It has been one hell of a year for Hines. That is a strange reality for an organization operating in a sector going through existential changes and at a time when a global pandemic has killed millions, upended society and brought many businesses to their knees, including some of the Houston-based firm’s own tenants. The firm’s eponymous founder, the legendary developer Gerald Hines, also passed away in August. From 1,000-feet there would seem little to celebrate.
But while many of its 576 properties managed around the world currently sit partially, or even completely, uninhabited because of coronavirus-related restrictions, Hines’ activities have flourished. In the past 12 months, it was appointed by two of the world’s biggest institutional investors for radical separate accounts, entered new markets such as life sciences real estate and pushed on successfully in several locations with what it is mostly known for – office development. It has also taken advantage of distress brought about by the crisis by investing opportunistically in the hotel sector.
Indeed, among the year’s achievements are Canada’s Ivanhoé Cambridge appointing the firm to asset manage a 10 million-square-foot US skyscraper portfolio, and the National Pension Service of Korea committing $1.5 billion to a development program intended to see the creation of properties fit for purpose post-covid. In life sciences, the firm teamed up with 2ML Real Estate to develop Levit Green, a 52-acre master-planned site in its home-town Houston. On the East Coast, One Vanderbilt, a 1,401-foot Manhattan tower developed with SL Green, reached completion. In India, the firm entered the prime Bangalore office market to develop a 20-story tower with developer DLR Group. On the Greek island of Crete, a popular tourist destination in Europe, Hines teamed up with Henderson Park to buy five struggling hotels.
Such progress was recognized by the private real estate sector at this year’s PERE Global Awards where Hines won three awards: two in the highest profile global categories and one in Europe for its efforts in Italy. Among the global awards, Jeff Hines, who became chairman in addition to chief executive officer after his father died, was voted Industry Figure of the Year. The 65-year-old is also this year’s PERE Lifetime Achievement Award winner.
A humble leader
For a leader less acclimatized to the spotlight than his famous father, despite his long time at the helm, such attention does not sit comfortably. This is a man who has actively avoided filling his father’s shoes during his 30 years of leadership, positioning himself more as a steward of the corporation Gerald built and a custodian of the Hines family legacy. He believes in a decentralized approach to business, where senior executives foster the firm’s top relationships and he promotes decisions made by consensus. Only last year, he instigated a blind voting system at executive committee level, in part to ensure his name never holds sway over the decisions of others.
“He does not want to be the one to take credit,” says Hasty Johnson, Hines’ vice-chairman and a 40-year-plus veteran of the business. “He would take the background when he can.”
A similar tone is struck by Hines’ investors. Says Scott Kim, head of real estate at NPS: “My impression of Jeff is he is very humble.” Sylvain Fortier, chief investment and innovation officer at Ivanhoé Cambridge, uses the word “humility” when discussing the Hines boss.
That suits Jeff Hines fine. “There is no individual that really stands out at this firm,” he tells PERE. “We are not run just by me. We are run by our executive committee and are all about consensus. Maybe I can think of two or three decisions during the year where I spoke from up high to make an edict. But that is exceedingly rare.”
And yet, much of the firm’s current success can be traced back along his tenure to the 1990s, when Gerald made him president. Were it not for Hines’ strategic pivot from development to add investments following the RTC savings and loans crisis, the track record required to launch a bona fide fund management business after the global financial crisis in 2008 would have been impossible.
“I was given the opportunity to lead this great firm. Not screwing it up and adhering to his core principals I’d say was my biggest success”
Had it not been for post-GFC calls to diversify into asset classes like logistics and residential, two current property sector darlings, Hines might be licking wounds in the current crisis alongside many of its peers. Instead, it is considered a major part of the solution, as per the Ivanhoé Cambridge and NPS mandates or the Greek hotels portfolio.
While Jeff Hines insists he was not solely responsible for the firm’s strategic shifts, he admits to being a driving force. Furthermore, he does not refute the evidence validating these calls. “Maybe pivots we made in the distant past have set us up to do well coming out of this,” he says.
He points to the combination of the firm’s diversification within its $144 billion asset base, alongside the development expertise originated by his father, as holding it in good stead during the covid crisis and for the future. “These enable us to be nimble and not stuck in one product sector. That’s an important strategic place to be.”
Johnson adds: “Hines changes through crises. We always seem to come out better after, even though we never know going in exactly what the change is going to be.”
It is precisely that belief that saw Ivanhoé Cambridge, the real estate arm of Caisse de dépôt et placement du Quebec, award its asset management mandate to the firm. The assignment, which came to light in Hines’ Global PERE Awards submission, saw the Canadian investor seek Hines’ operational expertise to better respond to changing tenant demands. It is the biggest separate account in Hines’ history.
Ivanhoé Cambridge’s Fortier says: “We really need to know our product and understand who the client is. They appreciate how they have to keep adjusting to the new environment.” By Fortier’s reckoning, Hines has been leading the field of development since Gerald Hines envisaged its first buildings some 60 years ago and has not lost its edge in construction innovation since.
That was a driving force behind why Ivanhoé Cambridge’s partnerships with Hines started 20 years ago. It is a reason why the two organizations have regularly worked together on headline-grabbing deals since. “It’s hard to get to number one, but even harder to stay number one,” Fortier says. “We feel they’re the right partner to help us make our adjustments.”
Likewise, NPS’s Kim believes the state pension service has partnered with the best developer in the business. In December, it awarded an account to develop from scratch properties customized to the tenant needs of today and tomorrow. “Hines is the number one developer globally, the best guys in the market I can see,” he says.
The account, already 20 percent deployed, will be invested around the world and in different asset types. But it has one common aim: to capture long-term demographic and technological changes to living environments, consumer behaviors and space-use patterns. Like Ivanhoé Cambridge, NPS has taken the plunge with Hines, awarding its biggest mandate yet to the firm, following five direct investment deals via single venture partnerships since 2010, starting with the €585 million Sony Center complex in Berlin and including the €160 million Siemens-Forum in Munich.
Over time, and with Jeff Hines’ executive team providing the glue, these longstanding relationships have begun to combine. Kim tells how NPS was keen to improve its Canadian footprint and, discovering how the country’s standing assets had lacked much capital expenditure, sought Hines’ assistance to find a project to develop rather than to buy. “For that, we asked Hines to find us a good Canadian partner,” Kim recalls.
That partner was Ivanhoé Cambridge, and together the three developed CIBC Square, a large, two-tower office campus at 81 and 141 Bay Street in Toronto’s central business district, which is now mostly let to the Canadian Imperial Bank of Commerce. That led to NPS and Hines combining again, joining New York-developer SL Green to develop One Vanderbilt in Manhattan. “Hines did a perfect job of matchmaking. Development deals are very challenging for us, but we felt we could do it with Hines,” says Kim.
An award-winning year
*Awarded a 10 million-square-foot office asset management mandate by Ivanhoé Cambridge
*Awarded a $1.5 billion development separate account by NPS
*Opened One Vanderbilt, a 1,401-foot tower in New York
*Purchased a 49 percent stake in One Madison Avenue in New York in a $2 billion deal with NPS
*Acquired a 764,000-square-foot site in Athens for a master-planned community and a portfolio of five hotels in Crete, both with Henderson Park
*Entered the life science sector, partnering 2ML Real Estate to develop the 52-acre Levit Green mixed-use scheme
*Entered the Bangalore office sector, partnering developer DLR Group to build a 20-story property
Beyond his humility, a common experience of Jeff Hines for both Fortier and Kim is his willingness to accommodate investor requirements, no matter how challenging they might be. For instance, in a bid to ensure NPS stayed competitive, despite having a shallow bench – the investor has about 30 real estate executives presiding over a portfolio valued at approximately $45 billion – and an inflexible decision-making processes, NPS insisted on an exclusivity arrangement on developments until the $1.5 billion mandate is more than 70 percent invested.
“We wanted this mandate to be unique for NPS,” Kim says. “That must have been a difficult thing for a company like Hines to digest. Jeff has been very understanding and that has helped build our partnership.”
Fortier, too, credits Jeff Hines’ flexibility and ability to listen to what investors ask for. “Ultimately, that comes down to the culture. And that comes from the top,” he says.
It is talk around Hines’ culture which seems to energize Jeff Hines particularly. “It’s the glue that ties the organization together,” he says. “For us to operate in a far flung, global operation, where the real estate must be operated at the local level, we have to have something that assures our decisions are being made in the way we want them. It’s really that culture embedded in our organization that gives us a high degree of confidence that will occur.”
He credits his father for setting this culture, which he says is centered on operational excellence, but also at the personal level, from the firm’s 4,800-strong global workforce, to its partners and investors. “There are ways Jeff and Gerry were similar and ways they were different. The way they were similar is the way they treat people,” says Johnson. “Whether customers or employees, you always want to do business with them again.”
Indeed, it is the same culture that saw Hines tailor-make partnerships to suit individual investor needs that has seen it delegate latitude locally to individual Hines offices around the company’s flexible working arrangements during the pandemic. Tenants badly hit by the crisis have also been afforded leeway, especially in areas of forbearance and particularly with the firm’s retail occupiers. One notable initiative is Hines’ ‘When you’re ready, we’re ready’ campaign aimed at providing tenants and investors a safe, healthy and productive working environment during the pandemic.
Such personal touches were part of a Hines world exposed to Jeff Hines almost from the start. Before attending St John’s elementary school as child, he recalls being brought to construction sites where he would watch his father at work. “At the dinner table, too, a lot of times dad would invite over architects or senior people of the firm. So, it was hard to avoid an infusion of the Hines real estate world.”
Given this concentration of property experiences in his upbringing, it would be hard to see how Jeff Hines could have contemplated any other destiny. “But, assuming he wanted me to come into the business, he was skillful at making that happen because he never pushed it,” he insists. Indeed, Jeff Hines was pre-med at Williams College before switching focus to business, for which he took his Master of Business Administration at Harvard University. “I went to business school without any certainty I was going to work for the firm.”
In the end, the decision to join Hines was purely his. Even then, there was no certainty he would be made boss and when Gerald Hines handed over the reins, the promotion to president came as a surprise. In fact, then-34-year-old Jeff Hines felt too young to accept the role. “My counter was ‘I’m not ready.’ But he said, ‘No, it’s going to work.’”
Taking over one of America’s best regarded developers during a crisis would be no mean feat and Jeff Hines took to the job with caution and diplomacy. “There was this huge oversupply crisis fueled by too many tax incentives and stimulants. We had done everything right: reduced debt, had way more equity and we had the best buildings in the market. Relative to others, we were fine.
“But with the business we were in – a US, major city CBD, architecturally-significant builder – we had to make a call.” This start to life in the cockpit was an “existential moment” for the firm, Jeff Hines recalls. The choice was to reduce in scale awaiting the next big building opportunity, or apply the firm’s skills elsewhere. This would be the first major strategic call he would need to endorse.
“We ended up doing two things: we expanded internationally and got into the business of acquisitions.” Therein lay the first potential disagreement between father and son. “We had to convince him of the wisdom of acquiring buildings that were likely not as good as the ones we were building,” admits Jeff Hines. “The actual decision was made before I was made president, but I was very involved.”
Over the last three decades of working together, Jeff Hines recalls only one call he made that was strongly objected to by his father: the location of the company’s headquarter building in Houston. “I thought we should move downtown 10 years ago. His heart and soul were in building out the space we occupy in Williams Tower. So, we signed another 10-year lease.”
With the lease now expired, Hines is in the process of moving to its 47-floor Texas Tower development on Houston’s Texas Avenue, a property owned in partnership with Ivanhoé Cambridge. “I’ll give him total credit, once dad made the call to appoint me, I think that was the only decision he pushed back on that I made. I’m sure I made mistakes left, right and center, but he never said so.”
Power in delegation
By Johnson’s reckoning, Jeff Hines’ ascension was made easier by Gerald’s decision to relocate to London to focus on Hines’ developments in Europe. “That was very smart. Gerry was such a strong personality so people would initially call him and not Jeff. The fact he became physically not there and Jeff was there was hugely helpful for Jeff.”
Nevertheless, it is the delegation that Jeff Hines enjoyed then which characterizes his managing style with his own subordinates now. When it comes to flexing muscles “there’s no question he does when he needs to,” comments Johnson. “But bear this in mind: Hines has people stay for 25-30 years who could run companies on their own. Very rarely did I hear either Jeff or Gerry say ‘I am ordering you to do something.’ This really is a consensus building operation.”
Jeff Hines concurs: “Once we set a strategic direction, we give a lot of autonomy to the heads of the different regions. I do sometimes push a member or two of the organizational team to move in that direction. I’m not saying ‘do this or else,’ but when there’s an organizational goal it needs to happen.” When pressed, he says certain moments involving personnel achievements and compensation see him have to make executive decisions. But then it is easy to forget that Jeff Hines is running a family business.
Even though Hines is a fiduciary to $75.5 billion of assets on behalf of third-party investors and a further $68.6 billion gets third-party property-level services, essentially the house money is made of family money invested for the family or family money lent to employees for their alignment. Typically, Hines co-invests between 2 and 5 percent in any transaction.
The ambition to benefit future generations is also an alignment enjoyed by Hines’ investors, which appreciate the long-term objective over a pressure on performance which can be placed by quarterly earnings, something seen at certain rival managers. “This fits with what they’re looking for,” confirms Jeff Hines.
On the subject of the long-term, Jeff Hines is determined to formalize the professional progress of his children working for the firm. To this end, last year he created the Office of the CEO, in which his eldest daughter Laura Hines-Pierce is already plying her trade. Two of his other adult children, Adam and Matthew, are also working their way through various parts of the firm.
Jeff Hines declines to confirm that Laura Hines-Pierce – who, as a senior managing director, is the most advanced of his children – will succeed him. But he does admit: “Certainly, Laura is the furthest along,” and she is “very involved in most major initiatives at the firm.”
He is keen for each of his children to “earn their spurs” just as he did. But he is confident a third generation of Hines leadership will happen. “I may be biased, but I think we have plenty of horsepower in generation three.”
Like his dad, when the time does come to hand over, Jeff Hines intends to stick around. “I’ll be like dad. Around. It doesn’t mean we’ll be the same company then, as we’re evolving all the time. But I’ll be around and try to be as productive as he was in transition.” Jeff Hines might not have emulated his father much beyond his attitudes towards people and his passion for real estate. But he takes the duty his father gave him personally. “I was given the opportunity to lead this great firm. Not screwing it up and adhering to his core principals I’d say was my biggest success.”