The Last Bequest Of Howard Hughes

Back in the 1950s, when Howard Hughes began buying land in the Las Vegas valley, Sin City was little more than a strip off a two-lane desert highway. Dusted with a smattering of casinos, Vegas land was cheap and plentiful. For close to nothing, Hughes quickly amassed the largest private land position in Nevada before he died in 1976.

Those holdings--some 20,300 partly developed acres in Vegas and two smaller plots in Los Angeles--are all that's left of the recluse's once far-flung empire (table). Thanks to the huge casino expansion, Vegas real estate is booming, and Hughes's heirs, who have so far collected at least $500 million by liquidating his other assets, want to cash in their remaining chips. But getting money out of what is mainly raw land has been very difficult. Still, many of the heirs are well into retirement and tired of waiting.

In late May, the board of directors of privately held Howard Hughes Co. hired Morgan Stanley Inc. to explore uays to satisfy the heirs. Assessments of what the company is worth are hard to come by, but it should fetch hundreds of millions. One option, an initial public offering, was rejected because most of the land doesn't generate steady income, says Hughes CEO John L. Goolsby. More likely options are bringing in outside investors, which would allow some heirs to liquidate their interest, or simply putting the whole company on the block.

QUICK SALES. The Hughes clan can thank William Rice Lummis that they have much of anything left to sell. Lummis is a member of the group of 21 cousins and an aunt (some of whom, including the aunt, have since died) who inherited Hughes's control over the company. They appointed him to head the company just months after Hughes's death. By quickly selling off holdings such as Hughes Helicopter and five casinos on the Las Vegas strip, Lummis was able to pay out not only the $500 million but also $200 million in back taxes. In recent years, the cousins have distributed interests to some 300 descendants as well as some lawyers for their work in dealing with a monumental profusion of claims to Hughes's assets and challenges to his will. The legal wrangling lasted until 1990, when the cousins finally solidified their ownership.

To deal with the illiquid real estate, Lummis that year promoted Goolsby, a lanky Texan who had been running the Hughes properties for 10 years, to chief executive of the company. Says Goolsby: "Lummis recognized that the real estate holdings were the one area that had not really been developed under Hughes, and that it was not readily transferable into cash."

Goolsby has worked hard to increase the land's cash value by lining up permits and addressing zoning issues, selling off parcels along the way. He took the original 25,000 acres that Hughes bought at the foot of the Red Rock Mountains in west Las Vegas and created a planned community, Summerlin, that combines office space and homes. By building highway access, golf courses, and schools, and by providing for water rights, the company has increased the value of a one-acre parcel from $20,000 to $85,000, according to local developers. And speculative mid-city office space that the Hughes money enabled Goolsby to build in the early 1990s, when many developers found financing scarce, now commands the highest rents in town.

L.A. DOGS. Not all of the real estate is going gangbusters. Hughes's two Los Angeles holdings, a 70-acre site near the airport and an interest in Playa Vista, a 1,000-acre parcel overlooking the Pacific, have been hit hard by the recession and lost at least half their value in the last five years. "Land in Southern California is basically worthless unless you have buildings on it," says Robert A. Ortiz, executive vice-president of Los Angeles giant Cushman Realty Corp. "If I were them, I'd wait" to sell.

But many of Hughes's heirs, now planning their own bequests, feel it's high time to bring down the curtain on the last, albeit rather anticlimactic, act of the great Howard Hughes drama.


SUMMERLIN 19,500 acres of desert at the base of the Red Rock Mountains, featuring a $25 million PGA golf course and luxury homes.

HUGHES CENTER 120 acres in central Las Vegas. Monthly rents in its premier office tower are $2.40 per square foot, the highest in town.

HUGHES AIRPORT CENTER A business and industrial park. Space is leased as fast as it comes up.

HOWARD HUGHES CENTER 70 acres off one of Los Angeles' busiest highways, north of the airport. Hit hard by recession, but more than 90% rented.

PLAYA VISTA The company owns about 60% of this project. After years of environmental battles, development is scheduled for 1997. Hollywood's DreamWorks SKG trio are looking at space.


Before it's here, it's on the Bloomberg Terminal.