$272 million. The purchase was a homecoming of sorts: Hines
Interests developed the property, later sold it, but continued to
manage it ever since and used part of it as its headquarters.
Hines REIT has also ventured into different property types
when it sees fit. Last November, the REIT acquired a 70 percent
interest of a portfolio of 12 high-volume supermarket-anchored
shopping centers from Weingarten Realty Investors (NYSE:
WRI) for $271 million. The centers include brand-name grocery
stores in the Southeast. “This is about the most recession-proof
real estate you can invest in,” Hazen says. “That is why we like it,
especially given the economic environment we are heading into.”
Even so, Hines is well positioned to weather worsening
conditions. Little of its debt in the near-term will need to be
refinanced. Most of its debt servicing costs are stable, with the
REIT having taken out either fixed-rate loans or variable rate
loans hedged by interest rate swaps. Total debt was around 40
percent of the estimated value of its real estate investments at
the end of 2008.
Meanwhile, the REIT has also managed to spread out lease
expirations, with 8. 9 percent of its leasable space due to turnover in 2009, 7. 5 percent in 2010, and 6. 8 percent in 2011. Hines
GREENER
PASTURES
Like Hines Interests, Hines REIT has made a name for
itself in terms of making buildings more energy efficient.
The success comes from Hines Interests’ penchant for
making its properties greener, a trait dating back to the
early 1990s, well before concepts such as carbon footprints
were on the minds of real estate professionals. Hines
began testing green technologies then and has been
refining them ever since.
Hines has earned accolades as a result of successes
such as improving the effectiveness of ventilation systems,
incorporating more natural light in design plans, and
pumping more outside air into buildings. In fact, the
company won NAREIT’s gold medal “Leader in the Light”
award last November, which recognizes companies that
substantially improve energy efficiency over time.
“It’s about providing a better tenant experience in our
buildings,” Hines says. “It leads to fewer sick days among
tenants, higher efficiency among employees, and ultimately
increased retention. It’s certainly the right thing to do
from a lot of perspectives, but we think it is a compelling
value proposition for our tenants and investors.”
also can bank on a strong culture that works to help tenants. It is
helping troubled tenants that need to downsize find subtenants.
It also is working earlier to re-sign tenants that have upcoming
lease expirations.
SIMPLE BEGINNINGS
Hines Interests’ conservative approach and real estate savvy date
back more than 50 years. Gerald D. Hines, Jeffrey Hines’ father,
moved to Houston in 1948 after graduating with a mechanical engineering degree from Purdue University. He formed an
engineering firm and pursued real estate projects on the side in
partnership with others. Hines realized he could make a living at
real estate and formed Gerald D. Hines Interests in 1957. The
firm concentrated on developing warehouses and small office
buildings in its early years.
Gerald Hines’ big break came in 1967, when he won the bid
to develop One Shell Plaza, a 50-story downtown office tower
in Houston. At the time, Hines had never developed anything
taller than 15 stories. It was Houston’s tallest building and the
world’s tallest reinforced concrete building when it opened in
1971. Hines never looked back, as he simultaneously developed
Houston’s Galleria, an upscale shopping mall adjacent to the
Williams Tower, now owned by Simon Property Group Inc.
(NYSE: SPG).
Since then, the company has developed famous buildings
around the world, including architectural gems such as Paris’
EDF Tower, Berlin’s DZ Bank, and Petco Park, home of the San
Diego Padres baseball team.
When Hines Interests went to access retail investors as a capital source, it chose to keep the REIT unlisted. Financial advisers
in the network receive a fee, as does the general partner.
Hines points out it has pushed loads down to the 10 percent to
11 percent range, lower than other non-listed REITs. Executives
also liken the fees to investing in an initial public offering, where
investment bankers also build in fees. As for ongoing fees charged
by the general partner, Hines REIT is unburdened by having to
pay directly certain expenses such as executive compensation: all
employees work for Hines Interests, not the REIT.
Allaire of Robert Stanger notes that non-listed REITs are
not for the investor with a short time horizon, but rather seven
years or longer. Investors capture value over time through higher
dividends and stock redemption prices.
In the process, Hines REIT investors get to tap an organization with a longstanding track record, allowing for direct investment in real estate, without the perception of market volatility.
“If investors want to acquire a share of a traded REIT, they can
go to a discount broker and get it for a lower price,” Hazen says.
“But if you want a more direct investment in real estate, you
would invest through a vehicle like ours as an individual investor.
We think it has a very attractive value component associated
with it.” F
Charles Keenan is a contributor to Portfolio.
BILL ROSS/CORBIS
