Billionaire hedge-fund manager William Ackman is raising his bet that the migration of Americans to warmer, lower-tax cities is here to stay.
His Pershing Square Capital Management LP recently increased its stake in Howard Hughes Corp. to nearly 25%. The Houston-based developer is ramping up construction of multifamily housing in Texas, Maryland, Hawaii and Las Vegas.
“It’s not a Wall Street bet. It’s a generational bet,” said Mr. Ackman, who is also chairman of Howard Hughes’s board. The fund manager is widely known for his shareholder-activism campaigns and his bets on large companies such as Starbucks Corp. and J.C. Penney Co.
Pershing Square increased its stake in Howard Hughes by about 4.7% between June and January, according to public filings. The firm bought common stock, and some of its counterparties exercised options that compelled Pershing Square to buy additional shares, filings show.
Howard Hughes, a land owner and developer of master-planned communities, said it is starting construction on 1,475 new apartments across four cities that have experienced an influx of people over the past year.
While many Americans were already leaving colder, more dense cities for more temperate and affordable places to live, the pandemic and the shift toward work from home accelerated those trends last year.
Howard Hughes Chief Executive David O’Reilly said his company has seen more transplants from California seeking housing in its Summerlin master-planned community in Las Vegas, next to the Red Rock National Conservation Area. Apart from a 295-unit luxury-apartment complex, the developer is also starting construction on a 10-story office tower, anticipating demand from companies looking to relocate to where people want to live.
Howard Hughes, which owns up to tens of thousands of acres in each project, sells smaller plots of land to other developers. It plans to continue building neighborhoods that mature and eventually become town centers.
Building trails in these master-planned communities have also paid off, as many people prefer to live in walkable and bikeable neighborhoods. “The trail systems are cited as the number one or two amenity,” said Mr. O’Reilly, referring to resident surveys.
Still, these large development projects are complex and require access to financing to keep going. A slowdown in the economy could hurt leasing activity once these properties are completed.
Buildout could also suffer from higher construction costs or get mired in delays. In New York City, for instance, Howard Hughes continues to face difficulties in getting approvals to move ahead on its plans to build two towers in the Seaport District in lower Manhattan.
“It proved to be a tough project. From an investor standpoint, people have already mentally written it off,” said Alexander Goldfarb, senior research analyst at Piper Sandler & Co.
The share price of Howard Hughes has recovered from its March lows last year, but isn’t back to its prepandemic levels. At the start of 2020, its share price hovered around $123 and then plunged to $34 in March. It was at $88.22 at Tuesday’s close.
Howard Hughes Corp. began as an oil-drilling tool business started by the businessman and inventor Howard Hughes Sr. His famously eccentric son, the businessman, filmmaker and pilot Howard Hughes Jr., diversified the company into real estate.
Mr. Ackman’s Pershing Square has held a position in the stock ever since it was spun off from mall owner General Growth Properties Inc., following its bankruptcy and restructuring in 2010.
“We’ve owned it for 10 years, and it’s likely we’d still own this 10 years from now,” Mr. Ackman said.
Write to Esther Fung at email@example.com
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