Hines Interests is an American real estate giant with global ambitions. Alex Catalano reports.
In his home country, Hines’ chairman and founder, 71-year old Gerald D Hines, is considered one of the great developers, a canny survivor. Originally an engineer, Hines set up the eponymous business in 1957, in Houston. He and his son Jeffrey, who is president, are co-owners. Today Hines Interests operates as a limited partnership, which in turn controls hundreds of partnerships, each one a project.
In the US, the Hines portfolio includes more than 460 properties, adding up to 11.1m m2. Being private, the firm is coy about revealing financial information. It says it has some $10bn worth of real estate, and that it maintains a low debt ratio of about 30% to 40%. The bulk of its holdings are in the US, with about $3bn worth of activity in Europe, where it employs 300 people.
Hines began to spread its wings in the 1970s, with projects in Mexico and Canada. The push into Europe started in the east, with the establishment of a Berlin office in 1991. But the firm had previously flirted with Europe, looking first at Canary Wharf in London, during the initial stages of that project in the mid- 1980s, and then across a wider field in 1989.
“At that time most of the markets were very, very strong; we couldn’t really see from a development standpoint that the cycle was right for us to enter,” says Michael Topham, Hines’ executive vice president in charge of European activities. Topham oversees the group’s operations together with Randolph Dumas, the London-based managing director of Hines Europe.
The fall of the Berlin Wall in 1990 proved the catalyst for Hines. “We decided it was the right city for us to enter Europe. Our activities grew from Berlin on a case by case basis.”
In Germany, Hines is working on four projects in Berlin, totalling 187,318 m2, and a glass-topped, 52-storey whopper of an office tower in Frankfurt. “We feel Frankfurt is the strongest of the major cities,” notes Topham. “The projects we have in Berlin are all either pre-leased or pre-sold, so the amount of risk-taking is limited. We think the Berlin market has to be watched very carefully.”
This illustrates the Hines approach, where joint ventures are a trademark. In Berlin, it brought the Four Seasons Hotel and Bayerische Hypobank into its Hofgarten am Gendarmenmarkt project; at Rosmarin Karee it found that Bull & Dr Liedtke, a Hamburg-based developer, was also interested in the site, so they decided to work together. Hines traditionally adopts a conservative line on development, pre-leasing, bringing in partners, or pre-selling parts of it, depending on the size of the project.
Where Hines has an edge is in the strength and depth of its relationships with tenants and funders. In the US it is landlord to most of the major multinationals, and it has European backers like Deutsche Bank and the Shell pension fund. “We see where tenants are moving, where they’re opening. One of our strategies is to leverage the relationships we have and be suppliers in the markets they’re moving into,” says Topham.
He sees benefits from the ability to “cross-fertilise” over national boundaries. “We have a lot of Dutch partners; they might be interested in going to France, Spain, London. We’re seeking ways of having long-lasting synergistic benefits with these, be they either sources of capital or tenants.”
While the company likes to minimise risk, it nevertheless likes big, complicated projects and high-profile architecture: IM Pei, Cesar Pelli and Philip Johnson have all wielded their pencils for Hines. However, the developer does not turn its nose up at smaller projects, particularly in new markets. “We’re building 34 houses next to Versailles,” says Topham.
This, according to Dumas, illustrates the Hines philosophy of building long-term businesses. “We’re not just deal junkies. We don’t go to Paris because we have a single development opportunity. We try to get involved in markets where we can bolt on other opportunities and create bigger businesses.”
Hines’ French office dates from 1994. It has two arms, a suburban housebuilder and Parisian commercial development. This year it scooped PB6, the last available site in the core of La Défense. The plan is to build a 40-storey, state-of-the art tower. There has been no big building in La Défense since the late 1980s, and the supply of large chunks of space is tight.
But before Paris, Hines established beachheads in Moscow, in 1992, and then Prague, in 1994, tackling large-scale residential projects. “We went into the Czech market because there is a need for that sort of product: a modern, masterplanned community. The same thing in Moscow,” says Topham. In Moscow, Hines was brought in by the government’s Main Administration to the Diplomatic Corps to project manage and lease the complex.
Indeed, Moscow now accounts for over half of the people Hines employs in Europe. In Russia, because of the current lack of reliable outside service providers, the firm has had to become completely integrated – from cleaners to elevator operators. “Now we are one of the more knowledgeable developers in Moscow, who can perhaps take advantage of new opportunities,” says Topham. Hines is also currently looking at similar residential developments in Poland and other former CIS states.
In London, Hines’ European headquarters, the company doesn’t yet have any investments. This, says Dumas, is partly because it is still assembling its development team. Hines relies on local talent for its teams. For example, of its 45-strong force in Germany, only one is American. “It is a local business, you need to have the judgement of local people,” says Topham.
The Hines’ view is that the UK market has come through its cycle, and good development opportunities are emerging. “They’re respectable, but not spectacular. We’re very London-focused.”
Development, however, is only one part of Hines’ activities: since 1993, Hines has also been expanding by buying investments. In the US it has bought $1.2bn of offices; the most recent deal was its first portfolio, of 15 suburban offices from Sears & Roebuck’s subsidiary Homart.
In Europe, Dumas says, he has been “waist-deep” in potential deals. Last year Hines made an offer for the Trema Group’s portfolio of 11 shopping centres in France, Spain and Italy, valued at FFr 3.5bn. It was disappointed earlier this year, when Trema’s parent company, French insurer Macif, decided not to go ahead with the sale. Macif has said instead that it will sell a significant stake of the equity in Trema.
But Hines is now looking elsewhere in Paris. “We are very interested in distressed assets,” says Topham, stressing that it is high-quality properties Hines looks for. He points to the way France’s troubled market is now shaking out buying opportunities.
“We think the same sort of domino effect will occur probably next in Spain, maybe in a year or two in Germany. Values and rents are falling, the institutions have stocked up on a lot of real estate. They may decide they want to find solutions for reshaping their portfolios.”
Topham and Dumas also point to securitisation as the coming thing in Europe. “Many of the ways of repairing some of these problems may be by securitising single assets or portfolios of these assets. We want to be at the forefront of these activities,” says Topham.
The financial engineering angle is one that Hines sees as part of its brief. The firm recently linked up with US money manager TCW and Dean Witter to set up an emerging markets property fund. This has raised $400m equity; in Europe it will be targeting countries like the Czech Republic, Russia, and Poland in Europe, plus other countries reckoned to have the right mix of political stability and economic growth: Mexico, Malaysia, India, Brazil and China, for example.
“We would like to distinguish ourselves across the full spectrum of activities,” says Dumas. “Not just a developer, not just an investor, not just a financial engineer, not just a property manager, but a fully-integrated, global real estate operator.”
Adds Topham. “We take it step by step. We’re not trying to be the biggest, but the best. We are very pleased with the way Europe has turned out. It’s beyond our game plan. We hope it will continue; we are looking for more and new interesting opportunities.”
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ALIGN=”CENTER”>HINES EUROPE DEVELOPMENT PROJECTS |
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Project |
Location |
Completion |
Size |
|
Park Place |
Moscow |
1992 |
37,440m2 mainly residential |
|
Ducat Place II |
Moscow |
1996 |
13,953m2 residential |
|
Hofgarten am Gendarmenmarkt |
Berlin |
1996 |
51,190m2 hotel, offices, shops |
|
Rosmarin Karree |
Berlin |
on site |
23,230m2 offices, shops, residential |
|
DG Pariser Platz |
Berlin |
1988 |
20,439m2 offices, residential |
|
Alexander Platz |
Berlin |
masterplan |
76,180m2 offices, leisure, retail, residential |
|
Tower II |
Frankfurt |
on site |
74,322m2 offices, shops |
|
M6 HQ |
Paris |
1996 |
11,150m2 offices |
|
Hotel Villiers Ampere |
Paris |
1996 |
4,180m2 hotel |
|
PB6 Tower |
Paris |
1996 |
74,320m2 offices |
|
Villepreux |
Paris |
1996 |
34 houses (4,180m2) |
|
Mala Sarka |
Prague |
on site |
145 residences (23,225m2) |
|
Villa Bianca |
Prague |
masterplan |
100 townhouses (11,150m2) |
