Here’s Why Howard Hughes Corporation’s Move Into Phoenix Is Such Big News

Here’s Why Howard Hughes Corporation’s Move Into Phoenix Is Such Big News
Here’s Why Howard Hughes Corporation’s Move Into Phoenix Is Such Big News

Howard Hughes (NYSE: HHC) recently announced the acquisition of 37,000 acres of vacant land in the Phoenix area for new master planning. In this Fool Live video clip recorded on October 22nd, Matt Frankel and Jason Hall of discuss why this is such an important development for this unique real estate company.

Matt Frankel: It’s a big deal for the company. I just want to give you some statistics really quickly. # 1 among the others, I believe six master plan parishes in Howard Hughes’ portfolio, there are still 10,000 acres of vacant land in total. This expands the portfolio by 37,000.

Jason Hall: To the right.

Frankel: Big thing. You pay, I did the math, it’s about $ 16,000 an acre for this new, planned master community. They estimate their first land sales to real estate developers will take place at around $ 300,000 per acre in 2022. The long-term economy is fantastic. That’s 37,000 acres of cheap land in terms of what they’re paying to offload to land developers at these huge prices over the next 20 or 30 years. They also plan to build 55 million square feet of commercial development that will bring them income. When all of this is done, like a self-sustaining model, the commercial real estate generates cash flow while sitting on this land. The presence of this commercial property makes the surrounding land even more valuable.

Room: To the right.

Frankel: Like a value chain. This is one of my biggest equity positions, and it was before the COVID pandemic, which unfortunately hit them pretty hard. I am happy to see that they stand out from the markets in which they operated. You were hit by a perfect storm during the pandemic. No US economy has been more effective than Las Vegas, which in my opinion is their largest community by area. Their flagship communities in Houston, where their largest commercial tenants are all oil companies. Remember when oil prices turned negative in the early days of the pandemic. The Seaport in New York is one of them, people just didn’t want to go there. It’s just like all the other churches were hit. But now it’s up and now you’re ready to invest. I love the offer. As a shareholder, I cannot emphasize enough how groundbreaking this is.

Room: Yes, I think I also want to point out that this is not just a massive long-term acquisition, but something that they are going to monetize next year. I think they plan to sell 1,000 lots in 2022. It is important to know that this will be a source of cash flow in the near future. As they accelerate over time, that recurring revenue will be added as development goes on.

Frankel: There are no transport costs. They paid cash for this. It’s not that they’re paying interest on 37,000 acres of vacant land now, that’s just cash off their balance sheet. About a year ago they decided to sell a lot of non-core assets like a random office building here. A series of random assets scattered around the world focused on their master plan community business. That is where this funding came from. There are no transport costs. As you mentioned, they will start selling land to developers in the first half of next year. Pretty big deal.

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