What Rising Rates and Surging Insurance Prices Are Doing to Real Estate

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:15)

And I'm Tracy Alloway.

Joe Weisenthal (0:16)

Tracy, I don't know if I've ever said it to you directly before.

Tracy Alloway (0:20)

Uh-oh.

Joe Weisenthal (0:21)

No, but I've said it to others.

I believe there is no limit on the number of real estate-related episodes we could do. There's literally one.

Tracy Alloway (0:29)

I feel like there are two topics in business media that everyone loves reading about and opining on, and one is transportation, so airlines and cars, and the other one has to be real estate because it kind of touches everyone's lives in one way or another.

Joe Weisenthal (0:45)

Well, absolutely, and one of the most powerful impulses to read anything is anxiety.

And the nice thing about real estate is no matter where you are, you're anxious, right? Like if you own a house or something, or if you own an investment property, you're anxious the prices are gonna go down or rents might go down. And if you don't own anything in your renter, then you're anxious like, oh, rents are gonna go up, or if you want to buy a house. Or the cost of a house is gonna surge, and so you're anxious too. So there is no like person in the world who does not have real estate anxiety.

Tracy Alloway (1:17)

That's perfect. Whichever way the market is going, there is someone who is de facto worried about it.

Joe Weisenthal (1:23)

Yes, and so I would say there's a lot of things in real estate right now that are particularly interesting. So we talk about it a lot, but we've talked a lot about why haven't higher rates affected the home buying industry, the secondary market in housing. And we've talked about lack of supply, et cetera.

And of course, we've talked about commercial real estate and some of the concerns about work from home and return to office and occupancy rates, et cetera. But it still feels like there's more to do on both fronts, particularly as it relates to sort of higher rates, the impact that is on developing new properties in one sector or another.

Tracy Alloway (1:57)

Well, absolutely. So there's been a lot of focus on what's going on with existing properties for somewhat obvious reasons. But over the past year, we've seen this really interesting dynamic where the existing home sales, for instance, are almost in complete stasis, just frozen. But meanwhile, a lot of the home builders have been ramping up their activity. We've seen some of their share prices really surge. Warren Buffett is making investments in some publicly traded developers, which if you're talking about things that get people's attention, that has to be one of them.

And so I think we really need to dive into what's happening with the actual construction versus, I guess, the existing buildings.

Joe Weisenthal (2:40)

Of course, construction is affected by rates. It's also affected by commodity inflation, labor costs. So there's just a lot, a lot to get into.

Tracy Alloway (2:47)

Let's do it.

Joe Weisenthal (2:48)

Well, I'm really excited. I do believe we have the perfect guest because we're gonna be speaking to someone with a sort of like very broad view of the real estate market involved in many different angles. We're gonna be speaking to David O'Reilly. He is the CEO of Howard Hughes Holdings, which is involved in real estate in many different ways. I'm gonna have him explain what the business is. So David, thank you so much for coming on Odd Lots. Thrilled to be here.

David O'Reilly (3:12)

Thanks for having me.

Joe Weisenthal (3:13)

Why don't you give us the sort of quick summary across the different lines of what constitutes Howard Hughes Holdings?

David O'Reilly (3:20)

Howard Hughes is a community builder. We build small cities or large scale master plan communities where we're not just the bedroom community for the adjacent city, but we're also an employment center.

We prepare land, prepare it horizontally, sell it to home builders, take that capital and use it to invest in building office, multifamily, shopping, dining, experiences, amphitheaters, art, whatever the consumer needs we build. The more homes we sell, the more residents move into our communities, the more they need those amenities. The more amenities we have, the more desirable those communities are, the more residents want to move there and that cycle goes on and on and on.

Tracy Alloway (4:00)

So sort of multi-use projects. Give us some specific examples. Like what are, I guess, the most prominent projects that you've worked on?

David O'Reilly (4:08)

Well, right now we're across six major regions. The largest, or not the largest, but the most dense right now is the Woodlands, which is 28,000 acres just north of Houston. It's about two times the size of Manhattan.