When Laura Hines-Pierce was promoted to co-chief executive officer of Hines in February, the private real estate market looked markedly different to today. Her promotion came 12 days before Russia, then one of the Houston-based manager’s active markets, invaded neighboring Ukraine. She gave birth to her second child two months later, instigating four months of parental leave.
When she returned to her desk in September, she found a property market battered by an energy and inflation crisis, compounded by the war in Eastern Europe still raging. Investment activity was grinding to a halt, with spiking interest rates impeding most deal underwriting. “This year has been a big one from a geopolitical and economic standpoint,” she says. “We are looking at a very different environment than we were a year ago.”
From an hour in her company, it is clear she is considering today’s turmoil as an opportunity, however. She believes Hines has entered this downturn well equipped to handle its implications. With $92.3 billion of assets under management across 28 countries, the firm stands toe-to-toe with the biggest managers in global private real estate. She says the asset base is, generally, not highly geared, and points to how Hines has significantly diversified as a business in the past decade – largely with a view to insulating from downturns.
Since the global financial crisis of 2008, the firm has veered away from decades dominated by office development, to buying and developing multiple asset classes via an array of risk and return profiles. Hines has a bona fide fund management platform these days, too. It has raised $7.35 billion in the past five years, positioning it 28th in the PERE 100 annual ranking of managers by fundraising.
As important to Hines-Pierce, Hines has become a bellwether when it comes to consistently innovating its development and asset management practices, a central component to its well marketed “Hines standard.” Lately, this has come to mean a sharp uptick in sustainable and social impact activity – a particularly important area for this millennial CEO who was instrumental in the creation of the firm’s “ESG internal infrastructure” run by 27 staff from its colossal 4,700-strong headcount.
By Hines-Pierce’s reckoning, it is Hines’ constant evolution as a business which has seen it both survive and thrive in the 65 years since it was founded by her grandfather, the sector legend Gerald Hines, and through the 30-years-and-counting stewardship of her father and now-co-CEO, Jeff Hines.
While crises have come and gone, the firm has grown in size, stature and relevance. Evolving the business once again is a guiding principle for 38-year-old Hines-Pierce as she reaffirms the company’s standing among private real estate’s elite and defines herself as its boss in the process. “I see now as a moment when leaders are solidified,” she says.
In keeping with this attitude, she discusses her priorities from a through-cycle perspective. And with that longer timeframe in mind, she regards today’s environmental issues as the biggest of the world’s problems.
She says: “The global shift that needs to happen to address the climate crisis is essentially creating the next version of the industrial revolution.”
Solving this will be the way to establishing Hines as the market leading organization Hines-Pierce wants it to be.
Sitting in the gap
This is bold talk for one of the youngest chief executives in institutional-level private real estate. But it is this next generational perspective which prompted Jeff Hines to promote her to share the firm’s top job.
“Leading Hines during the real estate industry’s massive transformation takes strategic thinking, vision and empathetic leadership, which are qualities that Laura exemplifies,” he said in the firm’s statement confirming his daughter’s elevation. He had a similar experience bring promoted in the 1990s by Gerald Hines.
Hines-Pierce says: “My dad and I as co-CEOs: that’s diverse leadership from a gender perspective, but also a generational perspective. He brings 30 years of experience and has lived through six or seven cycles, which I have not. But I’m also sitting in a position to be thinking about how we’re investing out of this cycle and for the next 30 years.”
“I see now as a moment when leaders are solidified”
For now, there is less investing to do. Hines-Pierce declines to divulge the firm’s available capital, but PERE understands Hines currently manages a war chest of approximately $10 billion, including debt. She will, however, state that refinancing challenges should not be too distracting. “We’re not looking at massive refinancings due,” she says.
But with asset pricing dislocated by today’s inflationary environment, she says the firm’s deal pipeline discussions have changed. “It’s harder to qualify the pipeline these days. We do pipeline calls weekly. The tone of those calls has changed from investment opportunities to market insights.”
She says Hines is still transacting “but we’re much more selective.” When asked to describe the investment market currently, she responds: “We’re sitting in the gap between seller expectation and buyer willingness. Values just haven’t reset to meet the reality.” Her experience chimes with broader market findings. For instance, in the US – Hines’ biggest market by assets under management – third-quarter investment volumes fell 21 percent
year-on-year to $172 billion, according to data firm MSCI.
There is less fundraising to do, as well, she admits. “It comes down to investor by investor. That said, it does feel like the world is in a ‘wait and see’ moment, with everyone trying to get a sense of direction. We certainly feel a pause in the capital raising where we stand.”
Again, this observation is backed by data. According to PERE research, the $107.3 billion of equity raised for 229 closed-end private real estate funds in the first three-quarters of the year was the lowest amount garnered for the sector since 2013 and by the fewest vehicles since 2010.
By the numbers
Hines’ available capital, including debt, as of October
Hines’ total AUM
Projects in Hines’ T3 wood-based development program
Staff in Hines ESG team
Hines-Pierce believes some investors will grapple with the denominator effect, hindering their ability to commit capital. Evidence supporting that view is mounting too. According to capital advisory firm Hodes Weill and Cornell University’s 2022 Allocations Monitor, the number of institutions reporting overallocation has more than tripled year-on-year with 32 percent of institutions surveyed stating they are now overallocated after seeing other parts of their portfolios devalue.
None of that is stopping Hines from making some strategic moves, particularly overseas. For instance, last month, the firm announced a A$1.5 billion ($961 million; €972 million) partnership with Cadillac Fairview, the real estate business of the Ontario Teachers’ Pension Plan, for the development of multifamily assets in Australia.
Alongside other ventures in the region, such as its Hines Asia Pacific Property open-ended fund, which now has approximately $1.12 billion committed, the firm expects to enable
dollar-denominated investors to capitalize on the currency’s relative strength by investing in the region. To further facilitate the expansion, the firm is growing its footprint in Asia also, most recently opening an office in Seoul in October and a further opening in Vietnam slated for Q1 2023.
Ivanhoé Cambridge, the real estate business of another Canadian institution, Caisse de dépôt et placement du Québec, is among the other blue chip institutional investors partnering with Hines, having deployed $1.87 billion with the firm across projects around the world since 2014. Most recently in June, the pair committed 750 million reais ($141 million; €138 million) to a multifamily residential venture in Brazil. In March, Hines broke ground on CIBC Square, a large office project in Toronto for which the investor committed $780 million in green construction financing.
Taking the lead on leave
Hines’ newly installed co-CEO drove change for parental leave at the firm in what she called ‘a big shift for our employees.’
Laura Hines-Pierce is yet to complete a full year as co-chief executive officer, but already onlookers are describing her as a bold leader.
From a human resources perspective, she has been the boldest executive committee member when it comes to parental leave, first driving the permittable allowance at the firm to grow from three to four months, then taking the full allotment herself for the birth of her second child in a bid to lead by example.
“I did take the maximum allowed leave in the US,” she says. “It’s a big shift for our employee base in the US. We have been purposeful about having people in leadership positions having children take that leave and talk about it.”
While Hines’ parental leave policies differ around the world in line with local rules, in the US, a country not historically known for generous allowances, “we have expanded relief across the board,” Hines-Pierce says. Beyond the increase for new mothers, the firm has increased parental leave for non-birthing parents from “no policy” to eight weeks’ paid leave.
Hines-Pierce wants to see further advancements made in this area and says requests for more – unpaid – leave would be determined on a case-by-case basis. Steps like this, she says, will make a difference in her country: “Parental leave in the US is the least recognized among developed economies.”
Nathalie Palladitcheff, Ivanhoé’s CEO, admits to needing partners like Hines to keep providing her organization with options to deploy its constantly flowing source of pension capital, but she accepts Hines does not have that same pressure. “We have to be selective like Hines. But we can’t stop. Hines can, because they have money raised already. They made promises to LPs on certain criteria. They’re going to wait for the next wave and set barometers to invest money on a new basis,” she says.
Palladitcheff is not alone in believing Hines sets barometers. Nipul Patel, head of commercial real estate banking within the real estate group of US bank Wells Fargo, says: “Hines is a very good barometer with regards to where the industry is.”
Patel says Wells Fargo has lent to Hines over four decades, his own relationship with the firm stretching almost 15 years. The firm is high on the bank’s list of premium legacy clients. “We want partners which can handle speed bumps and have been battle tested through economic volatility and we believe Hines fits that description.”
When pushed for indicators of what the next future strategies for Hines might look like when activity does notch up, Hines-Pierce admits the firm has discussed the introduction of its own real estate debt program considering the rapidly growing financing gap impacting markets around the world. “It’s something we’ve looked at,” she says. “I won’t say definitively that’s a direction we’re going. But I do think being an operator-led business gives us an advantage both with equity investors, but also with lenders.”
However, in the face of today’s increased levels of market stasis, future strategies will rely on greater degrees of reconnaissance. To that end, Hines-Pierce has a global tour planned. “I’m going to be moving my family around the world and spending the first six months of 2023 with our teams on the ground.”
She wants to use this time to better understand the world’s challenges and opportunities as well as reinforce Hines’ culture within its workforce. Of them, she says: “They’ll be leading us through the downturn, maintaining the Hines standard and also leading on ESG and innovations, which continue to be the priority for us as we work through the challenging geopolitical changes in the world.”
Some of these changes have directly bitten Hines. The invasion of Ukraine has effectively rendered Hines’ Russia operation uncontrollable given the widespread sanctions that have impacted the country’s businesses. The firm entered the market in 1991 during the dissolution of the Soviet Union. Since then, it has amassed $2.3 billion of assets and recruited approximately 250 staff to operate them. Hines has publicly condemned the war and declared it would not invest again in Russia.
Hines-Pierce will not be drawn on plans to unwind its presence in the country, but she says: “We have fiduciary responsibility and are always looking for the best economic outcome for our partners and investors. That’s what we’re doing in Russia. We are in the process of that.”
Hines-Pierce’s elevation could signal a pivot by the firm away from countries with questionable human rights records by western standards. Besides three months in Europe, where Hines has $25.4 billion of assets, her tour includes three months in Asia-Pacific, where it manages $4.9 billion of properties. Singapore, Tokyo and Sydney are in the schedule.
China possibly will not feature. “At this point, we’re not sure,” she says. Hines entered China in 1996 and has since built up assets valued at $2.66 billion. While not entirely prohibitive like in Russia, recent geopolitical movements since have become less accommodating for US businesses. And for a business seeking to advance its corporate citizenship with measurable social impacts from its operations, any future geographical expansions will require scrutiny far beyond a country’s financial and demographical metrics.
Hines-Pierce says: “The world is ever-changing. But when we go into a new market, we’re looking at the risk-reward and we’re looking at transparency and the possibility of doing ethical business. As a global investor, geopolitics will always change what opportunities are available in various markets.”
Wherever Hines does operate, partners, stakeholders and observers alike should expect to see the firm assume a pioneering position in the sector’s crusade to decarbonize – and it is expecting to finance its effort handsomely too. “Those who are willing to invest now are the ones that move into the leadership positions as we’re moving out of this part of the cycle. This is an opportunity cost to not investing.”
By her reckoning, inaction on ESG will prove expensive for those resisting the capital expenditures required to convert the built environment to hit emissions targets. Hines set a 2040 target for its own asset base in June. The firm is investing now in operational innovations and has introduced an ESG council to work with its executive committee to hit the deadline. One such innovation is its T3 mass-timber initiative, which is seeing an increasing proportion of its properties be developed entirely using wood-based materials. Today, the initiative has 19 projects, predominantly in North America, valued at about $650 million.
Under Hines-Pierce, the firm has also jettisoned the use of carbon credits from its neutrality effort too, a choice now increasingly being made elsewhere among managers in the industry. She is certain efforts like this will yield positive financial results for the firm and its investors over the long term. Critically, she is confident Hines’ partners – including its tenants – are willing to share the burden of this increased investment.
Steve Brashaer, chief operating officer of real estate and workplace services at one of Hines’ corporate occupiers, the software company Salesforce, concurs that neglect in this area will be punishing down the line: “I would agree. The world is in a climate crisis,” he says. “Climate change impacts every individual, company, city and nation. Salesforce is committed to doing all we can to address the climate crisis.”
Salesforce occupies a Hines building in San Francisco and will occupy another in Chicago from next year. He says: “We partner with developers like Hines to ensure we are aligned with our sustainability targets and work together to create spaces that will serve our business, our people and the planet.”
Hines-Pierce wants to make a difference in the fight against climate change. But she also figures that to do so makes sound business sense, both offensively and defensively. “All this goes back to the conversation about structuring appropriately in recognition that a downturn will come,” she says. “We want to set up structures for the long term so they don’t get caught out in a near-term cycle.”
Getting this bit right will ensure the firm retains a best-in-class reputation it has enjoyed crisis to crisis under the leadership of her father and her legendary grandfather before him.