Hines’ Tommy Craig on Navigating the Pandemic and Gerald Hines’ Passing
Tommy Craig has brought the Hines flame to nearly every corner of New York — and every asset class
Real estate lost a legend last month.
Gerald Hines, who made his name shaping the skyline of Houston, where his eponymous firm is headquartered, died at 95. But, even as his name adorned public parks in the city, you’d be hard-pressed to just call Hines a Texas developer considering the way it’s shaping Gotham.
It’s finishing up construction on a luxury assisted-living facility called Sunrise at East 56th Street and the 1,050-foot-tall condominium building 53 West 53rd Street attached to the Museum of Modern Art. And Hines bought a 49.5 percent stake with the National Pension Service of Korea in the condo spire One Madison for $492 million in March, and, in 2016, acquired a 1.4 percent stake in the under-construction One Vanderbilt office tower.
Also in 2016, Trinity Church Wall Street and Norges Bank Real Estate selected Hines as the operating partner for their 6 million-square-foot, 12-building portfolio in Hudson Square, which boasts tech giant Google as a tenant.
The man behind Hines’ ascent in Gotham from a Texas developer dipping its toes in the area to a major power player also happens to be the first person hired in its New York office: Tommy Craig.
The company hired Craig in 1982, while Hines worked on its first project in Manhattan, Midtown’s Lipstick Building. Craig took the helm of the New York City office in 1996 and it currently has 500 employees and about $30 billion of assets under management.
“When I joined, [Hines] was a sole proprietorship based in Houston,” Craig said. “And every article we read it kind of made our ears bleed, ‘Hines a Houston-based developer’ … We don’t think of ourselves that way.”
Indeed, Hines has expanded to work on 907 projects in 25 countries, with about $144.1 billion of assets under its management. Still, Craig says, the company feels like a family affair.
Before he passed on Aug. 23, Gerald Hines connected with staff members by organizing vigorous ski trips through unpatrolled slopes around the world. He even offered up his home in the South of France for Craig to honeymoon in.
“These are people that know your wife, your kids,” Craig, 64, said. “The work we do is process-oriented … It’s not transactional, and people with transactional do not really have tenure [at Hines].”
Commercial Observer sat down with Craig (over Zoom) to talk about its New York City projects, how the developer is navigating the pandemic, and what it’s like to stay at one company for nearly 40 years.
Commercial Observer: You have a lot of projects under construction. How has the coronavirus pandemic impacted them?
Tommy Craig: Of the three projects we have under construction, two were deemed essential. Our senior housing project, Sunrise on 56th Street, we actually got our [temporary certificate of occupancy] on the exact date we had predicted several years ago. And One Vanderbilt because of the off-site improvements at and around Grand Central.
The project at 53 West 53, like all other for-sale condominium projects, we did have a work stoppage. We’re back to work now; we lost approximately three months in the schedule. Thankfully on that project, we were able to consummate an extension of our loan, so we got a long-term three-year facility, which is pretty meaningful. So, like everyone else, we absorb a delay in our construction, but perhaps, more importantly, we now have the right window of time to complete the project successfully.
This is one of the moments where it doesn’t feel comfortable — I would never want to convey that — but you kind of recognize that feeling that you’ve got to be successful in a context of uncertainty. I think we’re fortunate today as compared to past cycles. We have a much more balanced business today.
The decision framework, as you would expect, involves a little bit more of an extended period of time, but I don’t think we’ve ever been as well-positioned.
Have you changed the design of projects based on COVID-19?
There’s all sorts of things that we’re providing plans for. Probably the most obvious one is we have a project where the way we will achieve temperate air in the space will not involve the delivery of air in base ductwork in an air-handling-unit. Most of those projects would then have 75 percent of their air as return air. Obviously, when you do that, then any respiratory disease has a greater risk of being spread. And, so, in this particular project, we’re going to circulate hot and cold water to [dedicated outdoor air systems] and we’ll have twice the quantity of outside air.
We’ll have, like everybody else, a lot more touchless components. Even our lobby entrance at this project is going to be really oriented so we have separation of arrival and departure. What I don’t think anyone really knows the answer to is how durable are these changes post-vaccine. Some of them will make sense no matter what the status is, but I think in a larger context all developers right now are also in the wellness business.
How difficult has rent collection throughout your portfolio been?
We have two extremely large portfolios in New York that aggregate almost 12 million square feet. In both cases, we’re on the commercial side 97 to 98 percent [collection]. And that’s in a situation where the occupancy of those buildings is below 5 percent. That level of rent collection is certainly not the same success with retail tenants and it’s not consistent either.
Do you have much retail exposure at the moment?
Elsewhere the firm does, but the biggest retail exposure we have is at Trinity; in absolute terms it’s 200,000 square feet. But, when you think about it as part of our 6 million-square-foot portfolio, it’s [about] 3 percent of the footprint.
We’re also working incredibly hard with those retailers to stay in place. We control 40 percent of the neighborhood and we want to have an active street life. And now that all those residential buildings are getting completed, retailers had very good prospects going forward, but they need to be carried through a period like COVID-19. Nobody expected anything like this. There was no plan or playbook.
There’s been talk since everybody’s been working from home that companies will shift more to remote work in the future, taking less space or trying to get rid of some of their portfolio in the process. Have you been seeing that from your tenants at all?
It’s too early. The thing that’s most prevalent if you look at all the cycles in New York, the last cycle in particular and the success of Hudson Square, I think it underscored the preference existing tenants have to move to new product. That’s part of the success of One Vanderbilt. Hudson Yards, those buildings are one of many. One Vanderbilt is one of one.
I think…there’s a demographic change that’s being accelerated by COVID-19. There’s going to be more people coming from the next age cohort and their sensibility about what they want in a new space is very different. It’s less corporate.
New York is kind of a unique urban laboratory. Not just COVID-19, but think about everything after May 25 with George Floyd. People want to be in a city that’s got a model of pluralism. There’s not a city in the world I think that compares to New York this way just in the population composition. There’s a lot of conflicting forces, and I’m never complacent about them, but I think the people who bet against New York, frankly, lost a lot more often than they win.
We haven’t seen the end of the physical workspace, but it will have to change to get better. It’s gonna motivate people to come in and commute when they have a choice of Zoom. It’s got to be a place that delivers something more than I would say so much of the building stock of New York does because so much has been built pre-1980.
Is that what’s been driving the success you’ve been seeing at One Vanderbilt?
Certainly. One Vanderbilt is almost the ideal location for a hybrid workforce. It’s easy to get to when you’re commuting and because you don’t have any real commute within the city, it might allow you, if you did maintain a house out of the city, to reach more distant and affordable points.
Most of the space left to lease at One Vanderbilt is at the top of the building. It’s certainly going to be an uncommon experience and feel incredibly different than sitting in a room at home.
You’ve said you’re in the process of looking for new projects. Are you focusing on any specific sectors or markets for that?
Yes and no. If you just follow the evidence, the multifamily we have outside New York [the Whit at Wooster Square in New Haven, Conn., and Edge-on-Hudson in Sleepy Hollow, N.Y.], gives us a base for not only other multifamily projects, but if there really is going to be a population shift. Remember, it only takes a small increment of population to leave New York to have a big impact on Westchester County, Fairfield County, Long Island and New Jersey.
You have to believe, going forward, there are going to be major opportunities associated with replacing distressed real estate with next-generation real estate. Because this part of the world has perhaps the oldest suburbs in the country, a lot of the footprint is fairly dated retail complexes. It’s hard to imagine they’re going to stay that way forever.
I also think in New York it would seem like hotels would be a distressed sector [as well as] retail, whether it be Neiman Marcus or Lord & Taylor, and there’ll be redevelopment opportunities. It’s a very interesting moment, but it’s going to take time. I would say looking forward it’s inevitable we will get an opportunity to get called into broken deals.
You’ve been at Hines for nearly four decades. What’s kept you there?
Lots of things. Probably, most importantly, I have a deep passion for what I do; and the aspects that I think about being a real estate developer in a city like New York is the work you do becomes tangible. It’s a very creative process to reach that point. Although you can take everything you’ve learned on one project and carry those lessons into the next project, no two projects are ever alike. We’re the first in Hines to carry out a senior living project. As you would expect, we’ve never done an observation deck anywhere else.
I could probably go on forever about why I like Hines, but Hines is actually different from other firms in a couple of very specific and important ways. The first is we’re not departmentally organized, we work as a team on projects. Our job is to match physical real estate to financial real estate in situations that occur one at a time and under very dynamic situations, so that creates real bonding. But, remember, we’re also employee-partners together. So we’re all on a team and we have to watch out for each other because we have shared economic interests together at each project. And I don’t think there’s any other firm that does it this way.
When you do that in New York City, there’s an aspect of pride. I want to be modest about this, but to my wife and kids [two daughters and a son], I point the buildings out to them. I’m not sure anybody else gets to do that.
[After Hines’ death, CO spoke again to Craig.] How did you first meet Gerald Hines and why was his influence important?
I joined in 1982, and we had about 300 people, but even the junior varsity [employees] got to participate in the meetings with Gerry since he was very excited about our first project in New York [the Lipstick Building]. The thing I want to emphasize, we use the phrase “humble confidence” at Hines. That’s how we think of Gerry and that’s how he expected us to be.
There’s every reason to associate Gerry with the type of corporate architecture that is common today. For Gerry, because he was an engineer, it wasn’t just perceiving good architecture as emblematic of corporate values, but much more than that: He believed deeply in wellness in the workplace. He was doing that 50 years ago. I can’t emphasize how much time we all spent on indoor air quality and understanding things like Legionella long before we had that outbreak [in 2015].
It’s fair to say that at the end of his life he became many things, but I think he was proud of being a New York developer. After four decades, we kind of arrived and he was really proud of that. It meant something to him.