BLUEPRINT: Houston’s one-stop shop

 We are in a glass meeting room at Hines’ HQ in Houston and have just begun talking about longevity of staff when a 90-year old gentleman walks past. He pauses, peers inside, smiles, and disappears inside an office.

“That wasn’t Mr. Hines, was it?” this reporter asks. Silly question. Who else could it be? Mr. Hines. Gerald Hines. The legendary developer who started life as a mechanical engineer and established Hines from a one-man office in Houston in 1957; the man whose company has since grown into one of the world’s most accomplished real estate companies with offices in 19 countries and has completed and acquired 1,077 properties. Nowadays, it has $84.9 billion of assets either owned or managed on behalf of others and employs 3,450 people.

Around 10 minutes later, and Mr. Hines is actually sitting in the room at the impromptu invitation from a Hines member of staff who facilitated this discussion. Sometimes just listening, sometimes asked for his opinion, sometimes wading into the conversation, it is obvious from his comments that he has lost none of his sharpness, humor, or his passion for the real estate business. He is also obviously held in high esteem by those that have worked with him for a long time.

The meeting began with three men responsible for running Hines’ Office of Investments (OOI). This is the name for an organizational structure created during downtime following the global financial crisis of 2008 to focus the firm strategically on the investment management business. It was a time for introspection. Hines had emerged well from the crisis, but it also felt it could have done better, specifically by not continuing to invest too close to the end of the cycle. So serious was the mission to further improve its game, that Hines not only created the Office of Investments but also decided to put together a crack research team to help guide it through the new cycle.


The discussion with the Hines trio was held at Williams Tower based in Houston (which naturally Hines developed itself in 1983). And the first thing that became clear was how long ‘officers’ have spent at the company. Take for example the three officers running the Office of Investments. Hasty Johnson, vice chairman and chief investment officer, joined in 1978; Colin Shepherd, chief executive officer of investment management joined in 1982; and Christopher Hughes, chief executive officer of capital markets, in 1986. That is 99 years of experience at Hines between them. Besides them, there are many other colleagues that have been with the company a long time as well, as evidenced when perusing the biographies of the leadership team. “It’s amazing. It is really unusual,” says Hughes.

In total, there are 200 officers that have worked for Hines for 15 years or longer, and the longevity even extends to people who are not partners in the business.

One of the principal and enduring reasons for stability is to do with the financial structure at Hines. Each development region or country is essentially run as its own profit center and the senior members of those regions therefore share in the profits. “It is an incredibly powerful incentive to benefit from what you work on,” says Shepherd. “Honestly, I think one of the most impressive things Gerry did was not build the buildings, but build the culture,” he adds. And Johnson remarks: “There is an intense culture here. We are real estate people first. People who really strive to be on top of their game.”

Another big differentiator at Hines is people are more often than not promoted from within. There is the occasional senior-level hire such as Christopher Keber who joined in 2012 as senior managing director from Starwood Capital Group. Typically, the firm looks to its younger professionals for progression. But while the faces might stay the same, Hines has not stayed still all these years. Quite the reverse; it has been remarkable over the years at reinventing itself and doing things that were not obvious.


A huge change occurred in the early 1990s when Hines was purely a US-based developer. It was in the 1990s that for the first time it started thinking about entering the investment business – actually acquiring buildings rather than developing them. At that point in the real estate cycle, US development had all but dried up. That was when Hines decided to start buying buildings in the US and developing buildings overseas. This turned out to be the inception of Hines’ fiduciary business and one of its first clients was the General Motors Pension Fund. As a result of that relationship, in 1991 Hines formed the Hines Acquisition Fund I as a series of programmatic acquisitions.

From those beginnings, investment management is today at the core of the overall business plan at Hines – and why readers of PERE are interested in it. Indeed, while it started as a development firm in 1957, Hines sees itself first and foremost as a real estate investment firm these days. In total, the company manages more than $84 billion of assets which the three men are responsible for, with half held within its investment management fiduciary platform. The other $42 billion are assets for which Hines provides services such as development or operational management. Clients include oil exploration firm Devon Energy and Facebook.

Since creating the Office of Investments, Hines has been busy. It has completed some $24 billion of acquisitions and dispositions. Around $13 billion of those have been fresh investments and $11 billion dispositions. In other words, it has been a net buyer globally. Over the same time frame, it has commenced developments around the world with a combined market value of $8 billion. Since the turn of the year alone, one can get a flavor of this activity (see box). It has been acquiring US office and retail assets in various markets and submarkets and breaking ground on sites it already acquired. One moment it is buying assets in Moscow and Edinburgh and the next moment it is selling in Mexico and Spain. Meanwhile, it has created a global retail property focused group to do more in that asset class, and on the fundraising side, closed a Polish and Russia property fund. PERE records show that in the past five years alone it has raised around $2.7 billion of equity in an array of products for the US, Europe, Brazil and India. In short, a lot has been going on.

Hughes says institutional investors are behind more than 70 percent of its gross AUM, and some 80 percent of that lies with fewer than 20 investors. That point suggests the firm has been very successful at working with the world’s largest institutional investors and, by the same token, that it may seek to become more diversified when it comes to the investor base. That said, it is intentionally making sure it has product and funds in the market allowing access to smaller institutions via its public REITs which contain around 140,000 retail investors and counting.

Talk to real estate professionals that know Hines and they will generally repeat that it has a ‘strong culture’, it is an amazing developer, has very smart and capable people, and strong local presences in markets. Detractors also say though Hines is a global organization, the decentralized structure can sometimes make it feel like a series of independent Hines companies. Then again, Hines regards its local market teams as a strength.

One other thing that commentators like to mention is that Hines also went through a challenging time as a result of continuing to invest late in the cycle before 2008. Hines acknowledges that it went through a challenging time, particularly in 2010 when the California Public Employees’ Retirement System (CalPERS) – one of its biggest clients both then and now – decided to switch management of a US office program, National Office Partners Limited Partnership (NOP), to another partner. While it is true the company continued to invest late in the cycle in some instances, it nearly always achieved attractive returns. Perhaps those returns were not as strong as they could have been had it entered investments earlier, but its track record is still quite strong. CalPERS, by the way, is today developing a $465 million office building in Houston with Hines, and they have successful long-term hold ventures in multiple countries outside of the United States. According to Johnson, “The events of 2010 lead to the reorganization of the firm that is in place today, which has made Hines a better investor and a better firm.”


“Coming out of the last downturn we said what we really needed to do was reorganize in a way that put investors first in everything we do,” says Shepherd.

“The intent was to put the three of us into a position where we had the authority and the ability to influence outcomes for the benefit of investors. When I moved from the development, acquisition and regional side of the business to CEO of investment management, both Hasty and I agreed to give up profit participation from the regional operating businesses and to share only in profits directly aligned with our investors.”

Continues Shepherd: “We all view each other as partners. Hasty is the CIO and in that context the chief strategy architect. Chris is the one to best fit investors with the opportunities and my job is to oversee the management of the investment process. We are all on the investment committee together with five other individuals.”

In order to achieve a stronger return for its investors, nowadays the way the company works can be summarized like this; Regional or country teams present their pipeline of deals and all of these get uploaded into a global allocation program. If a deal profile does not fit into any of its funds, the capital markets group has the option of introducing it to other investors.

Before Hines commits to a new investment, it is taken to the investment committee. Johnson, Shepherd and Hughes are on that committee along with others such as Jeff Hines, the firm’s president and chief executive officer, and chief risk officer, Tom Owens.

They have a blind vote on the investment and a deal requires a super majority to proceed. If the risk officer says ‘no’, then there had better be a very compelling reason to do it. On the flip side, if a deal ultimately gets sanctioned, it feels as though it has received everyone’s blessing.

Hughes explains that another difference at Hines is how the company now looks at the “structure” of an investment. “We spend a lot of time thinking about the structure. If it is good real estate in a bad wrapper, it is bad real estate; poor structures create misalignment and Hines is being very intentional to create appropriate financial structures matched to the real estate,” he explains of the new philosophy. “You have to get the strategy and capital synched.”

Buying, selling

Earlier in the conversation, the three Hines professionals said that the firm had been a net buyer in the last three years. But that is only half the story. It has been a net buyer internationally by $3.5 billion, but in the US it has been a net seller by $1.5 billion.

It has also been a net buyer of core property by $6 billion but a net seller of riskier investments.

Johnson says in some markets there are some great opportunistic and value-added buys to be had. In some markets, though, as cycles get late, it makes more sense to be invested in core. With some markets that look “pricey”, Johnson says: “You better be darned sure you are buying defensively and with a long-term horizon.”

He says Hines looks at investments from a “strategic” point of view and a “tactical” one. By strategic, he means long term, whereas tactical means shorter term depending on the point in the cycle. Take Houston for example, where it is currently developing. “It is expensive right now. We would say if you are planning on building something and selling it in four years, then ‘no’. On the other hand, if you are looking at the next 20 years or 25 years and you can take the fact that you may lose value in the first three or four years, then fine.”

Clearly, the world’s real estate market is not as good as it was in 2010 when “the whole world was cheap,” but Hines is certainly finding opportunity. Taking an extreme example, Hines is watching Greece closely. It is known the company has been agreeing to options on assets in the country leading to ‘first mover’ deals and counter-cyclical plays. Brazil and Russia are two other unpopular markets globally, yet Hines believes they are getting more attractive. In July, for example, Hines bought the Metropolis Office Buildings I and III in Moscow with Amsterdam-based firm PPF Real Estate Holding for the Hines Russia & Poland Fund.

The numbers

Hines’ research division figures as a much bigger part in the equation nowadays. The research group consists of three PhD professionals. When they started at Hines a few years ago, they tore up the old model of relying on economic forecasting. Instead, they configured a way of coming up with intrinsic values of property in cities around the world – that is, what the true values should be having examined markets over a 30-year period and analyzing the biggest indicators of future performance. This research has helped the firm assess any proposition to see if a price is off a standard deviation. The research team has also helped Hines think long and hard about diversification. Offices might be overpriced in some situations, whereas retail might not be. That helps determine strategy.

The creation of the research team has proven very successful and in fact, it is actually leading the firm sometimes to consider counter-cyclical decisions, adds Johnson. Indeed, the group wishes it had this Boston-based research group much longer ago. “Our track record is very strong, but if we had had this research going back, we think we would have done even better,” adds Shepherd.

Indeed, the trio had just been in Boston to talk through Hines’ next products. Adds Shepherd: “The research group is really helping us make more informed judgments about market pricing and cycles.”

Concept construction

One thing you can rely on is once Hines has its hands on real estate it will do an exceptional job with it. The huge experience it has combined with clever groups such as its conceptual construction team led by Jerrold Lea give it an edge. That conceptual construction team combs over every aspect of a development looking at every part of the budget to shave costs and find angles. In San Francisco, for example, a new project is consuming 40 percent less energy than other competitive buildings. That is the kind of outcome Hines produces.

Great buildings and real estate fundamentals are ultimately Hines’s calling card. Top brass including Mr. Hines are full of anecdotes of meetings with this government or that government, or a regional authority or a national developer where the Hines name has travelled far. A public Chinese real estate company recently conveyed after a meeting how it wanted to copy Hines’ structure when it came to incentivizing staff by giving them a share of the profits.

On reflection, Hines has emerged from the financial crisis a better company. It has an improved structure and earned greater respect among investors for its communication. All Hines staff are aware of the lessons learned in the run-up to the global financial crisis. Indeed, they are constantly reminded of this fact by the company itself under the new structure and discipline.

Meanwhile, new strategies are being worked on all the time and equity is being raised. Indeed, PERE understands that some ideas include the expansion of global investment options. Others are to do with tactical investing options.
Having spent an afternoon in the company of Hines, it is clear this is an exceptional company in many ways.

As for Mr. Hines, he politely takes his leave of the meeting after 30 minutes of being in the conversation, leaving the room to Johnson, Shepherd and Hughes again.

The three Hines executives are the new generation and they hope they can have a major influence on steering the company as a fiduciary as well as a creator of beautiful buildings.


Headquarters: Houston

Founded: 1957

Staff: 3,450

Offices: 19 (US, UK, Australia, Brazil, Canada, China, France, Germany, Greece, India, Ireland, Italy, Luxembourg, Mexico, Panama, Poland, Russia, South Korea, Spain)

Key personnel: Gerald Hines (chairman), Jeff Hines (president and CEO), Hasty Johnson (vice-chairman and CIO), Charlie Baughn (CFO), Chris Hughes (CEO, capital markets), Colin Shepherd (CEO, investment management, Tom Owens (CRO)

AUM: $84.9 billion

Number of funds and investment vehicles (including public vehicles) raised since inception: 48

Total equity raised: $26 billion

Total equity in the last five years for private fund closings (non REITs): $2.72 billion (for vehicles including an India residential fund, a US development fund, a US value-added fund, a multi-family fund, the Hines Russia and Poland Fund, the Poland Sustainable Income Fund (HPSIF), and three Brazil investment vehicles)

 The visionary: Gerald Hines

Gerald Hines was born in Indiana in 1925 and made his first deal from his house, before starting the firm in 1957. He has earned numerous plaudits including the J C Nichols Prize for Visionaries in Urban Development and also became an honorary Fellow of the American Institute of Architects. He still leads the firm’s executive committee while his son Jeffrey is president and CEO. He frequently appears as a speaker at real estate events, including Hines’ own. Employees refer to him as an ‘inspiration’ having lost little of his zeal for development and progression at Hines, say staff. He lived in London up until recently when he returned to his native US.

2015: Year so far

• Teams up with Oaktree Capital Management to buy 2051 Palomar, a 178,000 square foot office and research facility in Carlsbad, California. It is 63 percent leased and the new owners intend to upgrade the property

• Starts construction on phase one of Asturia, a 500 acre mixed, master planned community in Tampa, Florida

• Sells the 255,000 square foot Pointe Métro office near Paris to New York’s Northwood Investors on behalf of the Hines European Value AddedFund (HEVAF)

• Acquires the Civica Office Commons, a 325,000 square foot two-building complex in Bellevue, Washington – the strongest submarket in the region

• Teams up with Oaktree again, this time to buy 4000 MacArthur, a ten-story 375,000 square foot office with top floor vacancy in Newport Beach, California

• Breaks ground on The Sheraton Georgetown Texas Hotel and Conference Center being jointly developed with the Novak Brothers

• Fully divests its interest in the €2 billion-plus Porta Nuova city center project in Milan that it developed on behalf of the Hines European Development Fund and several other partners. Qatar Investment Authority was the buyer

• Forms a new group called the Retail Resources Group to expand the firm’s retail expertise as it focuses on a company-wide retail development, acquisition and redevelopment push

• Recapitalizes its asset at 400/450 Concar in San Mateo, California with Goldman Sachs and private equity real estate firm Pearlmark for the development of a 305,000 square foot office having originally acquired the asset in 2008 and gained development approval in 2010

• Sells Azure, a 308-unit multi housing property in Tampa Bay

• Another investment alongside Oaktree, this time Tro-City Corporate Centre, a portfolio of 1 million square feet of office buildings in San Bernardino, California, which were 61 percent leased at the time of acquisition

• Announces a 950,000 square foot industrial business park in Houston having just bought 75 acres of land

• Announces the closing of a sale of 7 Bryant Park in Manhattan alongside Pacolet Milliken Enterprises and JP Morgan Asset Management though it does not name the buyer. It was reportedly the Bank of China for a price tag of around $600 million

• Sells City Center Bosque Esmerelda, a 318,000 square foot shopping center in Mexico City

• Signs leases for 110,000 square feet at 1601 Wewatta, a 300,000 square foot property in Denver’s Central Platte Valley district

• Sells the Zielo shopping center in Pozuelo, Spain, for €70 million on behalf of the Hines European Value Added Fund (HEVAF)

• Breaks ground on a 662,000 square foot project at 1144 Fifteenth in Denver in what will become the city’s first office buildings of 40 stories in nearly three decades

• Announces the final close of the Hines Poland Sustainable Income Fund (HPSIF) fund on €155 million

• Buys Metropolis Office Buildings I and III in Moscow on behalf of the Hines Russia & Poland Fund with Amsterdam-based firm PPF Real Estate Holding

• Breaks ground on the 220,000 square foot T3 office development in Minneapolis

• Acquires 124-125 Princes Street in Edinburgh, Scotland, for an office and retail scheme on behalf of the Hines Pan-European Core Fund (HECF)

• Begins construction of 41 Tehama in San Francisco, a 389,000-square-foot luxury multifamily complex together with Invesco Real Estate. The high-quality luxury housing scheme should be complete in late 2017