This Skyscraper Billionaire Is a Master at Sharing RiskBy
Developer Gerald Hines built $89 billion property business
Company is co-developer of San Francisco’s Salesforce Tower
Gerald Hines, the 91-year-old real estate developer, has always been known for his belief in the striking and iconic. He built the Lipstick Building in Manhattan, helped develop Goldman Sachs Group Inc.’s Jersey City tower and today is constructing the tallest skyscraper in San Francisco.
But it was a little lesson he learned back during the oil bust of the 1970s that deserves equal attention when explaining his firm’s longevity and his family’s billionaire status. As the crash hit Hines and most others in his home base of Houston hard, he increasingly reduced his risk by pulling in partners to take big equity stakes in each project.
That model has served the Hines Group well during economic downturns -- most recently when oil prices collapsed again in 2014, just a year after the firm had embarked on a $1.7 billion development spree in Houston. This summer, when Hines and its investors walked away from a six-building office complex in the city that they’d owned since the 1990s, the developer’s exposure to the 70 percent-vacant Greenspoint Place was largely limited to its role as property manager.
"They have a lot of different ways they structure transactions," Mark O’Donnell, a director at brokerage Savills Studley, said. "They’ve done a damn good job of exiting equity positions and continuing to maintain less risky positions like property management."
This approach has helped Hines and his family build a $2 billion fortune, according to the Bloomberg Billionaires Index. The firm’s $89 billion property and asset management holdings run to more than 450 buildings spread over five continents, a scale and geographic diversity that serve as another bulwark against real estate’s inevitable whipsaws.
The transformation has only sped up since Hines’ son Jeff took over the firm as president in 1990. Its structure today is in many ways that of a private equity outfit, deploying the funds of its limited partners, who include the California Public Employees’ Retirement System and the Abu Dhabi Investment Authority. It’s the world’s fourth-largest manager of real estate assets on Institutional Real Estate’s 2015 ranking.
Hines, who’s never appeared on an international wealth ranking, declined to comment on his net worth, according to spokesman Mark Clegg.
Hines Group today is a far cry from the one-man outfit Gerald Hines founded in Houston in 1957. His big break came in 1966 when he walked into a meeting with Shell executives clasping a set of bronze door handles. Dropping them on the boardroom table, he pitched the oil company on a 50-story tower his upstart firm was planning in Houston and vowed the entire development would be built to the same quality as the pristine fittings, according to “The Offshore Imperative,” a 2007 book on Shell.
The pitch worked. Shell signed on as the anchor tenant for the young developer’s first skyscraper and ended up relocating its U.S. headquarters to the site from New York. The coup gave Hines the credibility and cachet to rebuild Houston’s skyline, completing the trapezoidal headquarters of Pennzoil in 1975 and the 75-floor Texas Commerce tower in 1982 that remains the city’s highest.
"He’s a master salesman," said John Guess, president of Houston-based real estate services company Guess Group Inc. "He can paint a picture for you and that’s so important in development where you need to be articulate enough to get someone to visualize the project."
The company’s development pipeline still exhibits its founder’s belief in the value of building eye-catching structures. Hines is co-developing 61-floor Salesforce Tower that will be San Francisco’s highest when it opens in 2018. In New York, he is constructing a tapering condominium skyscraper that’s rising above the Museum of Modern Art.
Still, Hines seems to reserve his fondest memories for his earliest developments. Asked to name his favorite ones in a 2015 interview with lifestyle magazine Modern Luxury, Hines listed Shell, Pennzoil and Houston’s Galleria shopping mall.
“They were the early ones, when I was skating on thin ice,” he said.