Hines Made Its Name As An American Office Giant. Now It Wants To Be Much More
For decades, Hines could say that it had some of the glitziest office towers in America's downtowns. The Lipstick Building in Manhattan and Salesforce Tower in San Francisco, both acclaimed and towering buildings in their own right, endcap hundreds of millions of square feet in office property the company has built in most major American markets.
In Houston, where Hines was founded and is headquartered, various central business districts feel like a who's who of notable Hines buildings, the newest of which is the Texas Tower, a highly amenitized skyscraper that opened downtown late last year.
Although the Texas Tower fits the typical blueprint for a Hines project — well-publicized, a flagship downtown location and stellar sustainability ratings — it opened just as the company announced it would funnel billions into nonoffice real estate, from new life sciences projects here and abroad to massive funds in real estate in its home country to niche sectors like studio property.
"We've really pushed very hard into other product types,” co-CEO Jeff Hines said in a 2021 interview with Walker & Dunlop CEO Willy Walker. “We had this great footprint and we have this great group of people running the firm in various spots around the globe. It only makes sense to leverage that by adding other product types."
Hines, which recently named 38-year-old Laura Hines-Pierce co-CEO alongside her father, declined several requests to speak to Bisnow. But over the past year to 18 months, the company has made major moves to diversify that tell a story about where the industry could be headed, especially with the future of office still anything but certain.
In 2021, Hines launched its Hines U.S. Property Partners fund, a commingled core-plus fund, to the end of continuously raising billions in capital, particularly for the red-hot multifamily and industrial sectors. At the time, Hines Chief Investment Officer Alfonso Munk told Bloomberg that the company wanted to collect $1B a year in fresh capital.
It hit the billion-dollar mark in less than a year.
Since its last announcement in February, the fund has announced $1.4B in investor commitments and $2.3B in total investment capacity. Hines intends to target more core-plus returns in the U.S., investing in residential, industrial, office, mixed-use and other asset classes, including life sciences, self-storage and more.
“We are very excited by the momentum we have seen since the fund’s launch last July,” Adriana de Alcantara, HUSPP fund manager at Hines, said in February. “These opportunities have demonstrated the strength of our highly local platform, which enables us to acquire off-market deals in dynamic locations in Los Angeles, Seattle, Austin, and Minneapolis.”
Its first purchase, reported by Bisnow in 2021, was a $100M multifamily property in Austin.
"Our expectations for a modest economic recovery in 2021 quickly shifted to a strong year for real estate in the Americas," Munk said in a research report earlier this year. "The market recovered more quickly than anticipated, especially for the favored industrial and residential asset classes seeing voracious investor demand."
Hines has built nonoffice property almost from its inception when the company, then led by founder Gerald D. Hines, developed a landmark mall, the Houston Galleria. But the company had focused on splashy office skyscrapers with superstar architects until the coronavirus pandemic forced a repositioning.
"The reality is that Hines is a much larger company than just an office developer [and] has been for many years already," Jefferson Duarte, the Gerald D. Hines associate professor of real estate finance at Rice University, told Bisnow. Duarte's position began before he took the job through a donation by Hines, and Duarte does not receive direct pay from Hines.
Over the past years, Hines has publicly expressed interest in pushing outside of city centers into the suburbs, and it is now building suburban multifamily and even some master-planned communities scattered around Texas and elsewhere. As the company's presence stretches farther outside of the U.S., it has developed robust industrial facilities in South America and flashy mixed-use in western Europe.
"Everyone wants to be in beds and sheds," Jeff Hines said in 2021. "No one wants to be in retail, and office is sort of …"
Hines trailed off, wincing.
Hines-developed master-planned communities have been announced over the last several months around Texas, with Hines purchasing hundreds of millions of dollars of acreage for thousands of homes.
"Work-from-home is a permanent fixture in some regards, and so there are going to be people looking to upsize their living situation now that they only have to commute in three days a week per se," Hines Director of Asset Management John Schoback said at a December 2021 Bisnow event in New York. "We’ve been really looking at those quasi-commuter suburbs where people can live with like a longer, hour train ride into the city if it means they can send their kids to a better school and have more space and not be cramped."
In a Washington, D.C., Bisnow event in March, Andrew McGeorge, Hines senior managing director of Mid-Atlantic Multifamily, reiterated the company’s pivot to residential.
“We're going to continue to be very much in the office space, but multifamily is a big piece of our business now, along with our industrial and land development businesses," he said, adding the company was looking at office-to-multifamily conversions, including some property now leased to the federal government that is no longer marketable.
"We're certainly poking around,” he said.
Among its pushes outside of office, Hines has made a particularly aggressive expansion into life sciences. In December, the company announced a multibillion-dollar international leap into the industry, using its Levit Green project in Houston as a model.
Levit Green, a 270K SF lab near Houston's Texas Medical Center, broke ground in October 2021. The project isn't Hines' only medical facility; the company claims several other notable medical properties, including the IMC Campo Belo Medical Center in São Paulo, Brazil, and The O'Quinn Medical Tower at St. Luke's, both of which operate with Hines as their development manager. Hines also previously acquired the University of Washington School of Medicine, where it serves as property manager.
But in Houston, which has maintained a growing but relatively quiet life sciences presence compared to heavy hitters like Boston, Levit Green has become a case study for Hines, incorporating elements necessary to a laboratory building like redundant emergency power, augmented mechanical systems, 33-foot bay depths and more. The space is about 60% laboratory, 40% office, Hines stated in a December 2021 white paper, and that office space can be repurposed to be used as further laboratory per tenant needs.
Hines spent years on the building's design, the Houston Business Journal reported last year, and it worked with HOK, which has scientific research design experience.
“As this industry surges, it is pivotal that developers keep pace by delivering spaces that are as innovative as the tenants occupying them. Hines is dedicated to delivering purpose-built facilities that meet the physical, functional and technological needs of the occupiers," David Steinbach, Hines global chief investment officer, said in a release at the time.
Hines is eyeing nontraditional markets like Washington, D.C., Philadelphia and Nashville in addition to London, Tel Aviv, Paris, Zurich, Copenhagen and other international cities for life sciences expansion.
"The pandemic only underlined the long-term demand for continuing innovation in medical research and the production of cutting-edge pharmaceuticals. The relationship between funding and demand for life science office/lab property is clear," Hines said in a white paper. "Venture capital funding to the biotech/pharmaceutical sector started to accelerate five years ago. We foresee a compelling opportunity for both acquisitions and development for investors in the U.S. life science sector over the coming decade as demand is expected to continue its robust trajectory."
Hines has even stretched further out of traditional real estate into entertainment. In March, Hines announced that it had purchased a 30K SF Burbank studio, which was purchased for $45M.
The property is leased to New York-based Madison Square Garden Entertainment, a company that hosts live performances. The 110-foot-tall soundstage was built by Madison Square Garden Entertainment for content for the Sphere project in Las Vegas.
“Studio assets are experiencing a period of rapid growth in demand,” Varun Akula, who leads Hines’ western region, told The Real Deal. “Studio rents have also grown significantly in the past three years, making this a very attractive asset class.”
Hines has also acquired a Chicago television studio as well as a studio for coding and creating video games.
"Moving forward, investors will need to be highly targeted in placing capital," Hines-Pierce told PERE News. "Given the amount of capital entering commercial real estate, it will require boots on the ground and the ability to add value through operations to find the best asset-level opportunities."
Hines' changes have led beyond new property types to new environmental, social and governance, or ESG, strategies. Last year, it appointed Peter Epping to global head of ESG, along with a new ESG Leadership Council and new roles to tackle global carbon reduction. As of last year, Hines was the only global developer to have an executive position for carbon strategy. Alongside its Texas Tower, stated to be one of Hines' best-certified buildings for sustainability, Hines has, by now, established WELL Health-Safety ratings for over 100 properties.
The newly sustainable properties prop up initiatives that were partially put into action by Hines-Pierce, who helped create new diversity initiatives and who was previously its transformation officer.
"It's unclear what the effect on office is going to be [post-Covid-19]," Jeff Hines said in 2021. "It's going to be less of the person sitting behind a screen doing spreadsheets, which certainly can be done elsewhere. It is going to be creating places that people want to go to … share and interrelate and training that next generation."
In his life, Gerald D. Hines worked with prestige architects, and, when speaking to Bisnow, Duarte picked large art books from his bookshelf to point to Hines projects over the years as he spoke favorably of the company's designs. Gerald D. Hines died in 2020 at the age of 95, but Duarte isn't worried about its growth going forward.
"With Hines, they were always historically the first ones to see business opportunity and, at the same time, they always had the opportunity to be the example for the rest of the industry," Duarte said. "I expect that, at least on the development side, that is going to continue. ... If there's someone that can bring new ideas, new technologies and make them economically feasible, it's Hines."