On October 9, 2012, a select group of undergraduate and graduate students from the Wisconsin School of Business gathered in Grainger Hall to sit down with one of the most renowned real estate entrepreneurs in the world: Gerald D. Hines, Chairman and Founder of Hines Interests Limited Partnership (“Hines LP”). The firm, founded in 1957, is currently active in 18 countries, has approximately 3,300 employees and controls assets valued at approximately $22.9 billion. Since its founding, Hines LP has managed over a thousand projects in 245 cities across four continents. Michael Brennan, Executive Director of the James A. Graaskamp Center for Real Estate, moderated the student-led Q&A with Mr. Hines and John Wood, a Managing Director in the firm’s Chicago office.
Students probed the real estate pioneer’s illustrious past, outlook and aspirations, unearthing an array of anecdotes and stories. Mr. Hines was an impressive raconteur, entertaining students with various tales from his career developing real estate around the world. The first question immediately sparked a dazzling story describing an incident in which armed guards raided one of the firm’s foreign offices. The episode was a lively example of the travails the firm faces when investing globally.
Mr. Hines clearly enjoys the challenge. Hines LP, which partners with pension and sovereign wealth funds, has been investing in BRIC countries (Brazil, Russia, India and China) since the early 1990s.
“The tougher, the better,” he exclaimed. “You might get killed, but there’s less competition.”
Despite cultural and political differences, Mr. Hines doesn't hesitate to send “Texans to Russia.” In fact, Hines LP actively seeks opportunities that allow entry into lucrative markets throughout the world. The firm entered the Russian market by partnering with a local operator and establishing a reputation for quality.
It’s that ideal for quality that inspired the firm’s start in Houston. Mr. Hines saw a market oversupplied with “junk” and knew he could build something of better value. Improving the workability of the tenant – from expansive lighting to improved air quality to large floor plates – has been an important guiding principle. Mr. Hines spoke highly of the firm’s conceptual construction group, whose primary goal is to answer one simple question: how do we improve the product?
The small and specialized team promotes quality and innovation by evaluating the mechanical systems, operating expenses, maintenance costs and development planning of the firm’s investments. Students also highlighted the firm’s creativity and out-of-the-box thinking by focusing the discussion on some of the firm’s notable developments, including:
- The Galleria (Houston, TX), an upscale mixed-use urban development that incorporated Milan-inspired architecture and constructed a basement level ice skating rink
- 101 California St. (San Francisco, CA), a LEED Platinum office building that achieved the highest LEED score in history in the existing building category (the building uses earthworms to brew fertilizer for the plants and trees in the building’s plaza and atrium)
- Transbay Tower (San Francisco, CA), a 1.3 million-square-foot office tower, which, once completed, will be the tallest building west of the Colorado Rockies
The firm’s current economic outlook was described as “cautiously optimistic.” Capital continues to be constrained and competition is just as fierce, making development difficult. Mr. Wood pointed out the difficulty of finding equity for projects despite significant pre-leases and that the firm has had to break leases as a result. Although the firm is looking at acquisitions, development projects are waiting for equity.
Mr. Hines added that development projects also require courage. “It’s all very exciting, but can get pretty hairy at times.”
Fitting then, when asked of which project he was most proud, Mr. Hines replied “The first one that survives.” When talking about One Shell Plaza, one of the first high-rise office buildings constructed by Hines LP, Mr. Hines spoke emphatically about developing meaningful business relationships and how they are a resource for opportunities, financing and expertise. He called upon the students to undertake the same goal he set for himself and the firm: to build great buildings at a reasonable cost and to not go broke doing it.
In other words, as Mr. Hines stated, “We want to have fun but also pay our bills.”
Mitesh Patel comes to Madison from New York, NY, where he focused on raising third-party capital for Merrill Lynch Global Private Equity. Mitesh would like to use his diverse work experience to pursue a role investing in public and private real estate.