Howard Hughes CEO: “Never seen a construction loan market like this”

Firm reports net operating income growth, focus on master-planned communities in year-end earnings

Howard Hughes 2024 Earnings Show Resi, Condo Sales Growth

Howard Hughes Holdings CEO David O’Reilly and 1 Riva Row in the Woodlands in Houston (Getty, Howard Hughes Holdings)

One of Texas’ most storied developers posted some record numbers in 2024, but not all is well in Houston. 

Howard Hughes Holdings reported its fourth quarter and year-end results this week, with shortcomings in New York offset by its residential developments in warmer climes. 

The company’s net operating income reached $244 million last year, up four percent from the prior year. That was driven by a 16 percent NOI spike in multifamily to $53 million. Rates at the company’s rental portfolio jumped an average of 9 percent, even as other Sun Belt operators struggled with flat or even negative rent growth.   

Office NOI grew 6 percent, as the firm leased 357,000 square feet of space in the Woodlands alone. However, retail NOI dropped 11 percent on the year, and office is expected to stay flat as free months expire and more supply comes online, driving up vacancy. 

The company revised down its NOI projections in office and multifamily, mostly due to growing tax and insurance costs in places like Houston. 

While the company continues to grow in Texas, its New York assets did not fare so well. The company lost $18.2 million more than it made on its portfolio in the Seaport area of Manhattan. 

In a corresponding earnings call, the company’s leaders gave a line of sight into how one of Texas’ biggest developers is dealing with lenders. 

“I’ve never seen a construction loan market like this,” said David O’Reilly, the firm’s CEO. “It’s almost flipped on its head.”

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O’Reilly said a recent condo project the firm built in Hawaii was one of its easier developments to get financed. Condominiums can be presold, giving lenders some sense of the building’s value once it is completed. Multifamily rentals, on the other hand, have seen asset values fluctuate in recent years, sapping lender confidence. 

1 Riva Row, a high-end multifamily development in the Woodlands, would in more normal times have received a flood of bids from lenders. Instead, O’Reilly said, “that was one of the hardest construction loans I’ve seen us try to get in my time at Howard Hughes.”

Based on how its Ritz Carlton Residences in the Woodlands are selling, the company is exploring another condo project in the area, O’Reilly said. 

Still, Howard Hughes pulled in $659 million in financing last year, including several refinancings for loans nearing maturity. Some $498 million went to construction loans for new development.

Looking to 2024 in Texas, the company seemed most optimistic about deals in Bridgeland, a fast-growing town on the outskirts of Houston, and the Woodlands. It specifically cited the lack of homes up for resale, as owners with lower-rate mortgages are locked in to their current homes. That should push buyers to new construction, executives said. Accordingly, new home sales increased 45 percent. 

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The company posted record earnings before taxes at its master-planned communities of $341 million. Still, it expects those earnings to fall by 10 to 15 percent year-over-year to about $300 million. 

Meanwhile, a “significant undersupply” of vacant lots in Houston should keep demand high for sites. Howard Hughes, as a master-planned community developer, often sells lots to homebuilders, who then construct the actual houses. Those lot sales are now more valuable than ever: residential price per acre reached a record of $944,000, the company said.