The Secret to Hines’ Success

Oct. 30, 2003

Consistent Strategies Deliver Extraordinary Results

Success is derived from an environment where quality counts, innovation is celebrated, and people are what matter most. This formula has driven Hines, the Houston-based real estate development, investment, and management company, from a one-man office to a global enterprise in a mere 46 years. The company has expanded its services from development to third-party property management, and most recently to investment management – all the while gaining reverence from peers, admiration from competitors, loyalty from tenants, and a world-class reputation synonymous with quality and innovation. Hines’ buildings are as bold a statement about the architecture of modern times as they are about successful development. The company currently owns and manages 190 facilities, totaling approximately 80 million square feet of space. While it is most known for the development of high-quality office space (comprising 91 percent of the portfolio), Hines has also owned, managed, or developed retail, industrial, and multi-family properties.Perhaps best known for influencing the skylines of some of North America’s busiest cities, Hines has continued to forge new fronts globally, taking its strategies, expertise, and well-respected name to countries in Asia, South America, and Europe. There seems to be no stopping Hines. Hines’ employees are its greatest assets.As the number of employees swelled under the early leadership of Founder and now Chairman Gerald D. Hines, a culture of entrepreneurial spirit formed and Gerald found himself in the company of some of the real estate industry’s brightest minds. “I think one of the most important things in our growth has been the outstanding quality and integrity of our people,” he says.Under the leadership of his son and current President Jeffrey C. Hines, the company has continued to attract, hire, train, and mentor professionals who are proud of the company’s values. “We’re obviously biased, but we think our organization is second to none,” says Jeffrey.A short conversation with any employee about the company’s built assets quickly becomes one about its greatest assets – the 2,800 Hines professionals. “It’s all about people. It’s a pretty simple concept. There are a lot of excellent programs and procedures out there in the industry – many of which Hines developed. But I will tell you that it’s not the policies, procedures, and programs that make the difference, it’s the people,” says Tom Kruggel, vice president, Operations, West Regional Office, Hines, San Francisco.At Hines, good ideas are revered and the company makes note of individuals who share new strategies and develop best practices. “Hines’ culture is entrepreneurial and encourages new ways of thinking,” explains Clayton E. Ulrich, vice president, Corporate Engineering Services, Hines, Houston. The philosophy focuses on objectives and challenges professionals – whether involved in the development or management of property – to develop strategies appropriate to each building and its occupancy. By extension, employees are provided the opportunity to make educated decisions, effect change, and set in motion innovative strategies and solutions. “The people who choose to work at Hines – they’re curious, they’re looking for challenges, and they’re looking to create things in which they can take enormous pride,” says Kenneth W. Hubbard, executive vice president, East Regional Office, Hines, New York City.Hines excels at risk mitigation.Even during the most trying of real estate downturns, Hines has managed to maintain its leadership status. The company’s organizational structure, combined with its extraordinary portfolio and smart business strategies, are to be credited for the company’s successful past as well as its bright future.During the 1980s, Hines decided to replicate its successful Houston development in other U.S. cities. Recognizing that real estate is an inherently local business, the company expanded its presence. Today, there are five regional offices: Western U.S.A. and Asia Pacific; Eastern U.S.A.; Southwestern U.S.A., Russia, and Mexico; Midwestern/Southeastern U.S.A. and South America; and Europe/Middle East. “We’re able to source and identify opportunities and respond to the communities we live in, [which is] very different than some of our competitors that operate on a totally centralized basis,” explains James C. Buie, executive vice president, West Regional Office, Hines, San Francisco.When North American companies started a globalization trend in the early ’90s, Hines followed suit. “Many of the tenants we dealt with were going global and were not having their needs met in terms of the quality of buildings they were in or the way those buildings were operated,” says Jeffrey C. Hines. This geographic – and international – diversification established the firm as a provider of high-performance buildings wherever tenants’ businesses took them.The buildings in Hines’ portfolio have often been dubbed “the city’s best.” Regardless of the challenging economy, the most desirable buildings remain the most profitable – a strategy that keeps 92 percent of Hines’ buildings leased. “Probably the most important thing we do is try to have the real estate that people want to be in, regardless of rental rates,” says C. Hastings Johnson, executive vice president and CFO, Hines, Houston. Elaborate marketing has made pre-leasing of new development projects easier as well.To reduce the effect of real estate recessions, Hines implemented a strategy focused on conservative financing. “We changed the way buildings were financed in the early ’80s by saying, ‘if it cost 100, let’s perhaps borrow 10 and invest as equity 90, from ourselves and institutional investors,’ ” explains Michael J.G. Topham, executive vice president, Europe Regional Office, Hines, London. The emphasis on equity financing allows Hines more latitude in adjusting rents as the market demands.The company has established a strong reputation with the institutional community and is able to raise capital funding for a project well in advance of its execution. “It is more powerful to go to a landowner or the owner of a building and say ‘we can write a check’ as opposed to ‘let’s sign a letter of intent and we’ll go and try to find capital,’ ” explains Jeffrey. “It’s a major distinction that gives us a lot more power in the marketplace and allows us to get more of the deals that we pursue.”Architectural integrity is the hallmark of Hines’ buildings.The list of professionals (Philip Johnson, I.M. Pei, Cesar Pelli, Frank Gehry, and others) who have designed Hines’ buildings reads like a virtual Who’s Who of the architectural community. Cutting-edge design and aesthetics were the early basis for Hines’ reputation for innovation. However, the beauty of these buildings is more than just skin deep. As a mechanical engineer by education, Gerald D. Hines understands the value of operational efficiency. The buildings owned and managed by Hines’ professionals strive to maximize efficiency and minimize energy use in many creative and pioneering ways. “Because we’re trying to build better quality workplaces for our tenants, we have begun to incorporate more sustainable design features,” explains Jerry Lea, senior vice president, Conceptual Construction, Hines, Houston. Developed by in-house engineers, the company has implemented a proprietary energy management software program called Hines Utility Monitoring and Management Tool (HUMMT). This program allows accurate recording and analysis of energy and utility use in buildings. “We think this is going to take Hines to the next level in terms of energy conservation and our ongoing commitment to the EPA’s Energy Star® program,” explains Ulrich. Other initiatives undertaken by the company include a Water Treatment Standard, Chiller Efficiency Monitoring and Testing Standard, Refrigerant Management Program, and Indoor Air Quality Guideline.Awarded for its accomplishments, the company was recently acknowledged as Energy Star Partner of the Year for the third consecutive year. “I promise you there is enormous pride within a building’s management team when they gain an Energy Star recognition. This attitude unfolds building by building and it’s infectious,” explains Hubbard. Currently, 64 of Hines’ buildings have been recognized by the Energy Star program and Hines has five projects in the U.S. Green Building Council’s LEED for Existing Buildings pilot program.Hines is willing to take the risk of innovation.As the early adopter of harmonic distortion cancellation transformers, outside air economizers, mold-resistant shaft liners, and underfloor air distribution systems, the company has no qualms about investing in innovation. Whether it be through the mechanical, electrical, or plumbing systems installed in buildings or through its unique design concepts, the company strives for the betterment of its buildings – for the benefit of its tenants and itself. “I think people at Hines are willing to push hard on product innovation and we really believe that’s where we get our competitive advantage,” says Hubbard.These innovative ideas and systems are not without intense scrutinization, though. New products and systems are thoroughly tested before installed. The company has formed relationships with manufacturers and, because of its buying power, often tests equipment in lab environments prior to purchase and implementation. This makes the risk of innovation much more calculated, and provides the company with a forecasted performance of the product prior to use. “We don’t let our tenants be guinea pigs. [A product is] new. It’s innovative. But we have tested it before we put it into our buildings,” explains Lea. When a new development project is in the conceptual phases, the Hines design team meticulously reviews each aspect of the building design and systems. Alternatives are explored, and an analysis is conducted to determine which product, technology, or equipment is the best choice. Once completed and selections are made, the next step is a benchmarking matrix. “We will go out in the marketplace and look at what our competition is doing … then we will test what they’ve done vs. our decision on a specific project,” says Lea. “We never stand still.” Purchasing is not standardized to ensure that the best solutions – many times, new solutions – can be explored.Tenant satisfaction is the result of Hines’ superior property management.Hines understands that property management is about building good, solid relationships and has strived to provide tenants’ continual comfort and satisfaction. “I think a lot of people in the industry view property management as a commodity – we absolutely do not,” says Jeffrey C. Hines. There is a quality of care and attention to detail that on-site engineers and managers are proud of, and the benefit to tenants is clear. “We wanted to offer a service so that we would get referrals. So our people evolved systems to be the best in building management and to design a building that was not just beautiful but with lower front-end cost and lower maintenance costs,” explains Gerald D. Hines.Through the use of a software program developed by Boston-based Database International Group, Hines has streamlined service to tenants. “Through the work order system, we’re able to respond quickly and thoroughly to our tenants. It’s not just responding to the immediate needs, but also preventing future problems,” explains Ilene Allen, director, Corporate Operations Services, Hines, Houston. The AWARE software program helps on-site professionals recognize problems that reoccur, address requests promptly, track response time, and best determine where and how to distribute resources.One way in which the company aims to keep tenants satisfied is with its Comfort Standard. “Our traditional standard is one comfort complaint or call for every 250,000 gross square feet of space per workday. That means that in a million-square-foot building, we want less than four calls for comfort complaints in a workday,” explains Ulrich. The ability of property management and engineering staff to meet this standard – day after day – is measured by the AWARE program.To ensure that tenants are happy with their space, the building, and its maintenance and management, Hines engages the services of an independent, third-party consulting group to survey building occupants annually. “We’ve used this as benchmarking information to make sure that we’re addressing the concerns of our tenants. Each and every time we’ve done this – and we’ve done it five times now – we have seen marked improvement,” explains Kruggel.In order for the Corporate Operations and Engineering Department’s professionals to be hands-on with on-site professionals, frequent visits are made. “We do regular building visits or assessments to make sure that the property management and engineering teams are getting what they need in the way of support. At the same time, we’re also making sure that the building is being maintained the way ownership expects our buildings to be maintained,” explains Allen. Deficiencies are noted, problems are rectified, and resources are applied where necessary.With strong property management, an extraordinary portfolio, smart strategies, and a desire to pioneer innovative ideas and systems, Hines is positioned for even greater success in the future. “I think that the Hines organization is extremely well-positioned by virtue of its geographical reach, by the capitalization of its various investment strategies and partners, and the quality of people that we have in place to continue to evolve and succeed in this business,” says Buie.Whatever the future brings, Hines is prepared to anticipate and respond to change. The company’s strength lies in its ability to adapt to market needs, entrusting its professionals to lead the company toward further success. Jana J. Madsen ([email protected]) is managing editor at Buildings magazine.

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