The Evolution of a $144B Real Estate Empire: How The Hines Family Company Turned Global Powerhouse

Good morning everyone and welcome to another Walker Webcast. Today's discussion is with leaders of one of the truly iconic development and commercial real estate ownership companies in the world. This is our 51st Walker Webcast, and it was a year ago today that we started this series. I'm truly humbled by the quality of guests that have given an hour of their time to join me over the past year, to discuss everything from commercial real estate to racial justice to training for the Tokyo Olympics. CEOs, analysts, best-selling authors, professional athletes, university presidents — we've had them all. And I'm simply thrilled that the Walker Webcast has been watched live or on replay by over 300,000 people and that it continues to attract a large audience every week.

I'm sure everyone attending today's webcast remembers vividly what our world felt like a year ago. Similar to knowing exactly where you were or what you were doing on 9/11, this week last year was very scary. We were frantically buying toilet paper, figuring out how to use Zoom, and watching the stock market plummet. And yet here we are, only a year later, with a safe and highly effective vaccine being rolled out across the country, states removing COVID protocols in hopes of returning to a more normal life, and the stock market at an all-time high. American innovation, execution, and tenacity have likely not been seen like this since World War II. It is truly amazing where we are today, and with sustained discipline for the next few months, we should find ourselves back to a more normalized world this summer.

I would be remiss if I didn't make a quick comment about Walker & Dunlop this morning. When I joined the company in 2003, we were a very successful boutique mortgage bank with one office, 43 employees, and a loyal yet small client base predominantly in the Mid-Atlantic. Over the past 17 years, thanks to adding incredible people, acquiring some amazing businesses, and setting bold, highly ambitious goals, we have grown and grown. We finished 2019 as the fifth largest lender in the multifamily industry and set a goal last year to grow to being number one over the next five years, which would require jumping over CBRE, Wells Fargo, and JPMorgan in the rankings. Well, yesterday the Mortgage Bankers Association released their annual rankings for 2020, and Walker & Dunlop was the largest provider of capital to the multifamily industry. There goes that goal. It is truly astounding what the team at Walker & Dunlop has accomplished.

And like my two guests today, we are now faced with what's next. And like my two guests today, I am blessed to have an incredible team with a powerful brand to lead our company and industry forward over the coming years and decades. My final comment before introducing Jeff and Laura: Walker & Dunlop's relationship with Hines is thanks to Gerald Hines and Larry Melody cementing their relationship with the financing of the Houston Galleria in 1970. That deal was a marquee deal for both Hines and the LJ Melody Company, and formed a partnership and friendship between the Hines and Melody families that endures today. Tom Melody, his son John, and brother Mike are all members of the W&D team today, and it is thanks to them that Jeff and Laura are joining me today and that our two firms are doing so much together. Today also happens to be Tom's 60th birthday, so happy birthday Tom, and thanks to you and your family for all you do to make Walker & Dunlop so great.

A quick background on Hines, and then I'll introduce Jeff and Laura. Hines is a global real estate development firm founded in 1957 by Gerald Hines. It has a presence in 225 cities in 25 countries and 144 billion dollars of assets under management. 75 billion of that AUM is where Hines is the investment manager, and 67 billion is where Hines provides third-party property-level services. Jeff Hines is owner, chairman, and chief executive officer. He became president in 1990 and has dramatically expanded Hines's products, services, and foreign market penetration. Jeff is a graduate of Williams College and Harvard Business School. Jeff's vision for Hines is to quote, 'be the best real estate investor, partner, and manager in the world,' unquote. Laura Hines Pierce is Senior Managing Director in the Office of the CEO at Hines. She is a member of the firm's executive committee and focuses on firm-wide strategy, risk management, and development. She was part of the grassroots team that established the OneHines Women's Network, which led to the creation of Hines's diversity and inclusion initiative. Laura went to Duke and also has an MBA from Harvard Business School. So first of all, Jeff and Laura, thank you very much for joining me today.

Jeff, I mentioned in your bio that you have dramatically scaled the business, and we're going to go back and talk about the firm's history from when your dad started it to when you joined it. But as I ran through the amazing history, I noted that in 2005, Hines had 12 billion dollars in assets under management, and today, as I just mentioned, that number is 144 billion. That's an astounding 12x growth in AUM over the past 15 years. So let's start with just how'd you do it.

So Jeff, let me just follow up on that for a second. Because you corrected me on saying development firm into asset management firm — but you were an incredibly successful real estate development firm, and still are. Yet in the mid-2000s, you made the distinct decision to change the strategy and move much more rapidly into that asset management business, if you will, and not necessarily away from development, but to grow that. What was it at that time — I mean, you were such a successful development firm at that time — I'm just curious as to what it was that led you to say we need to add the people, the resources, the know-how to scale that side of our business over the next decade?

So Laura, I want to bring you in here because you've watched the evolution and growth of this company throughout your life. I was curious — is there a memory that you have from your childhood when your father or grandfather took you to some city to see an asset that was being built, and you got to go up to the top of it and look out over some city you've never seen before? Or your family was building a huge iconic building in a city where you got to meet someone special that was sort of a unique experience that you remember back to?

Sure. You know, it's funny — our history is so much a part of our culture, and it's absolutely woven into our DNA. And just on the previous topic, a little bit of a funny story — I think it's taken time to evolve into who we are, but we are very good at evolving. And I think there is a lot of debate of how do we acquire buildings, and is that the right thing for us to do? Because frankly, there is a question of will other people's buildings be as good as ours. We know ours are good, so how can we trust we can acquire others, and what does that mean? So the history is so much a part of our firm.

But growing up, I think my dad actually made a very purposeful decision to keep us a little bit arm's length from the business. And I think that was a decision based on really wanting us to make our own decisions about our career path, about our journeys in life, and not feeling pressured to join the business. Certainly if that was what we decided we wanted to do, after exploring all the avenues, I think he was very excited to welcome us if that was the case. But that's translated to — I actually don't have a ton of memories of really being out and touring real estate and being on job sites.

I know if you ask my dad that question about his childhood, he has a very different answer, because my grandfather used to bring him to construction sites as an eight-year-old before school, and probably in very dangerous situations walking through construction sites. And so certainly there were really incredible opportunities that I got growing up. I remember visiting China in the '90s, because we joined my dad on a business trip as Hines was in the process of entering China as a business. In the '90s, China was a very different world — people were excited to see my curly hair. So I got incredible opportunities on that front and certainly was exposed to the business just broadly.

But it was a purposeful decision, I think. And I think that's been important for me, knowing that I explored other career paths and opportunities, and I've found my way to Hines. And I think my dad was very purposeful about that because of the opportunity I had and lack of pressure that I had. And really, that is the exact same formula that my dad used with me. Coming from a family business, you probably feel the same — if your dad would have pressured you to come in the business, you might have run the other way. And my dad purposely didn't allow me to come to that. We made our own decisions, and I think that's really important. You don't want to have someone be at a family firm because they feel they need to be or have felt pressured to be.

Yeah, that's one of the secrets. So Jeff, Laura just talked about her own — but first of all, her education is both economics as well as art history, and she worked at Sotheby's for a number of years, so who knows whether Laura today would be running Sotheby's rather than helping you run Hines. But your father — as I read back in the history of Hines, your father is a child in Gary, Indiana, went to Chicago and saw the Wrigley Building and made a comment that someday he'd like to build that, but what he didn't include in that sentence, or at least it's not written down, was: and I want to work with the very best architects in the world in building that building. What was it about your dad that allowed him to be so groundbreaking as it relates to architecture? Because Hines, of all the development firms in the world and asset management firms in the world, has the reputation of having gone and worked with the world's preeminent architects. And what was it that made your father get to that?

And on that — you met and still work with all of these incredible architects. Back when your father started working with Philip Johnson, all the great architects in the world were designing university campuses and museums — they weren't building office buildings like the Lipstick Building, which was your first development in New York, which Philip Johnson designed. How was it that your father, first of all, was able to get them to focus on building an office tower, and then also make the numbers work? Because I would assume hiring some of these name-brand architects was not exactly an easy thing to fit into the P&L.

And I'll just say too — on the economic equation, it wasn't only the rent premium and being able to attract the tenants, but certainly a high belief that better-designed buildings retain tenants through downturns, and ultimately that really increases the overall asset value of the building itself. And so for a firm that is thinking about the long term, really thinking about owning these buildings for the long term and the value over that long period, investing in that design and really spending the appropriate capital that made sense to really increase the quality of the building was important for us as a long-term investor.

And then the last thing I'll say too is I think one thing that the firm did really well is institutionalize that knowledge. So when we go through that creative tension process with an architect, we bring as much to the table often as they do, because we have a group internally that is involved in essentially every asset that we do, and they bring all of that built-up experience and knowledge to the table in how do we get an efficient use of our capital and still really deliver the best design that's going to create value over the long term.

But Laura, expand on that for a second for me, because beyond the design and the long-term outlook of what building a beautiful building would bring, Hines was also extremely early as it relates to sustainable development. I read that 13 of your buildings in 2000 got LEED Platinum status at a time when in 2000 there were very few companies focused on LEED and LEED Platinum. You got the first building ever in the state of Texas to get the LEED Platinum certification. That plays into this whole sustainability, long-term investment outlook. What was it — and I know you weren't in the company back then, but you know enough about the history and how you're trying to take it forward — what was it that made you all so focused on that element of building, not only beautiful buildings but environmentally friendly buildings?

Sure. Yeah, I think a lot of it originally stems from my grandfather's background as a mechanical engineer. You know, my dad mentioned it, but that was his background by training, and he absolutely brought that to the table and was very focused on how do we get real efficiency out of these buildings, because there's an economic value to that, right? Especially as you think about that long-term perspective — there's real value if you can engineer the building to be significantly more efficient. So I think from that early perspective, it really got built into our DNA in the same way that great design has.

And it's something that's infused in how we think about the long term. Now, what I will say is the topic of ESG more broadly has gotten significantly more complicated than I think it was when we really set out to do what we do. And I think certainly the opportunity to create economic value while also doing good for the world is something that we strive to do. I think we now need to think about ESG not only in terms of how we design a building, but how we invest in real estate, how we operate real estate, and how we think about it relative to our corporate culture.

So I think we're in the process of really diving into how to more broadly infuse ESG across everything that we do. I think we have 16 different commitments and objectives that we're in the process of carrying forward, with several others on the horizon. Creating a livable future, carbon, our people — I think that's something that is certainly more complicated than it was before, but absolutely something that we are focused on continuing to be the leader in.

And it will need your leadership over the coming years and decades to achieve it. Jeff, when you joined Hines back in the 1980s, there was not a major office tower in America that was not being built by Hines, and you built all these iconic buildings. And just the volume that you all developed during that period of time is truly staggering. And then you get to the early '90s where you basically made the proposition that you'd go and buy somebody else's real estate. And Laura mentioned it previously — talk for a moment about what it was that made you propose that you all ought to go into actually acquiring a building that wasn't designed and built by Hines. There was a tad of what Laura said of both pride and maybe a tad of arrogance that you all were building the very, very best buildings there were, so why would you buy anybody else's? It makes me think back to when we acquired our first company at Walker & Dunlop and my father and my other partners looked at me and said, 'Well, how do we know how the people were trained and how do we know how they approach credit?' And I said, 'Well, that's what underwriting is for.' Talk to us about that decision in the early 1990s and why you pushed so hard to broaden out.

Probably gave you and Hasty a little bit of a hard time about thinking that you were from both Harvard Business School and that some case study told you that you ought to go do something like that. We did bring in a consultant.

It's great. So on that, Jeff, at the same time as buying other people's properties, you also really made a push into Europe. You'd already been in Mexico and you've done a large industrial development in Mexico, but you really in the mid-'90s started to push into Europe. Before I joined Walker & Dunlop, I spent my entire previous career outside of the United States in Latin America and in Europe, and I have some pretty good sense of how difficult it is to get things done in a foreign country with a foreign culture, in many instances with a foreign language, with foreign entitlement, et cetera, et cetera. How was it that you took this domestic-focus business and had the ability to go and not only enter other markets—if I took Walker & Dunlop to Warsaw tomorrow, I'd have to go find some great local Polish bankers and hire him or her and I'm kind of off to the races. You're talking about going to Warsaw and building a building, you're getting entitled, you're getting local construction talent. What was it that quite honestly allowed you all to have the confidence that you could go to Europe and be as successful as you were?

Laura, as you think about that and about the size and scale of Hines today with over 4,000 employees around the globe, what's the biggest challenge on a go-forward basis as it relates to both maintaining the core culture at Hines, but at the same time you are so international and multinational that the culture has to diffuse somewhat as you go around the globe, does it not?

Yes and no. I'd say, you know, I so I spent my first five years with Hines working in our Chicago office, the project manager really sort of heads-down on a million-square-foot office development there. When my next move really was working with David Steinbach, who's our chief investment officer, and we spent really our first nine months essentially traveling the globe—I think I went to 18 different countries in nine months, something like that. One thing that really amazed me was as I walked into an office in Gurgaon in India or in Paris or in San Francisco, that Hines culture really was there. The office was very still very Parisian or still very local, but—and really this stems from I think my grandfather was such a cultural icon in our firm and I think had really such a strong pull, and the way that he really structured the business to allow autonomy and to really imbue trust in leaders to go out and own their business in a way and be autonomous leaders while still being responsible for carrying that Hines culture, carrying that Hines flag, and some of the deepest values that we have around integrity and quality—I think has really lasted and stood the test of time. Those leaders have then infused the culture as they've organically built offices and local geographies. It is absolutely a thing that I think we need to protect most fiercely, and frankly through COVID, it's something that we've drawn down on. Our cultural capital, I think, has been—I think it's what's allowed us to over the last year be highly effective because we have such a strong cultural glue. But we're feeling the fact that we've drawn down on that capital. We do a lot of work pulling people together globally, either for internal conferences, for trips, for learning opportunities across the firm, and obviously we haven't been able to do that—not in the same way. And I think that's something we're going to need to push into heavily as we come out of COVID, and having our cultural centers in our offices. We've hired 600 new people since the start of COVID, so being able to have a cultural center where these new hires can come in and learn, feel that culture in the office from the leaders, from the people that have the long tenure that we have—it is part of our strategy to support our leaders in staying for the long term because that's how you continue to maintain that capital and infuse that capital. So I think we have to be extremely focused on it, but I do think it's part of our secret sauce, and I think people across the firm feel a really strong ownership in carrying it forward. It doesn't just come from us—if it just came from us, we'd never be able to do this. It comes from leaders across the firm really taking ownership and responsibility and carrying the culture forward.

Jeff, Laura just commented that you've grown the firm by 15% during the pandemic. What's the biggest challenge now as we get out of it as it relates to sustained growth culture? We've all been locked down for a year—you haven't been able to get on a plane and go visit with a team. To use the two places that Laura just said, India or in France, what are you feeling right now as CEO as it relates to what the most pressing issue is to get back up and get going post-pandemic?

As you look out, I think right now—and I want to get to the asset management side of it because obviously it's so much more than development—but right now you have about 156 developments going on around the globe, which is just a staggering number. As you look out to what the pandemic has done to the way that we work, to the way that we live, to the way that we shop, what are you looking at in those 156 that says, man, we are just loving having that building or that mall or that community coming online in the next year or two because we see great opportunity there?

So Laura, your dad just talked about technology. I know you all are an investor in Fifth Wall, and I had Brendan Wallace on the Walker Webcast about a month ago and he was fantastic with Casey Berman from Canmore, just talking about where Fifth Wall is making investments. What do you think kind of if you will sticks? What are you seeing out there? I've heard you talk about WeWork and shared office space and the fact that Hines needs to adapt to clients' needs and being flexible for their needs and desires as far as your tenant base is concerned. When we look forward, what do you think is really going to change the landscape from a proptech standpoint?

Sure, it's a great question, and I think as Dad said, a lot of things have been accelerated and made clear—or come into relief, if you will—through COVID. I continue to think flexibility is going to be something that our clients and tenants are going to be looking for. The way I would frame it is less in the sense of having flex office as an option—to me it's more how can a building owner and building manager really be thinking proactively to solve problems for tenants and clients that they don't even know they have. And what that requires is, at least from our perspective, our vertical integration allows the opportunity to be flexible to meet the needs. So as we think about, as an example, flex office, it becomes part of the offering that one can give to clients and tenants to potentially solve problems or meet needs that they have. When it comes to technology, I think that technology that is making space solutions easier, that is integrating the use of space with the actual needs of the tenant in a much more seamless way—those to me are the ones that are going to rise to the top and become really important. One thing that we're working through is, from a building owner and manager standpoint—and this is really across all asset classes—is how do you start to integrate all the different technologies that exist out in the proptech world in a way that become functional and start to become seamless for both the end user and then also for us as a manager and owner. That is some of the next step: how do you take building access technology and technology around security and all the different types of technology that are being created out there and start to weave them together in an actual useful way.

So Jeff, just talking about the scale and how big you are today—you launched the Hines Global REIT in 2009 right after the GFC, and that has become a fantastic vehicle for you all. You've raised—I can't remember how many distinct funds, but you seem to have a strategy that, as I read through your website, it seemed like there was a Hines Global, Hines Emerging Markets—you've got funds for pretty much everything out there. What's your take of the capital markets today? Because you all have such amazing investor relationships and you have those relationships around the globe. As you talk to that investor base, what are they looking for as it relates to not only core returns—because we've all seen returns come down—but as it relates to, are they saying we want to be in emerging markets, we want to be in the established markets, we want to be in multifamily versus office? I know everyone's got a different opinion, but give me a summary of your take of where we are today coming out of the pandemic.

Does that present an opportunity for a firm of your size?

Laura, I just heard your dad use the phrase 'beds and sheds,' which I have not heard before, and I'm going to use it from here on out—I just love it. But you guys are big on—you're focusing a lot on beds and you're also focusing on beds in the single-family rental space. What's your take on multifamily versus single-family rental and the housing industry, most specifically here in the United States?

Sure. I think we've been pushing into the multifamily space for the last almost 15 years and we continue to be interested in it, and I think it continues to be a big opportunity. I think the single-family rental is something that we are very excited about and a skill set that I'd say we've been developing over the last 10 years as well, as we've been pushing into a land platform and then also building our multifamily-for-rent platform. It speaks to some of the trends in my mind where asset classes are continuing to converge in some ways. One thing that we've been doing over the last 15 years has really been diversifying across asset classes, across property types—again, organically building our skill sets. We're now at a place where our living platform, our industrial and logistics platform, and retail platforms as well are huge businesses in and of themselves. We've really developed a lot of organic know-how in those areas, but now we're able to start converging some of that experience where the opportunity arises—whether that's multi-level industrial, or how retail and logistics potentially start to come together. I think single-family for rent is another opportunity for us. Coming out of this market moment, I think we're going to see a lot of opportunity for that in some of the mid-tier cities and some of those areas. This has been part of our growth story, and having this diverse skill set that we've really built over the last 10 years allows us to drive into potentially new opportunities.

And on that, Jeff, given the scale of Hines, given not only that you're diversified across asset classes but geographies and countries, et cetera, et cetera—does that give you the luxury to be fully invested all the time?

Just, essentially being diversified globally across asset classes and across the risk spectrum allows us to really pull the right lever in the right geography at the right time. The other piece of it is being a privately held family business allows us to really be thinking for the long term. The notion of being fully invested all the time is aligned with that because we're constantly thinking about generational growth—we're not thinking about quarterly growth. We're investing for the long term, and I think that's the other piece that really allows us to do that.

Jeff, Laura just said generational growth. You took over the company from one of the true pioneers in the commercial real estate business to ever have been in the world. And by the way, I am sorry for the passing of your father and your grandfather back in August of this past year. But you stepped into those big shoes and have taken this company to a whole different level, and it's astounding what you have done in your leadership of Hines. You're now faced with transferring leadership and ownership of the firm to the next generation of Hineses. What did you learn during the transition from your dad to you that you'll either repeat or not repeat as it relates to your own children?

How fun is it for you to have your three kids all working inside the company?

Well, in talking about Laura and her brothers asking you to get back to the office, I'm going to let both of you get back to your day. I'm just going to thank both of you for taking the time. It's a real honor to have both of you on. It is unbelievable to see what your family has created in the firm that you have and the presence you have around the globe. And as it relates to architecture and sustainability, you all have been just true leaders that have benefited all of us. So thank you not only for coming on and sharing your time with us today, but for all that your family has done to enhancing the built environment that we all live in.

Thank you so much for having us. It was a really great conversation.

We will be back next week with another Walker Webcast. I have analysts from JP Morgan and Morgan Stanley coming to talk about the commercial real estate REIT and services industry. So please join us next Wednesday at 12:30 Eastern time. In the meantime, I wish everyone a happy St. Patrick's Day, a great day. Tom Melody, happy birthday again. And to Laura and Jeff, thank you both again for joining me today. Have a great one, thanks.