Howard Hughes Doubles Columbia, MD Holdings

Howard Hughes Doubles Columbia, MD Holdings

Howard Hughes Doubles Columbia, MD Holdings by Todd Sullivan, ValuePlays

Bottom line is Howard Hughes paid $66M ($204M to IRS and getting $138M from General Growth Properties Inc) for 715k of office space……and this assumes they get no relief at all from the tax court.  They very well might end up with these as a “freebie”.

Here is the breakdown of the properties from $GGP 2013 10k:

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This reminds me of when Howard Hughes bought the 47% of the Woodlands it did not own from Morgan Stanley for $117M in 2011. That is a transaction people can only look back at now and shake their heads in amazement. Why? Well consider Howard Hughes is putting two buildings there for Exxon Mobil. When finished they will produce ~$12M NOI annually and if we throw a 6% cap rate on them just those two buildings are worth $200M….and there are still millions of sqft left to be developed

It won’t be long before we look back at today’s transaction and are able to do the same exercise…..

The Howard Hughes Corporation® Announces the Acquisition of Six Office Buildings in Downtown Columbia, Maryland

Master Developer for Downtown Columbia More Than Doubles Commercial Holdings to Over One Million Square Feet

COLUMBIA, Md.–(BUSINESS WIRE)–Dec. 18, 2014– The Howard Hughes Corporation® (NYSE: HHC) announced today the acquisition of approximately 700,000 square feet of office product located in Downtown Columbia, MD valued at $130 million. The six office buildings more commonly known as 10 – 60 Columbia Corporate Center are 90% leased and are currently unencumbered. With the acquisition, The Howard Hughes Corporation now holds more than 1.1 million square feet of commercial space, representing 50% of the total Downtown Columbia office market according to Cushman & Wakefield. The acquired properties include:

  • 10 Corporate Center – the four-story building contains approximately 90,000 square feet
  • 20 Corporate Center – the five-story building contains approximately 110,000 square feet
  • 30 Corporate Center – the 12-story building contains approximately 135,000 square feet
  • 40 Corporate Center – the 12-story building contains approximately 150,000 square feet
  • 50 Corporate Center – the seven-story building contains approximately 120,000 square feet
  • 60 Corporate Center – the six-story building contains approximately 110,000 square feet

In August 2012, The Howard Hughes Corporation purchased 70 Columbia Corporate Center, a nine-story, 170,000-square-foot Class ‘A’ office building, located adjacent to 10 – 60 Columbia Corporate Center, which fronts on Little Patuxent Parkway adjacent to Merriweather Post Pavilion. The building was redeveloped and is now 99% leased and occupied by tenants such as the Enterprise Community Foundation and GP Strategies, Inc.

A comprehensive Master Plan to develop Downtown Columbia was unanimously approved by Howard County in 2010 to create a walkable urban core in the heart of the award-winning Columbia master planned community. The vision includes up to 5,500 new multi-family residential units; 1.2 million square feet of retail; 4.3 million square feet of commercial office space; 640 hotel rooms and more open public spaces. The acclaimed Merriweather Post Pavilion, also located in the heart of Downtown Columbia and one of the country’s top outdoor concert venues, will benefit from a $19 million renovation over the next five years. The 10 – 60 Columbia Corporate Center buildings are located in the Symphony Overlook neighborhood within Downtown Columbia, an area envisioned to become a vibrant, mixed-use district connecting the various neighborhoods.

“The acquisition of the Columbia Corporate Center office buildings reinforces our long-term commitment to Downtown Columbia,” said Grant Herlitz, President of The Howard Hughes Corporation. “Combined with our larger commercial portfolio and wide array of product offerings, we now have the flexibility to meet our existing tenants’ space needs while also attracting new businesses and jobs to Downtown Columbia.”

The Howard Hughes Corporation acquired the buildings as partial satisfaction of General Growth Properties, Inc.’s obligation to indemnify it for certain taxes under the Tax Matters Agreement, dated as of November 9, 2010. The transfer of the buildings is part of a settlement agreement between General Growth and The Howard Hughes Corporation that: (i) substantially terminates the Tax Matters Agreement, and (ii) provides that, in consideration of the full satisfaction of General Growth’s indemnity obligations for certain taxes and interest related to master planned community land sales prior to March 31, 2010, General Growth will make a $138 million cash payment to The Howard Hughes Corporation and transfer ownership of the office buildings valued at $130 million to The Howard Hughes Corporation. The terms of the settlement agreement permit The Howard Hughes Corporation to control the ongoing litigation with the Internal Revenue Service(“IRS”) in which the IRS has challenged The Howard Hughes Corporation’s method of tax accounting for certain master planned community land sales.

On December 15, 2014, The Howard Hughes Corporation made a payment totaling approximately $204 million to the IRS, which included approximately $144 million of indeminifiable taxes and $60 million of interest, in satisfaction of a judgment entered by the Tax Court in favor of the IRS with respect to these taxes. TheHoward Hughes Corporation has filed an appeal of the Tax Court’s decision to the Fifth Circuit Court of Appeals and expects the appeal to be heard by the appellate court in 2015. For more information, please refer to The Howard Hughes Corporation’s Current Report on Form 8-K filed on December 18, 2014.

The development of Downtown Columbia into a 21st century urban destination is currently underway. Milestone accomplishments include the August 2014opening of Columbia’s first Whole Foods Market in Howard Hughes’s redeveloped, Frank Gehry-designed, Columbia Regional Building; the recent opening of The Metropolitan Downtown Columbia, a 380-unit luxury apartment complex with 14,000 square feet of ground floor retail co-developed by Howard Hughes in partnership with Kettler; the expansion of The Mall in Columbia; the opening of the Haven on the Lake wellness center and spa; and the commencement of construction on Little Patuxent Square, a mixed-use development that will include office, retail and residential components. These achievements represent the initial phase of the transformation of Downtown Columbia into a world-class community to live, work, learn and play.

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Todd Sullivan is a Massachusetts-based value investor and a General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer support his thesis. His blog features his various ideas and commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain’s NY, Kiplingers and other publications. He has also appeared on Fox Business News & Fox News and is a contributor. His commentary on Starbucks during 2008 was recently quoted by its Founder Howard Schultz in his recent book “Onward”. In 2011 he was asked to present an investment idea at Bill Ackman’s “Harbor Investment Conference”.
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