puts you on good footing for future success. On this basis, we are off to a good start.

Now you might ask how one should calculate the value of HHC and judge our future progress. While these are two critical questions for any investor, in the case of HHC, the answers are not nearly as straightforward as in a more typical real estate or other public company.

With respect to the valuation of HHC, the easy answer is that you should calculate the value of our assets – cash, real estate, and tax attributes – subtract our liabilities and then divide by fully diluted shares outstanding. The difficulty is that the real estate assets owned by HHC are notoriously difficult to value. First, you should consider that their long-term value – the value that can be achieved by a long-term owner – is, in my opinion, materially higher than their liquidation value. Some, albeit not ideal, evidence of this is to compare the value of GGP just before the spinoff of HHC to the value of the combined companies today. Approximately $7 per GGP share in value has been created by the contribution of the properties to an entity that has the capability to hold these assets forever.

For our MPC assets, one can make assumptions about the timing and number of future lot sales and then discount back these cash flows over the 30-or-so-year life of the project at a discount rate you deem appropriate. The problem with such an approach is that small changes in assumptions on discount rates, lot pricing and selling velocity, inflation, etc. can have an enormous impact on fair value.

For our development assets, one needs to make assumptions about what will be built, when it will it be built, to whom it will be leased, what rents it will achieve, what expenses it will incur, and what multiple an investor will place on these cash flows. Again, even highly sophisticated real estate investors will assign substantially divergent values to the same assets when using their own assumptions.

Some investors look at book value, but book values, particularly for HHC are in most cases largely unreliable measures of value. For example, South Street Seaport, one of our more valuable assets, is carried on the books of HHC at $3.1 million. Last year, it generated more than $5 million in cash net operating income, and this number meaningfully understates the potential future cash generating potential of this property as GGP generally discontinued granting long-term leases to tenants as it prepared the property for a major redevelopment. Even using the $5 million NOI number, one can get to values approaching $100 million using cap rates appropriate for New York City retail assets, and we would likely leave a lot of money on the table if we sold it for this price.

We could attempt to calculate net asset value and publish a number as some public real estate companies have done. I am not a huge fan of this approach because of the widely diverging estimate of values that even the most informed, best-intentioned evaluators will generate. So therefore, the best we can do is to give you as much information as we can provide (bearing in mind that there is some information that we will elect to withhold for competitive reasons) so that you can form your own conclusion. While we have just begun the public reporting process and we are still learning that art, you can expect over time that we will release more information to assist you in forming your own assessment.

With respect to judging our business progress going forward, the usual metrics like net income, operating cash flow, EBITDA, AFFO, earnings per share, etc. are not going to offer much help. (By the way, when you read this sentence in the annual letter of a typical company, you should usually take your money elsewhere.) Our reported net income and cash flows will largely depend on gains and losses from sales of assets and the book value of those assets on our balance sheet. We could generate large amounts of income for example by selling South Street Seaport and other assets for which book value is less than market value. While this would generate material accounting gains and require us to pay large amounts of taxes, we might be destroying long-term shareholder value by doing so, particularly if we believe materially more value can be created through redeveloping and releasing these assets over time. We will also generate larger profits from our Summerlin MPC as a result of the more than $300 million write down the company recognized at year end, but this should not make you feel richer as a result.

Simply put, I will judge our progress based on our management’s ability to move each of our assets closer to the point at which it can generate its maximum potential cash as an operating asset, and to manage our MPCs to once again begin to generate material amounts of cash from sales of lots to builders and the development or sale of their commercial parcels.

Because of (1) the large number of assets we own, (2) the large amounts of capital required to redevelop these properties to enable them to achieve their full potential, (3) our relatively limited cash resources, (4) our aversion to the use of large amounts of recourse leverage, (5) our high return requirements for our own capital, and (6) the availability of large amounts of lower-cost real estate equity capital for developments like the ones owned by HHC, you should expect that we will raise outside capital and/or joint venture many of our properties with other investors, operators, and/or developers. This approach should enable us to manage risk and increase our return on invested capital.

We will do our best to keep you informed as to our progress with each asset in the portfolio as we obtain necessary approvals, design and build projects, lease space, and generate cash flows. Over time, our goal will be to turn each of our non- or modestly income-producing assets into an income-generating property, while selectively monetizing assets when we believe a sale will generate more value for HHC on a present value basis than holding the asset for the long term.

In light of the complexity of our asset base and the inadequacy of GAAP accounting to track our progress, you should now understand how important it is to get the right management team in place with the right incentives. Furthermore, while most public company boards are comprised of experienced executives with typically minimal expertise in the business of the company on whose board they sit, HHC’s board is largely comprised of real estate experts with broad expertise in MPC and retail development, residential and office ownership and development, institutional investment in real estate, and other real estate disciplines relevant to HHC.

Importantly, our directors do not need their director fees to pay their rent, and have chosen to participate for the experience, reputational benefits, and camaraderie from working to create value for our shareholders. We will act in your best interests to the best of our ability and look forward to the opportunity to impress you with HHC’s success over the coming years.

Lastly, in a world where investors are concerned about the future value of paper money and inflation that have caused many investors to turn to gold to hedge that risk, I am quite comforted by the assets of HHC. We own the gold and blue white diamonds of the real estate business, assets that have traditionally performed well in inflationary environments.

Welcome aboard.



William A. Ackman


Safe Harbor Statement

Statements made in this release that are not historical facts, including statements accompanied by words such as “will,” “believe,” “may,” “expect” or similar words, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements in this release related to the company’s future operating performance, the creation of long-term value for our stockholders and progress on some of the company’s larger developments are forward-looking statements. These statements are based on management’s expectations, estimates, assumptions and projections as of the date of this release and are not guarantees of future performance. Actual results may differ materially from those expressed or implied in these statements. Factors that could cause actual results to differ materially are set forth as risk factors in The Howard Hughes Corporation’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2010. The Howard Hughes Corporation cautions you not to place undue reliance on the forward-looking statements contained in this release. The Howard Hughes Corporation does not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the date of this release.


The Howard Hughes Corporation

Kay Weinmann, 214-741-7744