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Could This Company Be a Big Winner in This Hot Real Estate Market?

By Matthew Frankel, CFP® - Oct 19, 2021 at 6:23AM

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This unique real estate company could benefit from the current trends.

The real estate market is hot in most of the United States, but that's especially true in some of the areas where Howard Hughes Corporation ( HHC -6.05% ) operates.

In this Fool Live video clip, recorded on Sept. 29, David O'Reilly, CEO of Howard Hughes Corporation, sits down with Fool.com contributor Matt Frankel to discuss how the company is approaching the current real estate market. 

Matt Frankel: We're in a very hot real estate market right now. It's hot in an unusual way. Inventory is very, very low, I'd imagine being able to control the inventory of land is an asset right now.

David O'Reilly: It always is, regardless of the temperature of the market and that our job is to sell land to homebuilders, just to keep up with underlying home sales. If we sell them too much in the market turns, they'll make a bad decision with that land and impact the value of our remaining and we have decades ago. If we just give them too little, prices will skyrocket because supply will be down and will impact the affordability of our communities and being affordable is critical to our success. Making sure we have the largest range of price points to attract as many residents as we can into our great communities.

Again, our competitive advantage comes down to our communities it's 20-plus thousand acre masterplans, where we have unique influence and we can limit supply just to meet demand, insulates us from the downturns and allows us to accelerate quickly when things get better.

Frankel: I mentioned this is a uniquely hot real estate market. I'm wondering if this has been a good or bad thing for your business so I really can't put my finger on it. One hand, home prices are going through the roof. I know in my market, home prices are up I think 25% year-over-year, which is unheard of. But on the other hand, we're seeing a lot of supply chain disruptions. We're seeing a lot of labor shortages, especially in some of the markets where you operate. I'm wondering if overall, if it's a positive or negative right now?

O'Reilly: Well, right now, I think the continued migratory trends, people coming into our communities continue to be positive and there are a partial driver of that price increase completely reference, Matt, I think more importantly, is that some of those supply chain issues have caused a little bit of that pricing and as those start to ease, we've seen lumber come back. But now, we're dealing with front doors and some markets roof tiles and appliances. As those start to ease and they're getting better every day, I think that pressure on prices will start to abate.

Again, we're continuing to deliver lots of homebuilders and we're doing it very prescriptive. When we sell land to a homebuilders, we're finding the size of the home, the price of the home, and where we think it should be set such that we're hitting all the pieces of your affordability spectrum. Not just selling at the highest end, but making sure that we're attracting the greatest number of new residence for our communities and creating affordable places to live.

That is one of the great stories of Summerlin, Woodlands, and Bridgeland is that we have affordable product where if you're coming from a major metropolitan city center, you're going to get closer to nature, you're going to get in at a great price, and you're going to have low crime and a quality of life that you probably didn't experience where you were.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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