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Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.

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Speaker 1: I'm Jolle Wisenthal.

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Speaker 2: And I'm Tracy Halloway.

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Speaker 1: Tracy, I don't know if I've ever like said it

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Speaker 1: to you directly before. Uh oh no, but I've said

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Speaker 1: it to others. I believe there is no limit on

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Speaker 1: the number of real estate related episodes we could do.

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Speaker 1: There's literally done.

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Speaker 2: I feel like there are two topics in business media

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Speaker 2: that everyone loves reading about and opining on, and one

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Speaker 2: is transportation, so airlines and cars, and the other one

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Speaker 2: has to be real estate because it kind of touches

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Speaker 2: everyone's lives in one way or another.

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Speaker 3: Well.

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Speaker 1: Absolutely, And one of the most powerful impulses to read

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Speaker 1: anything is anxiety. And the nice thing about real estate

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Speaker 1: is no matter what's where you are, you're anxious, right

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Speaker 1: Like if you own a house or something, or if

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Speaker 1: you have investment property, anxious the prices are going to

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Speaker 1: go down, or rents might go down. And if you

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Speaker 1: don't own anything in your renter then you're anxious, like, oh,

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Speaker 1: rents are going to.

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Speaker 2: Go up, or if you want to buy a house, or.

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Speaker 1: The cost to buy a house is going to surge.

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Speaker 1: It's your anxious too. So there is no person in

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Speaker 1: the world who does not have real estate anxiety.

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Speaker 2: That's perfect. Whichever way the market is going, there is

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Speaker 2: someone who is de facto worried about it.

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Speaker 1: Yes, and so I would say there's a lot of

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Speaker 1: things in real estate right now that are particularly interesting.

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Speaker 1: So we talk about it a lot. But we've talked

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Speaker 1: a lot about why haven't higher rates affected the home

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Speaker 1: buying industry, the secondary market in housing, and we've talked

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Speaker 1: about lack of supply, et cetera. And of course we've

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Speaker 1: talked about commercial real estate and you know, some of

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Speaker 1: the concerns about work from home and return to office

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Speaker 1: and occupancy rates, et cetera. Yep, but it still feels

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Speaker 1: like there's more to do on both fronts, particularly as

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Speaker 1: it relates to sort of higher rates. The impact that

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Speaker 1: is on like developing new properties in one sector or another.

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Speaker 2: Well, absolutely, So there's been a lot of focus on

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Speaker 2: what's going on with existing properties for somewhat obvious reasons.

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Speaker 2: But over the past year we've seen this really interesting

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Speaker 2: dynamic where the existing home sales, for instance, are almost

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Speaker 2: in complete, staces just frozen. But meanwhile, a lot of

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Speaker 2: the home builders have been ramping up their activity. We've

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Speaker 2: seen some of their share prices really surge. Warren Buffett

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Speaker 2: is making investments in some publicly traded developers, which, you know,

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Speaker 2: if you're talking about things that get people's attention, that

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Speaker 2: has to be one of them. And so I think

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Speaker 2: we really need to dive into what's happening with the

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Speaker 2: actual construction versus I guess the existing buildings.

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Speaker 1: Of course, construction is affected by rates. It's also affected

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Speaker 1: by commodity inflation, labor costs, so there's just a lot,

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Speaker 1: a lot to get into.

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Speaker 2: Let's do it well.

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Speaker 1: I'm really excited. I do believe we have the perfect

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Speaker 1: guest because we're going to be speaking to someone with

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Speaker 1: a sort of like very broad view of the real

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Speaker 1: estate market, involved in many different angles. To be speaking

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Speaker 1: to David O'Reilly. He is the CEO of Howard Hughes Holdings,

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Speaker 1: which is involved in real estate in many different ways.

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Speaker 1: I'm going to have him explain what the business is. So, David,

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Speaker 1: thank you so much for coming on odlines, thrilled to

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Speaker 1: be here, Thanks for having me. Why don't you give

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Speaker 1: us the sort of quick summary across the different lines.

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Speaker 1: What constitutes Howard Hughes Holdings Howard.

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Speaker 3: Used as a community builder.

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Speaker 4: We build small cities or large scale master planning communities

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Speaker 4: where we're not just the bedroom community for the adjacent city,

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Speaker 4: but we're also an employment center. We prepare land, prepare

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Speaker 4: it horizontally, sell it to home builders. Take that capital

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Speaker 4: and use it to invest in building office, multifamily, shopping,

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Speaker 4: dining experiences, amphitheaters, art, whatever the consumer needs we build.

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Speaker 4: The more homes we sell, the more residents move in

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Speaker 4: our communities, the more they need those amenities. The more

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Speaker 4: amenities we have, the more desirable those communities are, the

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Speaker 4: more residents want to move there, and that cycle goes

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Speaker 4: on and on and on.

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Speaker 2: So sort of multi use projects. Give us some specific examples,

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Speaker 2: like what are I guess the most prominent projects that

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Speaker 2: you've worked on.

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Speaker 4: Well, right now, we're across six major regions. The largest

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Speaker 4: or not the largest, but the most dense right now

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Speaker 4: is the Woodlands, which is twenty eight thousand acres just

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Speaker 4: north of Houston. It's about two times the sides of Manhattan.

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Speaker 4: We have one hundred and twenty thousand residents and one

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Speaker 4: and a half jobs per rooftop.

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Speaker 2: One hundred twenty thousand residents in an area twice the

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Speaker 2: size of Manhattan. I'm jealous.

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Speaker 4: Already a third of the space was dedicated as permanent

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Speaker 4: green space, and that's part of the amenity base that

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Speaker 4: we think make our communities so attractive.

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Speaker 1: What are some of the others you mentioned the woodlands?

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Speaker 1: Where else?

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Speaker 4: We have Summerland, which is just west of the Las

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Speaker 4: Vegas Strip in Las Vegas. We have sixty acres on

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Speaker 4: the island of Oahu on Almahana Beach Park. We have

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Speaker 4: the South Street Seaport or the Seaport District here in Manhattan, Columbia,

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Speaker 4: which is the oldest master playing community started by Jim

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Speaker 4: Rouse in the lates sixties, and then a year and

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Speaker 4: a half ago we bought thirty seven thousand acres today

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Speaker 4: population zero, known as Terra valis just west of Phoenix.

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Speaker 4: That will become what we think is the next great

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Speaker 4: community in America.

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Speaker 3: Wow.

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Speaker 2: So when you say you're a community builder, how different

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Speaker 2: or unique is that business model versus say, a residential

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Speaker 2: property developer or a pure commercial property developer.

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Speaker 3: Right, we do do development.

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Speaker 4: We do residential horizontal development, we do commercial vertical development.

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Speaker 4: That's we do billion and a half of that a year.

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Speaker 4: I think the mindset of a community builder is different

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Speaker 4: than a traditional real estate developer. A real estate developer

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Speaker 4: acquires a piece of land and does everything they can

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Speaker 4: to maximize the value on that piece of land, irrespective

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Speaker 4: of what that does to the surrounding area. A community

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Speaker 4: builder is equally as focused on that piece of land

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Speaker 4: as the impact on the residents that live nearby and

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Speaker 4: all of the land surrounding it. Because we own the

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Speaker 4: majority of that land surrounding it. We're residents, our kids

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Speaker 4: go to school there, we live there. We want it

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Speaker 4: to be a better place to live, a better place

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Speaker 4: to raise a family, a better place to work. So

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Speaker 4: our developments have to be not just great on the

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Speaker 4: four corners of the bricks and sticks, they have to

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Speaker 4: have a great impact on everything around it.

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Speaker 1: Real quickly, you mentioned the tin building. There's the one

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Speaker 1: sort of Manhattan based property. It's the one that I've

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Speaker 1: definitely been do. I may have been driven through the

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Speaker 1: woodlands before, I'm not sure, but you do you own

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Speaker 1: the whole seaport. What do you have down there.

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Speaker 4: Under a long term ground lease with the EDC. We

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Speaker 4: have the cobblestone streets on the west side, of the FDR.

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Speaker 4: We have the Tin Building on the east side and

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Speaker 4: Peer seventeen on the east side. That's all part of

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Speaker 4: the Howard Use Seaport District.

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Speaker 3: Got it.

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Speaker 1: I really like the Tin Building. I went to the

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Speaker 1: one of the Jean George restaurants there, one of the

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Speaker 1: it was very well.

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Speaker 4: There's twenty one different outlets in there. They're all personally

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Speaker 4: curated by John George himself. And the foot traffic, the

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Speaker 4: revenue has been nothing short of spectacular as it's reinvented

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Speaker 4: the seaport and and become a great catalyst for growth

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Speaker 4: in that area.

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Speaker 2: Well, why don't I ask the obvious question, how has

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Speaker 2: your business changed in twenty twenty three versus say, pre

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Speaker 2: pandemic when rates were a lot lower.

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Speaker 4: Well, I think there's a number of different changes that

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Speaker 4: have occurred since the pandemic. Pandemic initially hit, the brakes

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Speaker 4: got hit everywhere and it was, oh my god, what's

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Speaker 4: going to happen? Anybody going to live in a home again.

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Speaker 4: Sixty days later, home sales came ripping back. Low rates,

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Speaker 4: free money, cost to build was relatively low. We saw

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Speaker 4: incredible demand across our communities for new home buyers.

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Speaker 3: Coming in and.

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Speaker 2: That was how surprising was that to you? Because I

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Speaker 2: feel like we are not in the real estate business,

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Speaker 2: so we don't necessarily have a lot of skin in

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Speaker 2: the game. But I feel like if you're a developer

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Speaker 2: during the pandemic, you're probably thinking this is the end

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Speaker 2: of the world, and then just two months later everything

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Speaker 2: comes roaring back.

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Speaker 4: Oh. I was shocked by the change. And when you

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Speaker 4: think about the impact that the pandemic had on travel

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Speaker 4: and tourism, and as I said, we have properties outside

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Speaker 4: of Las Vegas and Hawaii, New York City, the impact

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Speaker 4: that the pandemic had on energy, We have a project

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Speaker 4: outside of Houston. It was a perfect storm of bad

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Speaker 4: news for Howard Hughes. So we had hunkered in, We

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Speaker 4: had recapitalized our balance sheet, extended debt maturities, did everything

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Speaker 4: we could to whether what we thought would be a

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Speaker 4: prolonged storm. The last thing that I expected was when

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Speaker 4: we're not allowed to leave our homes and we're socially

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Speaker 4: distancing that we wanted to buy homes.

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Speaker 3: But I think that what.

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Speaker 4: Led to that was the real acceleration of the migratory

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Speaker 4: patterns that had existed for a couple of years that

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Speaker 4: flight to better quality of life out of the northeast,

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Speaker 4: out of the West coast, employees that were seeking a

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Speaker 4: better quality of life, better education for their children, better

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Speaker 4: connectivity to outdoor space, more square footage twice the house

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Speaker 4: for half the price, and the pandemic as we were

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Speaker 4: all working from home, gave them the flexibility to move

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Speaker 4: with alacrity, and that really accelerted home buying.

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Speaker 1: I want to ask about the new development outside Phoenix

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Speaker 1: and some of the economics that you're seeing there. But

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Speaker 1: before we.

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Speaker 2: Do show, you're always going to Arizona, aren't you.

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Speaker 1: You can't resist it Before I do, I just remember something,

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Speaker 1: so just real quickly. The Tin Building property, it's still

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Speaker 1: not profitable, right, correct, I read? I think I was

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Speaker 1: reading through the transcript. The one quarter that it was profitable, Tracy,

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Speaker 1: I think was the board apes. The NFTs had like

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Speaker 1: a four day festival there and they just like brought

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Speaker 1: tons of money in.

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Speaker 3: Well that was that was actually at the Peer itself.

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Speaker 1: Okay, that was the Peer.

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Speaker 4: Yeah, the Tin Building wasn't open at the point in time. Yeah,

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Speaker 4: they had an incredible festival for the bord A Boners

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Speaker 4: up there with some private concerts.

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Speaker 3: I love that.

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Speaker 1: Like the NFT craze was so wild at the peak

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Speaker 1: that it was like showing up on the earnings of

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Speaker 1: big publicly traded real estate investment companies as moving the

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Speaker 1: dial for some of their property.

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Speaker 2: Wait, well, can I why isn't that property profitable? Because

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Speaker 2: that's you know, a premier property in an up and coming,

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Speaker 2: like quite trendy area of the greatest city in America. Like,

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Speaker 2: what's going on?

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Speaker 4: So we just opened the Tin Building, And when you

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Speaker 4: open a new restaurant, you have operating losses. You have

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Speaker 4: to get the menu right, you have to get the

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Speaker 4: pricing right, you have to get the overhead right. In

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Speaker 4: the Tin Building, we opened up twenty one restaurants, all

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Speaker 4: in the same day.

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Speaker 3: Wow.

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Speaker 4: Go away from the Tin Building and you look at

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Speaker 4: the rest of the pier. We have five restaurants on

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Speaker 4: the ground floor with David Chang, Andrew Carmelini, John George.

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Speaker 4: They're doing quite well, Okay, quite profitable. Our rooftop concerts series,

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Speaker 4: where we have over sixty concerts. It's the most profitable

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Speaker 4: in the history of the company. Right now, ESPN and

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Speaker 4: Nike are in the office base on the third floor

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Speaker 4: doing very well, so the Tin Building is in its

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Speaker 4: infancy and it's learning how to go from crawl to

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Speaker 4: walk and over the next year, if John George's track

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Speaker 4: record is any indication, we're going to be turning the

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Speaker 4: Tin Building to profitability, which will change the whole dynamic

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Speaker 4: for the seaport.

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Speaker 3: Got it.

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Speaker 1: One thing that I think we really want to sort

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Speaker 1: of get our wrapp our heads around in this conversation

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Speaker 1: is basically, you know, like, how has the real estate

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Speaker 1: business overall been affected by the surgeon interest rates? And

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Speaker 1: of course different aspects of the real estate business, particularly

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Speaker 1: residential verus commercial, may be different. But you look at

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Speaker 1: a new project, you know, Tera Vallis previously known as

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Speaker 1: Douglas Ranch. You announced this in October twenty twenty two,

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Speaker 1: so already rates had gone up. But why do you

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Speaker 1: talk a little bit about, like how the math pencils

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Speaker 1: out on something like that long term in a time

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Speaker 1: of eight percent rates to borrow at versus a five

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Speaker 1: percent rate environment, how much does that affect how fast

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Speaker 1: you move or how how aggressively you can develop it?

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Speaker 4: No, thirty seven thousand acres terror Vallis, it's a forty

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Speaker 4: or fifty year project.

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Speaker 3: Okay.

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Speaker 4: The only thing I know for sure over forty or

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Speaker 4: fifty years is that rates are going to change.

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Speaker 3: Yeah. Right.

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Speaker 4: We didn't make that decision because we expected two percent

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Speaker 4: rates for the rest of our lives. We made that

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Speaker 4: decision because we saw household formations that outpaced new home construction.

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Speaker 4: We saw one hundred thousand people moving a year for

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Speaker 4: ten years into the Arizona to the West Valley of Phoenix.

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Speaker 4: It was the fastest growing county and the fastest growing

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Speaker 4: city in the United States of America.

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Speaker 3: And we have a.

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Speaker 4: Unique opportunity to create a community like we have in

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Speaker 4: the Woodlands in Summerland at Taravellis and meet the demand

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Speaker 4: of home buyers that are out there that were struggling

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Speaker 4: because of affordability. Phoenix in general is one of the

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Speaker 4: more affordable cities in the state, in all the states,

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Speaker 4: and when you think about the median income to purchase

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Speaker 4: a home in Phoenix, it's a third of San Francisco,

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Speaker 4: less than half in New York, and half of Los Angeles.

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Speaker 4: And we thought we could build a product for the

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Speaker 4: next forty years that would meet that migratory shift, that

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Speaker 4: need for affordable housing, and that demographic shift of workers

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Speaker 4: fleeing to lower tax higher quality of life locations.

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Speaker 2: When you're deciding whether or not to embark on a project,

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Speaker 2: what's the most important factor? Is it the pure maths

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Speaker 2: on the financing? Is it the opportunity, is it location,

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Speaker 2: the price at which you can acquire the land. How

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Speaker 2: are you balancing all those different factors.

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Speaker 4: Well, price of the land is incredibly important, But if

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Speaker 4: you think about the price of the land relative to

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Speaker 4: the investment you're making in wastewater treatment plants, water treatment plants, roads, parks,

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Speaker 4: community centers, the land purchase price is a fraction of

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Speaker 4: the investment.

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Speaker 3: The more important.

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Speaker 4: Factors for us is is it near good transportation? Is

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Speaker 4: it near a major freeway, does it connect closely to

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Speaker 4: an airport, Is it approximate to a large city where

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Speaker 4: you have great amenities and great opportunities for your residents

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Speaker 4: to have experiences with their families. And is it in

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Speaker 4: the path of growth. Now, it's not often it maybe

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Speaker 4: once every ten years that you can find twenty or

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Speaker 4: thirty thousand acres that are fully entitled, ready to go,

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Speaker 4: that meet those criteria and are priced appropriately. These are

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Speaker 4: not things that we trip over you every day of

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Speaker 4: the week. We're thrilled that we were able to acquire terravlice,

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Speaker 4: but we may not find another one like this for

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Speaker 4: another decade.

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Speaker 2: Does availability of contractors enter into that equation as well? Like,

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Speaker 2: have there been sites that you've identified and said, this

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Speaker 2: would be fantastic, but it's too hard maybe to get

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Speaker 2: the labor to build it out.

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Speaker 4: Occasionally there are labor shortages, there are material shortages. We

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Speaker 4: feel like we're at a competitive advantage and that we'll

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Speaker 4: be building this community for forty years, and you tend

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Speaker 4: to get the attention of contractors pretty easily if you

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Speaker 4: can keep them busy for more than a decade.

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Speaker 1: I'm reading over the most recent conference call and you're president. LJ.

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Speaker 1: Cross had this common so talk about the economics of

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Speaker 1: new developments. He said, increase construction costs and operating expenses

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Speaker 1: of outpaced growth and rental rates meaningfully impacting anticipated returns

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Speaker 1: on new developments. So let's start with that part of

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Speaker 1: the question. What are some examples right now where between inflation,

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Speaker 1: labor cost rates, etc. In twenty twenty three, you're making

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Speaker 1: different development decisions than you might have in twenty twenty one.

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Speaker 4: Oh, I think it's across every potential development is impacting

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Speaker 4: our decision making. Property or insurance has in most instances doubled. Wow,

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Speaker 4: utilities continue to outpace inflation, and if you layer in

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Speaker 4: just taxes and a lot of the municipalities in which

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Speaker 4: we work, those rates are going up faster than inflation. Now,

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Speaker 4: despite the fact that we're showing double digit same store

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Speaker 4: growth and rental rates and our multi family properties and

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Speaker 4: our office properties, it's struggling to keep up with the

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Speaker 4: increase of expenses of operating those properties. Layer into that

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Speaker 4: higher labor, higher material costs. Although stabilizing flattening this year,

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Speaker 4: you have seen the stabilization in twenty twenty three so far,

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Speaker 4: knock on wood and higher interest rates. It's harder to

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Speaker 4: create value for our shareholders with new development. With that said,

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Speaker 4: we still see great opportunities, specifically within the multi family segment,

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Speaker 4: to meet demand of consumers that are willing to pay

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Speaker 4: more for great properties and in great locations.

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Speaker 1: Now then later on, he says. That's not to say

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Speaker 1: we're pencils down. He said, our development teams in each

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Speaker 1: region are actively engaged in pre development so that once

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Speaker 1: the market returns to a more normalized environment, we'll be

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Speaker 1: ready to go. What is normalized mean in that context?

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Speaker 1: Is that a rate thing? Is it like that? Do

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Speaker 1: you believe that rates are sort of unsustainably high?

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Speaker 3: Here?

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Speaker 1: Is it the inflation labor aspect? What does normal mean?

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Speaker 3: No?

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Speaker 4: I think normal means in terms of return expectations, and

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Speaker 4: a lot of things can impact that. It can be

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Speaker 4: higher rental rates, it can be lower operating expenses. It

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Speaker 4: could be lower interest rates. The pendulum is swung a

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Speaker 4: little bit and it's tilted slightly out of favor.

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Speaker 3: Okay, it's usually half a minute of a Ford swings

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Speaker 3: back the other way.

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Speaker 1: We're having you on some jinxing. There's a jincent the

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Speaker 1: other day.

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Speaker 3: It's sor ry. We have patience. We're going to be

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Speaker 3: here for another forty years.

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Speaker 2: What are you seeing from consumers in terms of demand,

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Speaker 2: because obviously mortgage rates are a lot higher than they

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Speaker 2: used to be, as we were talking about in the intro,

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Speaker 2: do you see that crimping demand or maybe changing the

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Speaker 2: types of properties that people are interested.

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Speaker 4: In From a consumer perspective, there is still a demand

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Speaker 4: for homes. It's slightly lower today than it was, about

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Speaker 4: seven percent lower than it was in the middle of

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Speaker 4: twenty twenty two. But I would tell you that higher

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Speaker 4: rates has impacted supply as much as it's impacted demand.

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Speaker 4: That the resale home market is non existent. And for

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Speaker 4: the past twenty years, resales have averaged about eighty seven

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Speaker 4: percent of all home sales. Today they're about seventy. That

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Speaker 4: means new home sales have doubled as a percentage of

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Speaker 4: the total home sales, and that trend is continuing to

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Speaker 4: go higher every day. As a result, builders are still

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Speaker 4: making very strong margins. They're still selling lots of new

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Speaker 4: construction homes, and they're still in the market to buy

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Speaker 4: our land. I would tell you that the price per

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Speaker 4: square foot has maintained very steady over the past year

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Speaker 4: in terms of what consumers are paying for home. That

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Speaker 4: hasn't fallen as many would have expected because that demand

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Speaker 4: is there. What we have seen is the average size

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Speaker 4: of a home come down about fifteen percent. Interesting, as

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Speaker 4: higher rates clearly are impacting affordability, no doubt about that.

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Speaker 4: People still that want to buy a home are going

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Speaker 4: to buy a home. They may trade the office, the

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Speaker 4: third bedroom, the third car, garage, may wait on the

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Speaker 4: pool for two years, but they're transacting. They're still forming households.

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Speaker 4: They are still having children, they're still moving for jobs,

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Speaker 4: they still need a place to live.

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Speaker 1: Sorry, I want to go back to the development component

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Speaker 1: a little bit more, and I'm not sure if there's

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Speaker 1: like a sort of normalized pace. I mean, well, one question,

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Speaker 1: are you still buying land?

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Speaker 3: We have eighty thousand acres.

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Speaker 1: Yeah, we're good because I mean this has been a

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Speaker 1: question where the home builders are buying land, et cetera.

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Speaker 4: We have twenty years of land to sell the home buildings. Okay,

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Speaker 4: so we have fifty years of land to do commercial development.

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Speaker 4: We don't need to buy land to keep our business

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Speaker 4: model moving.

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Speaker 1: What type of development right now doesn't pencil out to

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Speaker 1: break round on right now? When in terms of like, okay,

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Speaker 1: yes you say the multifamily, yes they're still demand, or

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Speaker 1: maybe home building in general that you know, maybe people

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Speaker 1: just want smaller lots. What are the types of things

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Speaker 1: that in the current non normal environment, whether it's raids, inflation,

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Speaker 1: et cetera, does not make sense to work on it.

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Speaker 1: That's a very market specific question for us to peel that. Sure,

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Speaker 1: the layer of the onion, just the hair. It is

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Speaker 1: very difficult to get financing for certain product types Okay,

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Speaker 1: and that becomes a bigger barrier right now if I

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Speaker 1: want to do an office building, Yeah, it would be

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Speaker 1: almost impossible to go office construction loan done. With that said,

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Speaker 1: we're working on multi family projects. We're working on storage projects,

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Speaker 1: we're working on medical office, we're working on senior housing.

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Speaker 1: And we're hopeful to get a movie studio construction project

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Speaker 1: started here in the next six months or so in

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Speaker 1: the Las Vegas Valley out in Summerland.

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Speaker 2: That's exciting. Well, talk to us a little bit more

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Speaker 2: about financing, like what does your financing mix actually look

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Speaker 2: like at the moment, How do you fund a lot

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Speaker 2: of these projects, and how does it differ for say,

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Speaker 2: a residential project versus an office project, where I understand

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Speaker 2: a lot of the anxieties in the market are more.

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Speaker 4: Focused on at the moment, we really rarely finance our

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Speaker 4: horizontal development. If we're selling land to homebuilders, putting in roads,

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Speaker 4: water sewer infrastructure, we're not generally borrowing against that. Capital

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Speaker 4: availability doesn't impact that business, and that's largely because in

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Speaker 4: the municipalities in which we work, there's municipal financing for that.

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Speaker 4: In Texas, they're called MUDs. In Nevada, they're called sids.

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Speaker 4: In Arizona they're CfDS, but they're all basically the same thing.

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Speaker 4: Developer puts in water sewer infrastructure curves. When the homes

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Speaker 4: get sold, than they create a tax basis. That tax

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Speaker 4: payment becomes a debt service that services bonds. Those bonds

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Speaker 4: are issued and repay the developer for the infrastructure. That

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Speaker 4: is the primary tool of why housing is much more

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Speaker 4: affordable in those areas. That type of municipal financing really

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Speaker 4: doesn't exist in the Northeast. Interesting, you don't see it

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Speaker 4: in a ton of locations, but where you see it,

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Speaker 4: housing is generally much more affordable.

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Speaker 3: For that very reason.

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Speaker 4: So we're not relying on financing there. We're doing a

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Speaker 4: billion to a billion and a half of development a year.

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Speaker 4: We need construction loans to get those going. They're more expensive,

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Speaker 4: they're lower leverage, they're harder to get, and then those

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Speaker 4: construction loans mature two to three years later. We're turning

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Speaker 4: them out with permanent financing. And that market is a

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Speaker 4: little bit sideways right now.

441
00:21:55,000 --> 00:21:55,640
Speaker 1: What does that mean?

442
00:21:56,520 --> 00:21:59,800
Speaker 4: Well, taking a step back, the big banks balance sheets

443
00:21:59,800 --> 00:22:02,679
Speaker 4: aren't growing okay, and they're not getting the repayments that

444
00:22:02,680 --> 00:22:05,359
Speaker 4: they would have expected. Those office loan maturities aren't getting

445
00:22:05,359 --> 00:22:07,359
Speaker 4: paid off the way they thought. And if they're not

446
00:22:07,359 --> 00:22:09,840
Speaker 4: growing their balance sheet, that means very little new loans.

447
00:22:10,840 --> 00:22:14,760
Speaker 4: Regional banks out of the market post signature, they're hunkered

448
00:22:14,800 --> 00:22:15,960
Speaker 4: in on their capital.

449
00:22:16,000 --> 00:22:18,760
Speaker 1: Right, So the balance sheet capacity that we've been talking

450
00:22:18,760 --> 00:22:20,159
Speaker 1: about for a while, and lots of people have been

451
00:22:20,160 --> 00:22:22,720
Speaker 1: talking about constraining banks like, it's showing up for you

452
00:22:23,119 --> 00:22:24,720
Speaker 1: in certain areas, like it's noticeable.

453
00:22:24,760 --> 00:22:30,240
Speaker 2: Absolutely absolutely are there alternate forms of financing when that happens,

454
00:22:30,280 --> 00:22:32,280
Speaker 2: Like you know, we hear a lot about private credit

455
00:22:32,440 --> 00:22:34,200
Speaker 2: getting into various parts of the market.

456
00:22:34,320 --> 00:22:36,879
Speaker 4: Is that you have about the big mortgage reads, the

457
00:22:37,359 --> 00:22:39,760
Speaker 4: XYZ private equity funds that they're the ones that are

458
00:22:39,800 --> 00:22:42,520
Speaker 4: naturally going to fill the gap, but they rely on

459
00:22:42,720 --> 00:22:46,040
Speaker 4: usually either lie letters of credit, lines to credit repo facilities,

460
00:22:46,040 --> 00:22:48,639
Speaker 4: are some sort of financing from the big banks. And

461
00:22:48,680 --> 00:22:51,200
Speaker 4: if the big banks don't want to backstop an office

462
00:22:51,240 --> 00:22:55,359
Speaker 4: loan directly, they don't want to backstop it secondarily. So

463
00:22:55,520 --> 00:22:57,160
Speaker 4: those players have largely.

464
00:22:56,840 --> 00:22:57,720
Speaker 3: Been out of the market.

465
00:22:58,320 --> 00:23:01,240
Speaker 4: And you know, I think that there's a segment and

466
00:23:01,359 --> 00:23:07,000
Speaker 4: myself included that feel like CMBs could be part of

467
00:23:07,000 --> 00:23:10,040
Speaker 4: the solution here, and going back to the securitized mortgages,

468
00:23:10,119 --> 00:23:12,720
Speaker 4: the typical conduit in large loans that we did for

469
00:23:12,800 --> 00:23:14,840
Speaker 4: years and years and years back in my investment banking

470
00:23:14,920 --> 00:23:19,199
Speaker 4: days that right now those bond spreads are pretty wide,

471
00:23:19,800 --> 00:23:23,640
Speaker 4: I think, probably too wide relative to the value that's

472
00:23:23,680 --> 00:23:26,240
Speaker 4: in the loans under them. But if those bond investors

473
00:23:26,320 --> 00:23:28,679
Speaker 4: come back to the market, CMBs could be the relief

474
00:23:28,760 --> 00:23:31,919
Speaker 4: valve that would help this bottleneck. Right now in the

475
00:23:31,960 --> 00:23:33,879
Speaker 4: capital markets, it is kind.

476
00:23:33,760 --> 00:23:37,200
Speaker 2: Of weird that we've seen recently a big boom in

477
00:23:37,280 --> 00:23:40,880
Speaker 2: like vanilla bond issue ins corporate bonds, but a lot

478
00:23:40,880 --> 00:23:43,880
Speaker 2: of the abs market seems to have stalled. It's kind

479
00:23:43,880 --> 00:23:44,360
Speaker 2: of strange.

480
00:23:46,359 --> 00:23:48,280
Speaker 1: Can you talk a little bit about there's this sort

481
00:23:48,280 --> 00:23:51,960
Speaker 1: of ongoing question of whether the impact of higher rates

482
00:23:51,960 --> 00:23:54,399
Speaker 1: has really been felt by the economy yet, and like

483
00:23:54,480 --> 00:23:56,800
Speaker 1: economists always debate this is there's going to be this

484
00:23:56,920 --> 00:24:01,000
Speaker 1: lagged effect right now. My impression is that you've issued

485
00:24:01,200 --> 00:24:03,879
Speaker 1: on a corporate level a fair amount of debt prior

486
00:24:03,920 --> 00:24:05,879
Speaker 1: to the rate surge, and that a lot of that

487
00:24:06,119 --> 00:24:08,399
Speaker 1: is locked in and that you haven't seen a big jump.

488
00:24:08,520 --> 00:24:11,439
Speaker 1: Can you talk about your overall sort of like debt profile,

489
00:24:11,520 --> 00:24:13,640
Speaker 1: like how people should think about it, and like at

490
00:24:13,640 --> 00:24:16,439
Speaker 1: what point would it result in a big jump in

491
00:24:16,880 --> 00:24:18,680
Speaker 1: monthly costs or whatever financing costs?

492
00:24:18,720 --> 00:24:18,880
Speaker 3: When?

493
00:24:18,960 --> 00:24:21,600
Speaker 1: When does it have to be real maturity? Yeah, people

494
00:24:21,600 --> 00:24:25,119
Speaker 1: talk about the maturity wall that Tracy got it. Yeah, absolutely, Tracy,

495
00:24:25,280 --> 00:24:26,240
Speaker 1: that was the phrase I was looking.

496
00:24:26,440 --> 00:24:29,080
Speaker 4: Yeah, And I think that the maturity wall is often

497
00:24:29,359 --> 00:24:31,680
Speaker 4: just looked at in terms of the debt maturities that

498
00:24:31,720 --> 00:24:35,680
Speaker 4: show up on the schedule, and unless folks look a

499
00:24:35,760 --> 00:24:38,520
Speaker 4: little bit deeper and say, well, what are your swap maturities,

500
00:24:38,560 --> 00:24:41,040
Speaker 4: what are your hedging, what are your derivative maturities? Okay,

501
00:24:41,280 --> 00:24:43,840
Speaker 4: that's a much more important question in this market.

502
00:24:44,119 --> 00:24:44,800
Speaker 3: For Howard used.

503
00:24:44,800 --> 00:24:47,479
Speaker 4: We did two billion dollars of financing in twenty twenty two,

504
00:24:47,600 --> 00:24:49,480
Speaker 4: a billion of which in the fourth quarter of twenty

505
00:24:49,520 --> 00:24:53,480
Speaker 4: twenty two, which puts off all meaningful debt maturities for

506
00:24:53,520 --> 00:24:54,000
Speaker 4: five years.

507
00:24:54,119 --> 00:24:55,200
Speaker 3: Okay, average weight.

508
00:24:55,160 --> 00:24:57,120
Speaker 4: Average maturity we have in six and a half years

509
00:24:57,200 --> 00:25:00,600
Speaker 4: right now at locked in fixed rate financing. We do

510
00:25:00,720 --> 00:25:03,600
Speaker 4: have just over a billion dollars of swaps that have

511
00:25:03,640 --> 00:25:07,159
Speaker 4: floating rate to fixed and those expire staggered over the

512
00:25:07,240 --> 00:25:10,840
Speaker 4: next four years. Most of those are associated with construction loans,

513
00:25:11,119 --> 00:25:14,520
Speaker 4: and those construction loans on condos in Hawaii, for example,

514
00:25:14,680 --> 00:25:17,399
Speaker 4: pay off when we close on the condo tower. The

515
00:25:17,440 --> 00:25:20,040
Speaker 4: buyers give us their money, they take back their condo,

516
00:25:20,280 --> 00:25:22,040
Speaker 4: and we use those proceeds that pay off the loan,

517
00:25:22,520 --> 00:25:25,240
Speaker 4: so it doesn't roll to a new higher rate that

518
00:25:25,280 --> 00:25:28,159
Speaker 4: would impact us. So we feel like we're pretty well

519
00:25:28,200 --> 00:25:29,200
Speaker 4: insulated in that area.

520
00:25:29,480 --> 00:25:31,880
Speaker 2: Can you talk a little bit more about the swaps,

521
00:25:31,880 --> 00:25:33,959
Speaker 2: because I feel like this is kind of maybe an

522
00:25:34,240 --> 00:25:39,360
Speaker 2: underappreciated aspect of why we haven't yet seen a huge

523
00:25:39,400 --> 00:25:42,240
Speaker 2: impact from higher rates on a lot of companies, like

524
00:25:42,280 --> 00:25:46,320
Speaker 2: there are these hedging strategies in place to help insulate

525
00:25:46,359 --> 00:25:47,439
Speaker 2: them in one way or another.

526
00:25:48,600 --> 00:25:53,440
Speaker 4: Yes, it's not uncommon for a borrower or a large corporate,

527
00:25:53,520 --> 00:25:55,360
Speaker 4: especially in real estate, to get a floating rate loan,

528
00:25:55,680 --> 00:25:58,920
Speaker 4: but I think investors pay public real estate companies that

529
00:25:58,960 --> 00:26:01,560
Speaker 4: take real estate risk interest rate risk. So therefore the

530
00:26:01,680 --> 00:26:05,920
Speaker 4: natural inclination is to hedge that to fixed Sometimes those

531
00:26:05,960 --> 00:26:09,280
Speaker 4: hedges are shorter durations than the notional maturity of the

532
00:26:09,359 --> 00:26:12,320
Speaker 4: underlying loan, and that's where you take the interest rate risk,

533
00:26:12,440 --> 00:26:15,200
Speaker 4: not where the loan gets paid off. When the loan

534
00:26:15,240 --> 00:26:17,520
Speaker 4: gets paid off, that's where the principal risk comes in.

535
00:26:18,200 --> 00:26:22,159
Speaker 4: And if I think about the public real estate companies today,

536
00:26:22,600 --> 00:26:25,360
Speaker 4: a lot of them are hunkered down with their capital

537
00:26:25,680 --> 00:26:28,000
Speaker 4: and going to be relying on the bond market as

538
00:26:28,080 --> 00:26:31,080
Speaker 4: much as they can. If you have an office loan

539
00:26:31,119 --> 00:26:34,000
Speaker 4: that's maturing in the next several years, you're hopeful that

540
00:26:34,040 --> 00:26:36,520
Speaker 4: your lender will blend and extend and push that off

541
00:26:36,560 --> 00:26:39,040
Speaker 4: in some way, because if you have to refinance it,

542
00:26:39,160 --> 00:26:41,119
Speaker 4: not only is the rate higher, but the proceeds are

543
00:26:41,119 --> 00:26:43,439
Speaker 4: going to be much lower, and it's really going to

544
00:26:43,440 --> 00:26:45,440
Speaker 4: put a strain on the cash that you have available

545
00:26:45,440 --> 00:26:47,760
Speaker 4: and a strain on the liquidity of a number of

546
00:26:47,760 --> 00:26:48,639
Speaker 4: these property owners.

547
00:26:49,760 --> 00:26:51,520
Speaker 1: Sorry, I keep, you know what, I keep going back

548
00:26:51,560 --> 00:26:53,720
Speaker 1: and looking at all of your corporate you know, reading

549
00:26:53,720 --> 00:26:56,640
Speaker 1: your transcripts. While we're doing this. I'm looking at your

550
00:26:56,720 --> 00:27:01,560
Speaker 1: latest investor presentation and it's forty two pages and like

551
00:27:01,720 --> 00:27:04,879
Speaker 1: it looks like dozens of pages are about this development

552
00:27:04,920 --> 00:27:08,960
Speaker 1: pipeline and what you're adding to existing communities. So it's

553
00:27:09,000 --> 00:27:11,600
Speaker 1: like in the Woodlands, there's like something about a riv

554
00:27:11,760 --> 00:27:14,840
Speaker 1: Row multifamily and a corporate campus that you're planning on

555
00:27:14,920 --> 00:27:16,760
Speaker 1: building it is something that looks like a really it's

556
00:27:16,800 --> 00:27:19,159
Speaker 1: going to be maybe a really nice spot for a

557
00:27:19,200 --> 00:27:21,520
Speaker 1: grocery store or something like that. Like, are these the

558
00:27:21,560 --> 00:27:24,639
Speaker 1: types of things that are not? Are they being constructed

559
00:27:24,680 --> 00:27:26,720
Speaker 1: as fast in twenty twenty three as they would have

560
00:27:26,760 --> 00:27:28,480
Speaker 1: been in twenty twenty one some of these things on

561
00:27:28,560 --> 00:27:29,120
Speaker 1: the presentation.

562
00:27:29,400 --> 00:27:32,680
Speaker 4: Our strategy has always been to build to meet consumer demand. Okay,

563
00:27:32,720 --> 00:27:35,680
Speaker 4: there's demand, we build. If not, we're ready for when

564
00:27:35,680 --> 00:27:38,720
Speaker 4: that day comes. You know those projects that you mentioned, Yeah,

565
00:27:38,760 --> 00:27:42,040
Speaker 4: Riva Row our multi family projects across the Woodlands, six

566
00:27:42,040 --> 00:27:44,160
Speaker 4: of them are ninety eight percent least with fifteen percent

567
00:27:44,200 --> 00:27:47,880
Speaker 4: same sore growth. We need more product in the woodlands

568
00:27:47,960 --> 00:27:50,280
Speaker 4: because okay, we don't have enough. If you're ninety eight

569
00:27:50,280 --> 00:27:53,720
Speaker 4: percent least, you need more product, more supply to meet

570
00:27:53,760 --> 00:27:59,560
Speaker 4: that demand. The corporate campus that you referenced, that's really

571
00:27:59,560 --> 00:28:02,280
Speaker 4: the pin of what we're trying to do is recruit

572
00:28:02,320 --> 00:28:06,160
Speaker 4: businesses to come into our communities and we're ready to go.

573
00:28:06,240 --> 00:28:09,040
Speaker 4: Whether you're a tenant that's two thousand square feet or

574
00:28:09,080 --> 00:28:12,479
Speaker 4: two million square feet, I have an office solution for you.

575
00:28:13,280 --> 00:28:15,520
Speaker 4: And unlike a lot of office developers, when I meet

576
00:28:15,520 --> 00:28:19,280
Speaker 4: with those CEOs. I'm not solving your office needs. Well

577
00:28:19,440 --> 00:28:22,520
Speaker 4: i am, but not just your office needs. I'm solving

578
00:28:22,840 --> 00:28:26,280
Speaker 4: for where you live, where your employees will live, will

579
00:28:26,280 --> 00:28:29,119
Speaker 4: they go to school, will your church will be We

580
00:28:29,200 --> 00:28:31,919
Speaker 4: just did a corporate relocation for a cosmetics company out

581
00:28:31,920 --> 00:28:34,600
Speaker 4: of San Diego. They moved into the Woodlands, and I

582
00:28:34,640 --> 00:28:37,280
Speaker 4: met with their CEO and I asked her what was

583
00:28:37,320 --> 00:28:38,160
Speaker 4: a driving factor?

584
00:28:38,560 --> 00:28:40,840
Speaker 3: Was it taxes? Politics? Crime?

585
00:28:41,560 --> 00:28:43,600
Speaker 4: And I was surprised that she said she did an

586
00:28:43,600 --> 00:28:47,040
Speaker 4: employees survey average agent for employees in the mid forties,

587
00:28:47,680 --> 00:28:50,200
Speaker 4: and the results of that survey was that over half

588
00:28:50,240 --> 00:28:52,760
Speaker 4: of them said that they didn't think they would ever

589
00:28:52,920 --> 00:28:55,800
Speaker 4: be able to own a home, and more than half

590
00:28:55,880 --> 00:28:57,680
Speaker 4: of them didn't think they would ever be able to

591
00:28:57,680 --> 00:29:00,560
Speaker 4: send their children to college in California because they would

592
00:29:00,600 --> 00:29:01,960
Speaker 4: have to get into state school to be able to

593
00:29:02,000 --> 00:29:05,800
Speaker 4: afford it, and the application pool and the challenges of

594
00:29:05,800 --> 00:29:07,680
Speaker 4: getting into state school in California.

595
00:29:07,280 --> 00:29:08,680
Speaker 3: Are so high.

596
00:29:08,720 --> 00:29:10,560
Speaker 4: And she said that was the flare that went off

597
00:29:10,600 --> 00:29:13,200
Speaker 4: that said we needed a change. They moved to the Woodlands.

598
00:29:14,160 --> 00:29:17,080
Speaker 4: Almost all of our employees moved with her, and now

599
00:29:17,120 --> 00:29:20,200
Speaker 4: they're homeowners in the Woodlands and Spring and all the

600
00:29:20,240 --> 00:29:23,440
Speaker 4: local area, and they're pursuing education for their children with

601
00:29:23,440 --> 00:29:25,920
Speaker 4: the University of Texas, Texas A and M or any

602
00:29:25,960 --> 00:29:27,680
Speaker 4: one of the great schools that are out there that

603
00:29:27,720 --> 00:29:31,040
Speaker 4: are perhaps more affordable and a little bit easier to

604
00:29:31,040 --> 00:29:31,440
Speaker 4: get into.

605
00:29:32,000 --> 00:29:35,040
Speaker 2: You know, Joe and I were in Jacksonville, Wyoming recently,

606
00:29:35,040 --> 00:29:38,640
Speaker 2: and I remember joking that I really wanted Mike Bloomberg

607
00:29:38,720 --> 00:29:42,479
Speaker 2: to start a company town in some beautiful part of

608
00:29:42,560 --> 00:29:44,680
Speaker 2: Wyoming and we can all live there happily.

609
00:29:44,720 --> 00:29:48,120
Speaker 1: And you know, maybe maybe while you're in the office here,

610
00:29:48,160 --> 00:29:50,920
Speaker 1: you could convince our boss to start a company town.

611
00:29:51,080 --> 00:29:53,960
Speaker 4: You don't need a company town, I have them, no, Like,

612
00:29:54,000 --> 00:29:55,280
Speaker 4: you just come right into our town.

613
00:29:55,320 --> 00:29:57,000
Speaker 3: We'll welcome you with open arms.

614
00:29:57,520 --> 00:30:00,760
Speaker 1: Tracy really wants one in Montana, though, if you could

615
00:30:00,760 --> 00:30:02,360
Speaker 1: please open a master planned.

616
00:30:02,120 --> 00:30:06,320
Speaker 2: Community, preferably in the middle of a national park, Tracy.

617
00:30:06,080 --> 00:30:10,400
Speaker 1: Would be extremely appreciative. I have a question about the

618
00:30:10,400 --> 00:30:12,960
Speaker 1: broader market, so as you say, like a lot of

619
00:30:13,000 --> 00:30:15,960
Speaker 1: these developments that we're looking at on this deck might

620
00:30:15,960 --> 00:30:17,800
Speaker 1: be like, Okay, you're going to try to fulfill some

621
00:30:17,920 --> 00:30:21,920
Speaker 1: solution for some company in terms of like competition, Like

622
00:30:21,920 --> 00:30:24,400
Speaker 1: people want to move to Texas one of the stories

623
00:30:24,360 --> 00:30:26,920
Speaker 1: is that there's been a lot of supplies generally in

624
00:30:26,960 --> 00:30:29,320
Speaker 1: the last couple of years, especially across the Sun Belt,

625
00:30:29,320 --> 00:30:32,800
Speaker 1: absolutely booming. You're pricing it in Arizona on other pieces

626
00:30:32,800 --> 00:30:34,520
Speaker 1: of land that aren't yours. I'm sure you're seeing it

627
00:30:34,560 --> 00:30:36,960
Speaker 1: in Nevada. I'm sure you're seeing it in Texas, and

628
00:30:37,040 --> 00:30:40,200
Speaker 1: that at least in the short and medium term, there's

629
00:30:40,240 --> 00:30:42,080
Speaker 1: just a lot of capacity coming on, and that there's

630
00:30:42,120 --> 00:30:44,200
Speaker 1: a lot of spec building that a lot of not

631
00:30:44,320 --> 00:30:47,640
Speaker 1: everyone is building with a specific customer in mind. Can

632
00:30:47,680 --> 00:30:49,239
Speaker 1: you talk a little bit about what you see as

633
00:30:49,240 --> 00:30:52,400
Speaker 1: the sort of competitive market in the short medium term

634
00:30:52,680 --> 00:30:55,720
Speaker 1: in some of these boom areas like Arizona and Nevada, Texas,

635
00:30:55,760 --> 00:30:56,160
Speaker 1: et cetera.

636
00:30:56,680 --> 00:30:58,680
Speaker 4: No doubt that when capital was cheap, there was a

637
00:30:58,680 --> 00:31:00,720
Speaker 4: lot of folks that built in hope they would come.

638
00:31:01,160 --> 00:31:03,360
Speaker 4: I think the benefit that we have is that we

639
00:31:03,400 --> 00:31:06,200
Speaker 4: are the master developer within our communities and within the

640
00:31:06,240 --> 00:31:08,400
Speaker 4: twenty eight thousand acres of the woodlands. There's only one

641
00:31:08,400 --> 00:31:11,040
Speaker 4: company that can really add new supply, and we only

642
00:31:11,040 --> 00:31:13,760
Speaker 4: do it one building at a time, and it insulates

643
00:31:13,840 --> 00:31:15,240
Speaker 4: us from that over supply risk.

644
00:31:15,280 --> 00:31:16,240
Speaker 3: So when we're developing.

645
00:31:16,280 --> 00:31:18,520
Speaker 4: We're not competing with developer on the second, third, and

646
00:31:18,600 --> 00:31:19,840
Speaker 4: fourth corner of the intersection.

647
00:31:19,920 --> 00:31:21,840
Speaker 3: It'll be first to be best.

648
00:31:22,200 --> 00:31:25,040
Speaker 4: Sure you're competing with Howard and Use and you get

649
00:31:25,080 --> 00:31:27,600
Speaker 4: the same answer no matter which one you ask, And

650
00:31:27,640 --> 00:31:31,400
Speaker 4: that allows us to not only insulate us from oversupply,

651
00:31:31,520 --> 00:31:33,680
Speaker 4: but drive better results when we bring on a new

652
00:31:33,720 --> 00:31:38,520
Speaker 4: project where we have new multifamily that come online. Typically

653
00:31:38,560 --> 00:31:41,240
Speaker 4: when you open a new multi family project, the project

654
00:31:41,240 --> 00:31:43,520
Speaker 4: that's across the street cuts their rates to keep their tents.

655
00:31:43,560 --> 00:31:45,800
Speaker 4: They don't want them moving to the competitor across the street.

656
00:31:46,840 --> 00:31:50,200
Speaker 4: We do the opposite. We slightly increase our rates. We

657
00:31:50,280 --> 00:31:52,840
Speaker 4: own the competitive property across the street, and if people

658
00:31:52,880 --> 00:31:54,960
Speaker 4: want to move, great, they're moving into another one of

659
00:31:55,000 --> 00:31:58,400
Speaker 4: our units. And it really allows us to drive better

660
00:31:58,440 --> 00:32:01,040
Speaker 4: results in both the existing property and the new property,

661
00:32:01,160 --> 00:32:03,840
Speaker 4: giving that kind of dominant market share that we have

662
00:32:03,920 --> 00:32:06,360
Speaker 4: of class A space, both of office and multi family

663
00:32:06,400 --> 00:32:18,880
Speaker 4: across our communities.

664
00:32:23,680 --> 00:32:27,440
Speaker 2: Joe and I started out the conversation talking about the

665
00:32:27,480 --> 00:32:32,160
Speaker 2: discrepancies between existing home sales and new construction at the moment,

666
00:32:32,360 --> 00:32:35,360
Speaker 2: and I think the difference between new and existing home

667
00:32:35,400 --> 00:32:38,959
Speaker 2: sales is at something like a more than decade high.

668
00:32:39,040 --> 00:32:41,040
Speaker 4: I believe, oh absolutely.

669
00:32:40,640 --> 00:32:42,960
Speaker 2: And this has surprised a lot of people because we

670
00:32:43,000 --> 00:32:47,040
Speaker 2: thought that interest rates going up would impact affordability and demand,

671
00:32:47,280 --> 00:32:50,239
Speaker 2: and instead we saw the market prove relatively resilient. And

672
00:32:50,280 --> 00:32:52,920
Speaker 2: this seems to have incentivized a lot of home builders

673
00:32:52,960 --> 00:32:55,600
Speaker 2: to ramp up construction. I know we've been focused on

674
00:32:55,640 --> 00:32:58,960
Speaker 2: your business, but maybe talking more generally, what do you

675
00:32:59,000 --> 00:33:02,680
Speaker 2: think would be the thing that would give home builders caution?

676
00:33:04,960 --> 00:33:09,320
Speaker 4: I think what has impacted home sales more than the

677
00:33:09,480 --> 00:33:13,800
Speaker 4: face on the rate the rate of change. When rates

678
00:33:13,840 --> 00:33:18,680
Speaker 4: are volatile, home buyers pause sixty ninety days. And if

679
00:33:18,760 --> 00:33:21,400
Speaker 4: rates stabilize, and then they can predict their payment and

680
00:33:21,440 --> 00:33:24,000
Speaker 4: they can predict what they can afford, they'll transact. We have,

681
00:33:24,640 --> 00:33:27,800
Speaker 4: depending on which researcher read, three five million home shortfall

682
00:33:27,880 --> 00:33:31,440
Speaker 4: relative to household formation since the GFC. So the demand

683
00:33:31,560 --> 00:33:34,080
Speaker 4: is there. I think home builders realize that. I think

684
00:33:34,120 --> 00:33:37,160
Speaker 4: Warren Buffett's investment in the public homebuilders signified that he

685
00:33:37,240 --> 00:33:41,560
Speaker 4: sees that long term supply demand imbalance out there. What

686
00:33:41,680 --> 00:33:46,320
Speaker 4: gives them pause? If rates fell precipitously, would they pause

687
00:33:46,360 --> 00:33:46,880
Speaker 4: for a second.

688
00:33:47,000 --> 00:33:47,480
Speaker 3: Maybe?

689
00:33:48,080 --> 00:33:51,040
Speaker 4: I just think that long term supply demand in balance

690
00:33:51,480 --> 00:33:54,600
Speaker 4: is going to create a great opportunity for home builders

691
00:33:54,640 --> 00:33:56,680
Speaker 4: for a long time. That's not to say that every

692
00:33:56,760 --> 00:33:58,200
Speaker 4: quarter is going to be perfect. We're going to have

693
00:33:58,200 --> 00:34:01,640
Speaker 4: some volatility in between. The long haul, there's a lot

694
00:34:01,680 --> 00:34:05,360
Speaker 4: of value to be created, and so much demand is

695
00:34:05,360 --> 00:34:08,320
Speaker 4: coming for those new constructions. Because the most valuable asset

696
00:34:08,480 --> 00:34:11,680
Speaker 4: that most Americans have it's not cars, it's not jewelry,

697
00:34:11,760 --> 00:34:12,840
Speaker 4: it's not art or wine.

698
00:34:13,239 --> 00:34:14,040
Speaker 3: It's a mortgage.

699
00:34:14,840 --> 00:34:16,720
Speaker 4: And if they have a two or three percent mortgage

700
00:34:16,719 --> 00:34:20,759
Speaker 4: in today's seven percent rate world, it's really hard to

701
00:34:20,800 --> 00:34:22,040
Speaker 4: sell your most valuable asset.

702
00:34:23,160 --> 00:34:25,640
Speaker 2: You know, you mentioned the long haul, and this is

703
00:34:25,640 --> 00:34:30,120
Speaker 2: something I always wondered for a business like property development,

704
00:34:30,280 --> 00:34:34,040
Speaker 2: but you're talking about projects that take years, perhaps even

705
00:34:34,160 --> 00:34:37,200
Speaker 2: decades to complete. I think you mentioned the land bank

706
00:34:37,320 --> 00:34:39,760
Speaker 2: you have is good for was it eighty years something

707
00:34:39,840 --> 00:34:40,080
Speaker 2: like that.

708
00:34:40,040 --> 00:34:42,560
Speaker 4: That's twenty years of residential and much longer than that

709
00:34:42,600 --> 00:34:43,200
Speaker 4: for commercial.

710
00:34:43,440 --> 00:34:47,120
Speaker 2: So these are very long time horizons. How do you

711
00:34:47,280 --> 00:34:51,799
Speaker 2: balance that sort of long term thinking with your a

712
00:34:51,800 --> 00:34:54,839
Speaker 2: publicly traded company, you have shareholders that are looking at

713
00:34:54,840 --> 00:34:57,680
Speaker 2: your results on a quarterly basis. How do you balance

714
00:34:57,719 --> 00:35:00,399
Speaker 2: the sort of short term with the long term.

715
00:35:00,440 --> 00:35:03,600
Speaker 4: Here, we're really focused on long term value creation and

716
00:35:03,680 --> 00:35:08,440
Speaker 4: our board has been steadfast and directing management to focus

717
00:35:08,440 --> 00:35:11,000
Speaker 4: on creating making the decisions that create long term value

718
00:35:11,040 --> 00:35:15,240
Speaker 4: for our shareholders. We're never under pressure within our boardroom

719
00:35:15,600 --> 00:35:18,680
Speaker 4: to make a short term decision for next quarters earnings

720
00:35:18,719 --> 00:35:21,600
Speaker 4: at the detriment of a long term value creation and

721
00:35:22,160 --> 00:35:26,120
Speaker 4: that has been our focus throughout due to SEC rules.

722
00:35:26,160 --> 00:35:27,920
Speaker 4: The first bullet in our earnings release is what our

723
00:35:27,960 --> 00:35:30,279
Speaker 4: earnings per share is. That's the last time we'll talk

724
00:35:30,320 --> 00:35:30,680
Speaker 4: about it.

725
00:35:31,680 --> 00:35:33,800
Speaker 2: And Bill Ackman is your chairman.

726
00:35:33,880 --> 00:35:36,920
Speaker 4: Yes, he owns over thirty percent, and he is incredibly supportive,

727
00:35:37,040 --> 00:35:40,680
Speaker 4: thoughtful and articulate member of our board that's actively engaged.

728
00:35:41,680 --> 00:35:44,360
Speaker 1: You know, we've been talking a lot about residential and

729
00:35:44,560 --> 00:35:47,160
Speaker 1: we've been talking about raids all of their aspect with

730
00:35:47,440 --> 00:35:50,520
Speaker 1: office in particulars. People are concerned about vacancies and of

731
00:35:50,560 --> 00:35:53,120
Speaker 1: course that it's different in different cities. So in New

732
00:35:53,200 --> 00:35:56,800
Speaker 1: York there's tremendous anxiety obviously about work from home and

733
00:35:56,880 --> 00:35:58,839
Speaker 1: return to office, and there's a story about it every day.

734
00:35:59,400 --> 00:36:01,520
Speaker 1: What are vacant and c rates look like at the

735
00:36:01,600 --> 00:36:05,240
Speaker 1: commercial offices on your properties, and say you know Houston

736
00:36:05,320 --> 00:36:06,319
Speaker 1: or Summerland right now.

737
00:36:06,840 --> 00:36:09,200
Speaker 4: Oh well, within our portfolio, we're in the single digits

738
00:36:09,200 --> 00:36:11,000
Speaker 4: across the board in terms of vacancy.

739
00:36:11,000 --> 00:36:13,560
Speaker 1: In terms of how does sorry, what would that, how

740
00:36:13,600 --> 00:36:14,480
Speaker 1: does that compare to like.

741
00:36:14,520 --> 00:36:19,720
Speaker 4: Relative to Houston overall, we're about half Houston's twenty or nine.

742
00:36:20,600 --> 00:36:23,520
Speaker 1: What about for you say, in twenty nineteen, those same

743
00:36:23,600 --> 00:36:24,479
Speaker 1: property like pre.

744
00:36:24,480 --> 00:36:25,600
Speaker 3: Payment are very similar.

745
00:36:25,920 --> 00:36:28,520
Speaker 1: So would you say, I mean, are these markets normalized now?

746
00:36:28,560 --> 00:36:30,880
Speaker 1: I mean again, like I think our listeners maybe like

747
00:36:30,960 --> 00:36:34,040
Speaker 1: we probably have a lot of listeners in La San Francisco,

748
00:36:34,280 --> 00:36:36,239
Speaker 1: New York who are just like, oh God, no one's

749
00:36:36,280 --> 00:36:38,440
Speaker 1: going back to work. But well, talk to us. From

750
00:36:38,480 --> 00:36:39,720
Speaker 1: your perspective what you're seeing.

751
00:36:39,760 --> 00:36:42,800
Speaker 4: There's no market that's immune, right, and every market has

752
00:36:43,880 --> 00:36:47,120
Speaker 4: b office buildings and challenging locations that have no business

753
00:36:47,120 --> 00:36:49,000
Speaker 4: being office buildings. And in New York you can look

754
00:36:49,000 --> 00:36:50,840
Speaker 4: at Third Ave in Houston, you can look at a

755
00:36:50,840 --> 00:36:54,200
Speaker 4: certain submarket. In any market, there's an area where that

756
00:36:54,239 --> 00:36:56,719
Speaker 4: building's just not going to meet the demand of today's

757
00:36:56,719 --> 00:37:00,000
Speaker 4: needs of a company, of a corporate user. Companies want

758
00:37:00,080 --> 00:37:02,960
Speaker 4: to attract employees back to the office. They realize that

759
00:37:03,160 --> 00:37:06,200
Speaker 4: for several years now we've been borrowing from the Culture Bank,

760
00:37:06,440 --> 00:37:08,319
Speaker 4: and it's time to make some more deposits and get

761
00:37:08,320 --> 00:37:11,040
Speaker 4: folks back to the office. And to do that, you

762
00:37:11,120 --> 00:37:14,400
Speaker 4: need highly minitized space. You need space with access to

763
00:37:14,480 --> 00:37:19,319
Speaker 4: clean air, hopefully some connectivity in nature, great amenities, but

764
00:37:19,480 --> 00:37:21,400
Speaker 4: really importantly short commutes.

765
00:37:22,480 --> 00:37:22,600
Speaker 3: Right.

766
00:37:22,920 --> 00:37:26,000
Speaker 4: I think that those office buildings in New York is

767
00:37:26,040 --> 00:37:28,000
Speaker 4: no exception. If you're on top of Grand Central or

768
00:37:28,000 --> 00:37:29,839
Speaker 4: Penn Station, I think you're going to be great long

769
00:37:29,920 --> 00:37:33,120
Speaker 4: term because you can offer really short commutes. And in

770
00:37:33,160 --> 00:37:37,200
Speaker 4: the Woodlands, we're the largest LEAD pre certified community in

771
00:37:37,239 --> 00:37:42,080
Speaker 4: the country without mass transit. And I was really worried

772
00:37:42,080 --> 00:37:44,400
Speaker 4: when we went to get LEAD certified because it's still Texas.

773
00:37:44,440 --> 00:37:46,320
Speaker 4: There's still a lot of pickup trucks and everyone drives

774
00:37:46,360 --> 00:37:48,719
Speaker 4: to work. But your average commute in the Woodlands is

775
00:37:48,800 --> 00:37:50,560
Speaker 4: less than five miles, less than ten minutes.

776
00:37:50,880 --> 00:37:51,160
Speaker 3: Wow.

777
00:37:51,440 --> 00:37:55,600
Speaker 2: You know, we've talked about residential, we've talked about commercial.

778
00:37:55,719 --> 00:37:58,160
Speaker 2: Can we talk a little bit about retail because I

779
00:37:58,440 --> 00:38:03,160
Speaker 2: feel like this this was the pre eminent area of

780
00:38:03,280 --> 00:38:06,520
Speaker 2: concern between sort of twenty eight to twenty twenty, all

781
00:38:06,560 --> 00:38:09,919
Speaker 2: the dead malls and then it's sort of we don't

782
00:38:09,960 --> 00:38:11,880
Speaker 2: really talk about it anymore. We just ask about the

783
00:38:11,880 --> 00:38:13,960
Speaker 2: office building. So what's going on with retail?

784
00:38:14,080 --> 00:38:16,960
Speaker 4: So the dynamic today of nobody's ever going to work

785
00:38:16,960 --> 00:38:19,879
Speaker 4: in an office again, rewind the clock ten years ago.

786
00:38:19,920 --> 00:38:23,440
Speaker 4: It was nobody's going to shop in person again, everything's online.

787
00:38:23,480 --> 00:38:27,160
Speaker 4: We're never going to go to the store. As I've

788
00:38:27,239 --> 00:38:30,440
Speaker 4: learned over time, pendulum always swings too far right. And

789
00:38:30,480 --> 00:38:32,600
Speaker 4: I think that was a perfect example. But what that

790
00:38:32,640 --> 00:38:35,960
Speaker 4: did over the past ten years is it really stopped,

791
00:38:36,680 --> 00:38:40,160
Speaker 4: not completely stopped, but shrunk dramatically the amount of new

792
00:38:40,200 --> 00:38:43,399
Speaker 4: retail supply that came to the market, and we went

793
00:38:43,440 --> 00:38:47,440
Speaker 4: from an oversupplied retail market to right now an undersupplied

794
00:38:47,440 --> 00:38:52,560
Speaker 4: retail market. And when the pandemic came and it hurt

795
00:38:52,960 --> 00:38:56,160
Speaker 4: a lot of those weaking performing, weaker performing retailers that

796
00:38:56,200 --> 00:38:57,040
Speaker 4: they went out of business.

797
00:38:57,080 --> 00:38:57,520
Speaker 3: They left.

798
00:38:58,000 --> 00:39:00,480
Speaker 4: If you look at the public real estate companies that,

799
00:39:00,640 --> 00:39:04,400
Speaker 4: especially in the strip center space, they backfilled those vacancies.

800
00:39:04,560 --> 00:39:08,680
Speaker 4: Their occupancies are at peaks even compared to pre pandemic,

801
00:39:08,719 --> 00:39:11,400
Speaker 4: at higher rents per square foot, at higher sales per

802
00:39:11,440 --> 00:39:15,120
Speaker 4: square foot because they're backfilling weaker tenants with stronger tenants.

803
00:39:15,120 --> 00:39:17,120
Speaker 4: It was a Darwin moment like the short not girafts

804
00:39:17,120 --> 00:39:17,680
Speaker 4: are gone.

805
00:39:18,320 --> 00:39:21,000
Speaker 1: You know, I remember a friend of mine during the pandemic.

806
00:39:21,080 --> 00:39:23,480
Speaker 1: I had this like crazy real estate developer friend. I

807
00:39:23,520 --> 00:39:25,080
Speaker 1: need to check in with him. But he bought like

808
00:39:25,120 --> 00:39:28,040
Speaker 1: a sort of like he bought a mall in like Plano, Texas,

809
00:39:28,640 --> 00:39:30,560
Speaker 1: in like the summer twenty twenty, and I was like,

810
00:39:30,560 --> 00:39:32,560
Speaker 1: no one was paying their rent. He's like, all of these,

811
00:39:32,760 --> 00:39:35,080
Speaker 1: all of the ones that in there, they all survived

812
00:39:35,080 --> 00:39:37,239
Speaker 1: like the past downturn, and so they're all going to

813
00:39:37,239 --> 00:39:38,960
Speaker 1: start paying their rent again. I got to check in

814
00:39:39,080 --> 00:39:43,000
Speaker 1: and he said it was either going to make them

815
00:39:43,000 --> 00:39:45,080
Speaker 1: a billionaire or go broke. So we'll see what happened.

816
00:39:45,280 --> 00:39:47,160
Speaker 1: I'll see where he is. You know what, there was

817
00:39:47,160 --> 00:39:49,080
Speaker 1: something you said very at the very beginning that I

818
00:39:49,080 --> 00:39:52,080
Speaker 1: think we really need to hit on again. And yesterday

819
00:39:52,520 --> 00:39:54,879
Speaker 1: I was reading through the fid's Beige Book, and by

820
00:39:54,920 --> 00:39:58,320
Speaker 1: and large, there was a lot of comments about, you know, inflation, cooling,

821
00:39:58,360 --> 00:40:01,240
Speaker 1: supply chains turning to normal. Well, but the one area

822
00:40:01,280 --> 00:40:03,480
Speaker 1: that stood out over and over again across districts where

823
00:40:03,520 --> 00:40:06,439
Speaker 1: they're saying more inflation is an insurance. And you said

824
00:40:06,480 --> 00:40:09,840
Speaker 1: that in the beginning talk to us about why is insurance?

825
00:40:10,080 --> 00:40:12,880
Speaker 1: First of all, why isn't insurance surging everywhere?

826
00:40:14,719 --> 00:40:18,320
Speaker 4: Rates have taken off over the past year in ways

827
00:40:18,360 --> 00:40:21,120
Speaker 4: that we've never experienced and I've never seen in twenty years,

828
00:40:21,600 --> 00:40:23,440
Speaker 4: and I'm told there's a lot of reasons for that.

829
00:40:23,719 --> 00:40:26,880
Speaker 4: The reinsurance market is drying up. People are reluctant to

830
00:40:26,920 --> 00:40:30,120
Speaker 4: take risk. There have been more and more natural disasters,

831
00:40:30,680 --> 00:40:34,719
Speaker 4: making it harder and harder to price insurance appropriately, and

832
00:40:34,760 --> 00:40:37,279
Speaker 4: there's just fewer and fewer risk takers on the other

833
00:40:37,360 --> 00:40:40,279
Speaker 4: side of the table to meet the demand of folks

834
00:40:40,360 --> 00:40:42,000
Speaker 4: that need insurance on this side of the table.

835
00:40:42,120 --> 00:40:44,040
Speaker 1: When you say rates are taking off like the way

836
00:40:44,040 --> 00:40:46,120
Speaker 1: you've never seen, can you like put some numbers behind

837
00:40:46,160 --> 00:40:48,760
Speaker 1: it in terms of just like how different, how crazy

838
00:40:48,800 --> 00:40:50,640
Speaker 1: is the market or the movement the rate of change

839
00:40:50,640 --> 00:40:53,160
Speaker 1: in the market in twenty twenty three versus a period

840
00:40:53,200 --> 00:40:53,920
Speaker 1: that it might be.

841
00:40:55,239 --> 00:40:58,480
Speaker 4: Most risk managers would define insurance markets as either hardening

842
00:40:58,520 --> 00:41:00,000
Speaker 4: or softening okay, worse getting better.

843
00:41:00,760 --> 00:41:01,200
Speaker 3: Every year.

844
00:41:01,200 --> 00:41:03,480
Speaker 4: They always tell me it's hardening, okay, and I say,

845
00:41:03,480 --> 00:41:05,240
Speaker 4: one of these days it's going to soften, and sometimes

846
00:41:05,239 --> 00:41:07,960
Speaker 4: it'll soften, but they always manage my expectations by saying

847
00:41:07,960 --> 00:41:10,400
Speaker 4: it's hardening. Okay, so this year they said it's hardening,

848
00:41:10,400 --> 00:41:12,399
Speaker 4: and I kind of rolled my eyes and shrugged and said, okay,

849
00:41:12,440 --> 00:41:15,160
Speaker 4: here we go again, and we'll suck. You know, we'll

850
00:41:15,200 --> 00:41:17,400
Speaker 4: take it. We'll take a three to five percent increase,

851
00:41:18,080 --> 00:41:20,520
Speaker 4: It'll be all right. And we came back with twenty

852
00:41:20,560 --> 00:41:23,839
Speaker 4: five percent. Oh wait, maybe it's forty percent. And then

853
00:41:23,920 --> 00:41:25,680
Speaker 4: some of our peers and some of those that I've

854
00:41:25,680 --> 00:41:28,040
Speaker 4: talked to in the industry have seen a fifty percent increase.

855
00:41:28,920 --> 00:41:31,839
Speaker 4: And it's just there's not as much availability as there

856
00:41:31,920 --> 00:41:34,759
Speaker 4: used to be, and then therefore certain pieces of the

857
00:41:34,800 --> 00:41:38,040
Speaker 4: insurance stack gets more expensive for a company like Howard

858
00:41:38,040 --> 00:41:42,120
Speaker 4: to use with you know, six billion of total insurable value.

859
00:41:42,520 --> 00:41:44,360
Speaker 4: We do what's called the shared and Layer program like

860
00:41:44,400 --> 00:41:47,879
Speaker 4: most people do, which is think of a CMBs loan

861
00:41:47,920 --> 00:41:49,680
Speaker 4: or an ABS loan, where you take the whole loan

862
00:41:49,719 --> 00:41:52,520
Speaker 4: and you slice it by risk, and then you have

863
00:41:52,600 --> 00:41:55,160
Speaker 4: this tetris like grid and you fill it up with insurers.

864
00:41:55,239 --> 00:41:56,880
Speaker 4: Those that want to take the most risk at the

865
00:41:56,880 --> 00:41:59,680
Speaker 4: top get the highest rate those and then all of

866
00:41:59,719 --> 00:42:01,160
Speaker 4: a sudd at the end of the year, when you

867
00:42:01,200 --> 00:42:03,319
Speaker 4: go to get your policy, there's a big gap in

868
00:42:03,360 --> 00:42:06,600
Speaker 4: the middle, or you can't fill a couple of layers,

869
00:42:07,400 --> 00:42:09,920
Speaker 4: and then the cost of filling those incremental layers are

870
00:42:10,000 --> 00:42:13,400
Speaker 4: so pricey that it impacts the pricing of every layer

871
00:42:13,480 --> 00:42:17,640
Speaker 4: around it. And it's just that there's not enough supply

872
00:42:17,760 --> 00:42:18,640
Speaker 4: to meet the demand.

873
00:42:19,960 --> 00:42:22,040
Speaker 2: This might be a dumb question. Do you get volume

874
00:42:22,239 --> 00:42:27,040
Speaker 2: discounts as a big developer on insurance? Is there a

875
00:42:27,120 --> 00:42:28,200
Speaker 2: size benefit here?

876
00:42:28,320 --> 00:42:31,560
Speaker 4: There's a diversification discount, okay, right, And there are certain

877
00:42:31,600 --> 00:42:34,560
Speaker 4: locations that are more susceptible to natural disasters, and if

878
00:42:34,600 --> 00:42:36,920
Speaker 4: you have locations that offset that. If I have a

879
00:42:37,000 --> 00:42:40,759
Speaker 4: Las Vegas to offset a Houston that helps. If I

880
00:42:40,880 --> 00:42:44,880
Speaker 4: have Columbia, Maryland offset in New York City that helps,

881
00:42:45,160 --> 00:42:46,000
Speaker 4: Oh so Houston.

882
00:42:46,080 --> 00:42:48,400
Speaker 1: I guess the concern would be hurricanes or floods. Yes,

883
00:42:49,400 --> 00:42:51,560
Speaker 1: Do you have a sense of like when you look

884
00:42:51,560 --> 00:42:56,080
Speaker 1: at these big increases, how much I guess of these

885
00:42:56,080 --> 00:42:59,400
Speaker 1: big thirty forty percent increases and I've seen those numbers elsewhere,

886
00:42:59,440 --> 00:43:02,200
Speaker 1: Like would you say is relate to like natural disaster

887
00:43:02,320 --> 00:43:04,960
Speaker 1: risk versus some sort of diminishment and just sort of

888
00:43:04,960 --> 00:43:08,919
Speaker 1: capacity over all. You mentioned the reinsurers maybe tightening financial market.

889
00:43:09,080 --> 00:43:12,520
Speaker 4: I think your question implies that one didn't create the other, Okay, right,

890
00:43:12,520 --> 00:43:15,799
Speaker 4: And I do think the increase in natural disasters has

891
00:43:16,120 --> 00:43:19,360
Speaker 4: negatively impacted the amount of supply on the other side,

892
00:43:19,800 --> 00:43:20,120
Speaker 4: just on.

893
00:43:20,120 --> 00:43:22,719
Speaker 2: The topic of climate change. So obviously, one thing you

894
00:43:22,760 --> 00:43:26,000
Speaker 2: can do to mitigate those sorts of disaster risks is

895
00:43:26,320 --> 00:43:29,360
Speaker 2: not built in areas that are prone to flooding or hurricanes.

896
00:43:29,760 --> 00:43:31,480
Speaker 2: Is there anything you can do in terms of the

897
00:43:31,560 --> 00:43:34,719
Speaker 2: actual property development or structures. I've seen a lot of

898
00:43:34,800 --> 00:43:38,479
Speaker 2: people asking, well, why doesn't America build more homes out

899
00:43:38,480 --> 00:43:42,040
Speaker 2: of cement versus plywood? Things like that.

900
00:43:42,960 --> 00:43:46,440
Speaker 4: Absolutely, and it's not just how you build as you

901
00:43:46,600 --> 00:43:50,440
Speaker 4: mitigate potential natural disasters. It's how you build to mitigate

902
00:43:50,480 --> 00:43:54,280
Speaker 4: your carbon footprint, and how you build respecting the environment.

903
00:43:54,920 --> 00:43:56,840
Speaker 4: I mentioned that one of our communities started in the

904
00:43:56,880 --> 00:44:00,400
Speaker 4: sixties by a gentleman named Jim Rouse who lived in Timore,

905
00:44:00,440 --> 00:44:02,719
Speaker 4: and he saw that he thought that people had lost

906
00:44:02,719 --> 00:44:04,560
Speaker 4: their way. They stopped taking care of each other, and

907
00:44:04,560 --> 00:44:06,920
Speaker 4: they stopped taking care of their environment. Some of the

908
00:44:06,960 --> 00:44:10,040
Speaker 4: other new developments around Baltimore were just grazing the landscape,

909
00:44:10,040 --> 00:44:13,000
Speaker 4: flattening the land, sticking up homes, and he said, I'm

910
00:44:13,000 --> 00:44:14,719
Speaker 4: going to build a better community. He said, I'm going

911
00:44:14,760 --> 00:44:17,160
Speaker 4: to build a garden for growing people where we're going

912
00:44:17,200 --> 00:44:20,480
Speaker 4: to respect the community, respect each other, allow everybody to

913
00:44:20,520 --> 00:44:22,719
Speaker 4: come in. There will be no redlining allowed in our

914
00:44:22,760 --> 00:44:25,440
Speaker 4: new construction. We're going to embrace the environment and we're

915
00:44:25,440 --> 00:44:29,480
Speaker 4: going to build that ideal a community. And that's really

916
00:44:29,760 --> 00:44:32,560
Speaker 4: the roots of the Howard Hues Corporation, Howard Use Holdings,

917
00:44:33,520 --> 00:44:37,439
Speaker 4: and that's what we embrace today. And it's not we're

918
00:44:37,480 --> 00:44:39,920
Speaker 4: green or inclusive because we check a box on a

919
00:44:39,960 --> 00:44:42,719
Speaker 4: scorecard and get a better rating somewhere. It's because we

920
00:44:42,840 --> 00:44:45,040
Speaker 4: create a better community. When we do it, more people

921
00:44:45,080 --> 00:44:48,000
Speaker 4: want to live there. It's a better quality of life

922
00:44:48,000 --> 00:44:49,920
Speaker 4: for our residents when we do it, and therefore our

923
00:44:50,000 --> 00:44:53,440
Speaker 4: land values are higher, our returns are higher, and it's

924
00:44:53,480 --> 00:44:57,399
Speaker 4: about just doing the right thing. When Hurricane Harvey came

925
00:44:57,400 --> 00:45:01,400
Speaker 4: into Houston, one of our largest master community in northwest Houston,

926
00:45:01,719 --> 00:45:05,040
Speaker 4: known as Bridgeland, it's about eleven thousand acres, about halfway

927
00:45:05,040 --> 00:45:08,080
Speaker 4: done so far, and I was at home on the

928
00:45:08,080 --> 00:45:13,120
Speaker 4: computer looking at YouTube constantly, just typing in Bridgeland flooding,

929
00:45:13,160 --> 00:45:14,920
Speaker 4: what's going on? And there was a lot of videos

930
00:45:14,920 --> 00:45:18,200
Speaker 4: prosted by some folks in very big trucks, and that

931
00:45:18,239 --> 00:45:20,279
Speaker 4: they would scan around on their phones and go, oh

932
00:45:20,320 --> 00:45:22,719
Speaker 4: my god, the roads have flooded, Oh my god, the

933
00:45:22,800 --> 00:45:26,320
Speaker 4: lakes have flooded. And I'm watching in between as they're scanning,

934
00:45:26,360 --> 00:45:29,400
Speaker 4: and I'm like, thank god, the homes are dry. Everything

935
00:45:29,480 --> 00:45:32,560
Speaker 4: worked the way it's supposed to. We built bridgel into

936
00:45:32,600 --> 00:45:35,120
Speaker 4: the five hundred year Floodplaine when code said you only

937
00:45:35,120 --> 00:45:37,800
Speaker 4: had to build to one hundred, and as a result,

938
00:45:37,800 --> 00:45:39,719
Speaker 4: we didn't have a single home in Bridgeland take water

939
00:45:39,760 --> 00:45:40,280
Speaker 4: during Harvey.

940
00:45:40,360 --> 00:45:43,200
Speaker 1: Wow, because there weren't many places like that, I mean no.

941
00:45:44,200 --> 00:45:47,080
Speaker 1: David O'Reilly, CEO of Howard Hughes Holdings, thank you so

942
00:45:47,160 --> 00:45:48,760
Speaker 1: much for coming on. I feel like we could actually

943
00:45:48,800 --> 00:45:50,879
Speaker 1: probably ask you questions for like four or five hours

944
00:45:50,960 --> 00:45:53,480
Speaker 1: later because there's just so much here in terms, you know,

945
00:45:53,600 --> 00:45:57,200
Speaker 1: construction and utility costs in Texas and all that stuff.

946
00:45:57,200 --> 00:45:59,080
Speaker 1: But this is great. I learned a lot and I

947
00:45:59,120 --> 00:46:00,560
Speaker 1: really appreciate you coming on online.

948
00:46:00,640 --> 00:46:01,799
Speaker 3: Thanks so much for having me.

949
00:46:14,239 --> 00:46:15,960
Speaker 1: Tracy. I thought that was great. I feel like we

950
00:46:16,040 --> 00:46:18,800
Speaker 1: really needed that sort of pretty close to three hundred

951
00:46:18,840 --> 00:46:21,440
Speaker 1: and sixty degree view on the fo State market, and

952
00:46:21,520 --> 00:46:22,160
Speaker 1: that was really good.

953
00:46:22,239 --> 00:46:26,160
Speaker 2: It was pretty holistic given that we hit residential, commercial,

954
00:46:26,320 --> 00:46:27,279
Speaker 2: and retail.

955
00:46:26,960 --> 00:46:32,080
Speaker 1: As tail, utilities, labor insure lot. Yeah, we hit a

956
00:46:32,120 --> 00:46:33,200
Speaker 1: lot in that conversation.

957
00:46:33,400 --> 00:46:36,400
Speaker 2: Yeah, one thing that stood out to me was David

958
00:46:36,440 --> 00:46:40,120
Speaker 2: describing the sort of reaction in early twenty twenty to

959
00:46:40,200 --> 00:46:45,120
Speaker 2: the pandemic. And I think this partly explains why a

960
00:46:45,120 --> 00:46:47,719
Speaker 2: lot of the economy has proven to be more rate

961
00:46:47,960 --> 00:46:52,080
Speaker 2: insensitive than perhaps expected. But you know, he was talking

962
00:46:52,080 --> 00:46:54,600
Speaker 2: about how they rushed out and termed out their debt

963
00:46:54,719 --> 00:46:57,399
Speaker 2: and now they've been using a lot of debt swaps

964
00:46:57,440 --> 00:47:00,560
Speaker 2: as well on floating rate loans. Like if you think

965
00:47:00,600 --> 00:47:04,719
Speaker 2: that every company in early twenty twenty basically said we

966
00:47:04,800 --> 00:47:07,720
Speaker 2: need to do this right now, like that is a big,

967
00:47:07,840 --> 00:47:10,680
Speaker 2: big force that's sort of holding back some of that

968
00:47:10,719 --> 00:47:11,680
Speaker 2: tightening impact.

969
00:47:12,000 --> 00:47:14,359
Speaker 1: And then the question is, right, are we going to

970
00:47:14,560 --> 00:47:15,120
Speaker 1: hit the wall?

971
00:47:15,200 --> 00:47:15,359
Speaker 3: Right?

972
00:47:15,440 --> 00:47:17,719
Speaker 1: I mean, you mentioned, you know, the maturity wall, and

973
00:47:17,760 --> 00:47:18,799
Speaker 1: maybe the maturity wall.

974
00:47:18,840 --> 00:47:21,280
Speaker 2: Isn't that Joe, When you say maturity wall, you always

975
00:47:21,320 --> 00:47:23,560
Speaker 2: have to say looming a maturity wall.

976
00:47:23,680 --> 00:47:25,920
Speaker 1: That's the rule, the journalist's rule. So you mentioned for

977
00:47:26,040 --> 00:47:28,800
Speaker 1: people talk about that looming and maybe it's not quite

978
00:47:28,880 --> 00:47:31,680
Speaker 1: as like steep is it's not literally a wall, maybe

979
00:47:31,760 --> 00:47:34,439
Speaker 1: it's a hill, but when we think about the sort

980
00:47:34,480 --> 00:47:38,279
Speaker 1: of potential lag defect great hikes, and it's you know,

981
00:47:38,400 --> 00:47:41,160
Speaker 1: one factor might be you know, there's clearly some slow

982
00:47:41,360 --> 00:47:44,319
Speaker 1: already in terms of new development in certain areas, but

983
00:47:44,400 --> 00:47:46,960
Speaker 1: one reason maybe we haven't been harder is because of

984
00:47:47,080 --> 00:47:48,279
Speaker 1: that aggressive turning out.

985
00:47:48,360 --> 00:47:51,120
Speaker 2: No. Absolutely. And then the other thing that stood out

986
00:47:51,160 --> 00:47:54,000
Speaker 2: to me was the discussion of insurance. Yes, and this

987
00:47:54,040 --> 00:47:57,400
Speaker 2: seems to be really like a growing headwind, not just

988
00:47:57,520 --> 00:48:00,480
Speaker 2: for individual home owners in certain parts of the world,

989
00:48:00,480 --> 00:48:04,160
Speaker 2: but also for property developers, as David laid out, and

990
00:48:04,200 --> 00:48:07,359
Speaker 2: I think we really need to do an insurance episode soon.

991
00:48:07,520 --> 00:48:09,279
Speaker 1: We definitely need to do. But it was great to

992
00:48:09,320 --> 00:48:12,319
Speaker 1: hear from like a big buyer of insurance that like, yes,

993
00:48:12,440 --> 00:48:15,560
Speaker 1: this is not like anything we've seen in the past.

994
00:48:15,560 --> 00:48:18,360
Speaker 1: I mean it's like, okay, you expect a hardening market,

995
00:48:18,400 --> 00:48:20,120
Speaker 1: which is a good I didn't know that phrase. A

996
00:48:20,160 --> 00:48:22,960
Speaker 1: hardening market is typically four or five percent maybe, and

997
00:48:23,040 --> 00:48:25,600
Speaker 1: it's like thirty to fifty percent or thirty to forty percent.

998
00:48:25,360 --> 00:48:26,160
Speaker 3: Is pretty wide. Well.

999
00:48:26,200 --> 00:48:29,040
Speaker 2: Also, the description of how insurance risk is kind of

1000
00:48:29,239 --> 00:48:33,960
Speaker 2: divvied up, you know, very similar, I guess to a colo. Sorry,

1001
00:48:34,040 --> 00:48:37,120
Speaker 2: my frame of reference is all structured finance. But and

1002
00:48:37,160 --> 00:48:39,839
Speaker 2: the idea that you can build this deal, but if

1003
00:48:39,880 --> 00:48:43,359
Speaker 2: you can't sell certain tranches because the buyers of that

1004
00:48:43,520 --> 00:48:47,920
Speaker 2: specific risk aren't there anymore, then the whole thing becomes pricier.

1005
00:48:48,160 --> 00:48:51,200
Speaker 2: I hadn't heard that description before. That's really interesting me neither,

1006
00:48:51,239 --> 00:48:53,080
Speaker 2: but that was great. All right, shall we leave it there.

1007
00:48:53,160 --> 00:48:53,839
Speaker 1: Let's leave it there.

1008
00:48:54,200 --> 00:48:57,120
Speaker 2: This has been another episode of the Odd Lots podcast.

1009
00:48:57,200 --> 00:49:00,000
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway.

1010
00:49:00,239 --> 00:49:03,080
Speaker 1: And I'm Joe Wisenthal. You can follow me at the Stalwart.

1011
00:49:03,239 --> 00:49:07,560
Speaker 1: Follow our guest David O'Reilly. He's at David O'Reilly HHC.

1012
00:49:08,239 --> 00:49:11,799
Speaker 1: Follow our producers Carman Rodriguez at Carman Arman and dash

1013
00:49:11,800 --> 00:49:14,160
Speaker 1: El Bennett at dashbot. And check out all of the

1014
00:49:14,239 --> 00:49:17,680
Speaker 1: podcasts at Bloomberg under the handle at podcasts, and for

1015
00:49:17,800 --> 00:49:20,680
Speaker 1: more Odd Lots content, go to Bloomberg dot com slash

1016
00:49:20,719 --> 00:49:23,920
Speaker 1: odd Lots, where we have transcripts, a blog, and a newsletter.

1017
00:49:24,280 --> 00:49:25,719
Speaker 1: And I know there's gonna be a lot of to

1018
00:49:25,719 --> 00:49:28,399
Speaker 1: talk about this one. In the Oddlog discord, where people

1019
00:49:28,480 --> 00:49:30,560
Speaker 1: chat twenty four seven. We have a whole real estate

1020
00:49:30,680 --> 00:49:33,360
Speaker 1: channel in there. People are gonna be very interested. Go

1021
00:49:33,480 --> 00:49:35,560
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1022
00:49:35,760 --> 00:49:38,799
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1023
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1024
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Speaker 2: us a positive review on your favorite podcast platform. Thanks

1025
00:49:46,160 --> 00:50:03,800
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