Hughes Corp. CEO sees wide-open future
Layne discusses difficulties of operating during pandemic
When Tesla CEO Elon Musk announced on Twitter in May that he would move his company’s headquarters to Texas or Nevada amid a dispute with a California county, the marketing team at Howard Hughes Corp. jumped into action.
Within five days, the real estate company, which has residential and commercial properties in both states, produced a two-minute video displaying sweeping drone images of million-dollar homes and leafy parks in The Woodlands, perfectly manicured streets and manmade lakes in Bridgeland, and other flashy visuals of its planned communities. The Musk pronouncement came at an auspicious time for the Hughes Corp., which was able to flaunt its spacious developments with their parks, trails and wideopen outdoor recreation areas at a time when people were chafing under pandemic-induced isolation.
“What America wants is open spaces,” CEO Paul Layne said in a recent interview.
Hughes, which is in the process of moving its headquarters to The Woodlands from Dallas as part of a transformation plan launched last year, operates a nationwide portfolio of retail, office and multifamily properties in addition to its residential land developments.
Layne recently spoke with the Chronicle about the difficulties of operating during a pandemic and some of the unexpected silver linings. Edited excepts from that interview follow.
Q: You mentioned on the company’s last earnings call that you expected more people would want to live in sprawling masterplanned communities after being cooped up in dense cities during quarantine. Have you seen that scenario play out yet?
A: I was certainly projecting and hoping that once things started to open that our master-planned communities would see a surge in home
sales, and it’s absolutely proven to be the case. Bridgeland, for instance, had record-setting home sales in May, and June is following suit. In Woodlands Hills, our other master-planned community, home sales are up 26 percent year over year. In The Woodlands, we don’t have that many lots left, but home sales are very strong there as well. It’s a solution to urban density. Some people either want to get out from where they were, or they decided after being quarantined for three months they wanted a new house.
Q: How is your headquarters move coming along? What’s the timing on going back to the office?
A: I started a task force with two different groups within our company. One was how to bring our office tenants and our own offices back to the workplace in a safe manner. The task force set forth metrics that must be met in order to get back to our offices around the country. And none of our offices has met those metrics yet. We’re working efficiently remotely.
Q: When you say there are metrics, do you mean COVID-19 case numbers?
A: Exactly. We want declining infection rates for a certain number of weeks, and there are other measurements. Once those are hit, we would start with 25 percent and appropriate social distancing in the office. Looking at the future of how people will use office space, there will be some working from home. A lot of people are ready to go back to work. Whether you’ve got children and spouses trying to work from home, trying to get the best WiFi and cellphone connectivity and the dog’s barking and school was in session, it’s a lot.
But office space will be reworked and expanded. The workstations will look and feel differently. I think the benching that a lot of the companies have used, especially in higher density places like New York, Chicago and San Francisco, where you’re almost elbow to elbow with your colleagues in front of a row of screens down a long narrow bench and then someone is facing you on the other side of their screen, I think a lot of that is going to change.
Q: Will Hughes Corp. have a portion of its employees working from home permanently after this?
A: We’re analyzing that right now. We will do a trial run for some of our IT professionals to work at least some number of days, not every day, remotely. Most of our departments we feel work better in collaboration.
Q: Late last year the company acquired the ConocoPhillips’ old campus, a 63-acre property in the Energy Corridor in west Houston, as part of an acquisition that also included two office towers in The Woodlands. What’s the status of the Conoco campus?
A: CBRE is marketing it for us. It’s definitely a diamond in the rough. It has approximately 1.3 million square feet of office space. It has been getting more attention now because instead of a 60story office building, it’s sprawling. We’ve been doing some national marketing for that in California and in high income tax states and trying to attract companies for relocation.
Q: Hughes Corp. started the year with about 1,600 employees and has furloughed 787 people since the pandemic hit. How many employees have been hired back?
A: Around 500 were (furloughed) in The Woodlands with our hotels, and now the hotels have started to reopen. We’re in the process of hiring back 200 employees, and hiring will ramp back up (at the hotels and companywide).
New York is still shut down. We have not opened any of the restaurants there. So unfortunately, that has not come back.
Q: Those are concepts the company owns and operates?
A: Yes, at the Seaport District. We have restaurants and retail shops as well.
Q: That must be difficult to have that just sitting there. What are you anticipating for the Seaport’s reopening?
A: We’re monitoring if we can make a profit at the percentages that the government would allow. So at 25 or 50 percent for high-quality restaurants, it is very challenging to make a profit, so we’re monitoring how to bring the Seaport back in a safe and effective manner. It is a really fantastic entertainment and historic place, and so as a company, we’re taking a long-term view. We don’t want to rush into anything, whether that’s opening restaurants in New York or bringing people back in our offices.
Q: How are rent collections, and how is the company maintaining liquidity?
A: Our office collections have been very similar to our apartment collections, in the mid-to-high 90 percent range. Those have been solid. But with the hotels shutting down, New York shutting, and we have about 720 retailers throughout our portfolio, it was very difficult. But we have a very solid balance sheet with almost a billion dollars in the bank, and we are patient and conservative and luckily the retailers have been able to open
back up in Houston and Nevada. One of the nice things about our geographic diversity is some are down, others are up.
Q: How did you handle tenants that were unable to pay rent?
A: In some cases, we did some deferral of rent. We took each of our customers as a separate and very important and personal business and figured out how we could help them. Most of our retailers were able to receive PPP, which helped them at least for a couple of months.
Q: Do you know how many retailers will not be returning?
A: I don’t have that number. There will definitely be some.
Q: Back to Tesla. Elon Musk is considering Austin for a huge factory. Were you surprised?
A: Austin was always kind of the early winner in the clubhouse as far as a location, but we are trying to be really nimble and get people excited about our properties. How we do things differently, how we are very creative and how we are creating placemaking. We would love to see a trend follow in corporate relocations, just like we’re seeing in home purchases in master-planned communities.