Saturday, December 21, 2013

Howard Hughes Corporation: Ward Village

I'm here in Honolulu on vacation, so I took the short walk over to Ward Village to get a first hand account of one of Howard Hughes Corporation's primer strategic development assets.  Howard Hughes is planning to turn Ward Village into a vertical master planned community with 22 residential towers (4,000 units) and 1.5 million square feet of prime retail space.  Back in March, I put about a $2 billion value on the redevelopment asset (discounting it back to today), but given its long time horizon that's a very rough number that's subject to a lot of change.  What follows are just some random thoughts and pictures I took as I walked around the property today.

Below is the map of Ward Village, just south of the map is the Pacific Ocean, I can attest that any condo towers that are built in the area will have fantastic views of the ocean to the south, and great city views to the north.

For me, seeing the current state of Ward Village was a mixed bag, its a great location, but its current form is rather scattered and somewhat disappointing.  With it being 4 days until Christmas, I'm happy to report that all the parking lots were completely full with cars circling for spaces,  but most of the current Ward Village is Class C quality at best.  The below sign pretty much wraps up the current state of Ward Center and most of the entire property, quaint, but sort of stuck in time and clearly targeted at the lower-middle class shopper.

Ward Center
Ward Center feels like a small town indoor mall, not something you'd expect to see in downtown Honolulu.  The stores are mostly small local operations, one of the anchor tenants is Famous Footwear, and the hallways are tiny.  Again, it was fairly crowded, but likely due to the holiday season, I don't see why someone would go to Ward Center over Ala Moana mall just across the street.

Ward Warehouse
Ward Warehouse is pretty similar to Ward Center, but its an outdoor mall, but the same small town feel with local retail stores, but not really targeting the tourist market.  It seems odd to have both Ward Center and Ward Warehouse next to each other, they're different, but the same, definitely an opportunity to redevelop the area.  Neither are particularly valuable in their current form.

Ward Gateway Center
Across the street from Ward Warehouse is a pretty typical strip mall, nothing particularly interesting about it, looks dated, but still useful too.  I'd imagine this area is towards the back end of the redevelopment project, but there's a lot of unused space, it looks more like a strip mall in a suburb than something you'd expect to see in an urban center.

The IBM Building
The IBM Building, which is going to double as the sales office for Ward Village is the only sign of construction I see currently (and on a Saturday).  Slightly disappointed that it didn't appear the sales office was open yet as I was hoping to get a few brochures or more information.

On the plus side, The Ward Village Shops are nice and brand new with Nordstrom Rack and TJ Maxx as anchor tenants that distinguish the area from the Ala Moana mall next door.  The Ward Entertainment Center with the movie theater looks in reasonable shape as well, and will probably serve as a nice central point of the new planned community with only minor renovations needed.

Overall, I guess I didn't find anything groundbreaking walking around the property for an hour or two, but I did get a sense that the transformation isn't going to happen overnight, this is a long term asset that's going to take many years to fully play out.  22 towers will take a long time to build and sell without overwhelming the market, patience will be key.

I was fairly lucky and purchased Howard Hughes in the mid $30s when it dived in October 2011 (the last real market correction we had), so I'm sitting on a lot of gains.  Howard Hughes has a lot of great themes at play, its really a company that probably shouldn't be public, management doesn't issue guidance and the quarterly earnings results mean very little.  Also there's an owner/operator theme at work, David Weinreb bought in significantly when he took the CEO job, and Bill Ackman is the Chairman of the Board and has stated very publicly that he may never sell Howard Hughes and calls it one of the undiscovered gems.  While its hard to say that Howard Hughes Corporation is currently materially undervalued, I'm reasonably confident that the capital allocation decisions will be made with shareholder interests in mind, always important, but particularly so for a real estate development company with a long runway and many projects to choose between.  I'm planning on holding for the long term, let my gain hopefully compound, and defer the tax man.

Happy Holidays from Hawaii.

Disclosure: I own shares of HHC

1 comment:


    Good news from Howard Hughes, the first link has a slide show of the IBM building redevelopment (looks like a lot of work has been done in the last month) with a model of the future state of Ward Village.