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Just a quick, uh, little update on the Persian Square Foundation. Since this last fact, we have received about 400 million in grants. So we take ourselves pretty seriously. So I want to talk about a business that people consider quite risky. Er, land development business. Why is it risky? Well, it's an extremely capital-intensive business.
You need to do this with a very large initial investment. You can only obtain the right of recourse. Uh, it takes time to get zoning. You get permissions. You are completely ready to go. The market is changing. They still have to move forward, and your profit is in the last few lots you sell. So it's a very risky business.
Interestingly, this is the 27th richest person in America, and by the way, I think the Forb numbers are wrong. He is here for $15.2 billion . This is Donald Bren. Many people have never heard of Donald Bren. He is a developer. He made one deal, or one very, very big deal. He built a master plan community.
He took over management of the community master plan called Irvine Ranch. This has been his life for the past 40 years. I think his net worth is closer to $30 or more than $30 billion. And one way to find a great business is to look at the Forbes 400 list and see where people made their money. And what's interesting, uh, is that he did it.
He misunderstood the cycle. He has been doing this for 40 years. This suggests that he has been through, uh, the best and the worst, uh, of real estate. This photo on the left is a master plan for the Irvine Ranch community, which he purchased in 1976. Uh, 40-odd years later, it's one of the best places to live in the country, and he's done a great job.
Now, one of the keys to investing in community master plans and land development is that you don't want to be the first . It appeared more than ten years after the planning, er, took place. You want to be the second owner or maybe the third owner. We want to start after the large initial investment is made and the community is established.
So, what is a community with a master plan? We usually describe it as an area of over 10,000 acres. It's a piece of uncultivated land designed almost like a city with a lot of thoughtfulness, but instead of a traditional government, you have a single owner. And if you have an owner with a long-term approach, a lot of very long-term value can be created.
And most importantly, make sure you have the right assets in the right places. You start by creating the infrastructure, then you start selling some plots, then you start building all the amenities needed to create an attractive place to live, and eventually you have a pretty impressive business. So, the Irvine Ranch is 93,000 acres.
That's about a fifth of Orange County. And he bought it with a group of investors for about $337 million. You know, he borrowed a significant portion of this money. Over time, he bought out all his partners. He owns 100% of the shares personally. And for years he was pressured to sell parts of the ranch, but he refused.
He kept it all, or virtually all. The population now stands at a quarter of a million people. It is considered the safest major city to live in America, and it was a great investment. I can't figure out what his actual initial investment was, but he turned over a relatively small amount of money as a minority investor in this deal.
I think it was less than 30% of a fortune of at least $15 billion. So what did he do? Well, he started with a very nice piece of real estate. Location, location and location definitely matters. He purchased part of the community's existing master plan , where major investments had already been made.
He used the rising cost of land to minimize the equity capital required to avoid bringing in outside partners. In fact, over time he was able to buy out his partners' shares. He used, uh, debt, a modest amount of leverage. Municipal financing. These are essentially tax increment bonds where you build infrastructure and then issue municipal bonds to pay for it.
And he has conservatively financed his balance sheet. He controlled the supply of land. So he never threw the land on the market. He just made sure that developers bought enough, but not too much. And he was careful not to rebuild. And again, he controlled the zoning. He could control the timing of the release of land.
And he was a developer. And he had a very long-term perspective. This was to be his legacy. And his guiding principles were: first, keep the landowner the sole owner, because only one person could have that vision, not argue about what to do, think very long-term, a master plan, constantly update the planning, continue to reinvest in the land, be careful , you know, land management , long-term perspective, make every town in Irvine Ranch a significant and happy place to live, and just make informed decisions .
These are, in essence, their principles. Um, so actually, go back one more slide. Okay, continue. Let's begin. Um, he says the problem is that, according to him, developing this property is the best possible way, and it's the most important thing in my life. I plan to work well until I'm 90, and he's already close to 90.
He's not for sale. And here I am, at a conference, discussing public investment, and you can invest. So the question is, how can you invest with Don Brent, or at least in his style? And the answer is a public company called Howard Hughes Corporation. This is a public company that we created about six years ago.
Interestingly, it has five major plant communities across the country with very similar, uh, qualities to the Irvine Ranch. The Seaport neighborhood, and this neighborhood, this is the only private neighborhood in Manhattan, and we'll talk about it. We won't talk about the center of Colombia , but it's actually the fourth, it ranks fourth in the country in terms of the number of places to live.
Uh, in Houston we own The Woodlands and Bridgeland. I am the chairman of the board of the Howard Hughes Company. In Summerland, our most valuable real estate is a 24,000- acre master plan community. And in Hawaii, we have a city master plan community . We own 60 acres on the beach with 9 million square feet of approvals.
And, as with the Irvine Ranch, we are not entering as the first owner, but in many cases as the third owner or later. Our oldest master plan community is in Columbia. We have over 5 million square feet of vertical development. All plots have been sold. This is a project that is about 50 years old . We still have lots for sale in Woodlands.
That's 30,000 acres. That's twice as much as Manhattan . Howard Hughes controls zoning. I call it Sim City, but for real. Uh , Summerland – 22,000 acres, of which we own, the remaining 4,000 acres undeveloped land. Bridgeland has a lot more to come because it's a younger community. Seaport on South Street, which is 400,000 feet of street retail in New York City, a 65,000-foot rooftop building, and Ward Village in Hawaii, which has a built-up area of 9 million square feet.
As for the story, uh , Howard Hughes, you think of him as an aviator, but in reality, he apparently made most of his money in real estate. Well, he inherited a lot, but then he invested in real estate. Uh, he bought Summerland, and then Rouse bought Summerland, then General Growth bought Rouse. Uh , they bought Raus for the shopping malls.
We were n't very interested in these master plan communities. Uh , we got involved when GGP filed for bankruptcy, and that's when we bought out 50% of Summerland, which was owned by Howard Hughes' heirs, and then Howard Hughes started, uh, when we formed the company and spun it off from General Growth.
Just a little bit of company history. Uh, we bought 25% of GDP in 2008 for $60 million . It declared bankruptcy in April 2009. I spoke about this at a conference, uh , in May 2009. I think the stock was worth about a dollar at the time. We bought out the Hughes heirs. Uh, the company came out of Chapter 11.
Investors received a 100- fold profit compared to the November 2008 price. All bondholders got their money back. We created Howard Hughes. We allocated it to shareholders and received support from Blackstone, Brookfield, Fairome and us. In 2011, we repurchased 47.5% of Woodlands, which was owned by Morgan Stanley's real estate fund, to consolidate ownership.
In 2012, we bought out Brookfield, Fairome, and Blackstone. Then we exited GGP and kept our stake in Howard Hughes, and we never sold the stock. We have never spoken publicly about the company. So the question is , why are we talking about this now ? The answer is: I think this is one of the most attractive periods in the company's history to invest in.
The stock is trading with one of the largest, uh, spreads between underlying net asset values, and we have a much better understanding of a business that has had a huge head start over the last six years. So if you look at the principles of urban ranching, we have embraced them. A Howard Hughes-esque owner, a thoughtful master plan, constant reinvestment of the land , minimizing third-party equity, actual buyout of our partners, a long-term approach, smart land sales but not dumping the land on the market, and a proper long-term steward.
We have a conservative balance. Uh, we stopped selling commercial land when it was owned by other DGPs. They sold land mainly to pay off debt. We stopped selling land. In fact, we started buying up parts of urban ranches that we didn't control because we understood that once you reach a certain tipping point, the opportunities for commercial development become great.
Once you get over a certain population, you can start building, uh, vertically, and we actually control all the commercial and residential vacant land, and we also control the zoning. And when you own these assets in the later stages of a community master plan, you can create tremendous value. And this is a business with a positive cycle.
So, you start by selling a lot of home builders. This attracts the population, which creates demand for shopping centers and office buildings. You build buildings. They generate cash flow and so on. This makes it a more attractive place to live. You can sell residential plots at a higher price. And the cycle continues.
Let me give you some examples of NBC owned by Howard Hughes. Woodlands. For anyone who has been to Texas, this is one of the most recognized and desirable places to live in Houston. This city, as I mentioned, is twice the size of Manhattan. We own free lands. Uh, we control zoning. We control delivery times.
The 115,000 residents are considered the best place to live in Texas, the sixth best place to live in the country. Uh, Exxon Mobile just moved its corporate campus very close to The Woodlands, a 5 million square foot campus. And in fact, we built a suit for Exxon in this area. Perfect example, we saw this beautiful piece of empty land.
We said, "What should we do there?" We had an idea. Uh, fast forward two and a half years, we've built a million and a half square feet of space, leased it out, and we're getting, you know, ultimately, $50 million in net operating income from that property. Unlike a real estate investment fund that must purchase land or buildings, we have a huge amount of internal development opportunities.
This company has over 50 million square feet of undeveloped vertical opportunity. This is Summerland. You can feel the scale of this community. Again , about one and a half times the size of Manhattan. This is Las Vegas. Uh, it's 9 miles from the Strip. He is 25 years old. The most attractive place to live in Las Vegas is an irreplaceable asset that you could not create today.
Uh, we made a deal with Discovery. People know Discovery Land. We sell land in the desert. 77 lots for $250 million. You can count. You know, $ 4 million worth of land , uh, in the desert. It gives you an idea of how valuable the master plan community and the rest of the land, uh, in that community is.
Uh, we saved the commercial land. So we didn't sell it to others. Uh, we built a community around it. The best way to see this is to look at this photo . So, all this surrounding real estate and development, it's households, and we're keeping the commercial real estate until the end. You are building commercial real estate.
Obviously, once you have that kind of building density, it becomes extremely valuable. It's when you think about real estate, usually you build a building, if you do a good job, you help all your neighbors around you, you increase the value of their property. Here we own all the real estate, and therefore we benefit, uh, for the company.
This is what downtown Summerland looked like in 2010, and this is what it looks like, uh, today. This is a spectacle. This has certainly made Summerland a much more attractive place to live because it has an attractive downtown area, which of course allows us to sell lots at higher prices. This increases density; it improves, uh, retail sales, which means we can increase rents, and it's a pretty interesting, uh, business.
So the general approach is to continue selling plots. We populate these different communities. We stabilize existing assets. These are office buildings, retail, shopping malls, you know, apartments that we've built and then we're building new ones. We have 50 million square feet of development within this company.
The vast majority of this land has no loans, no debts on it . 37 million are within the four walls of our master plan community. Uh , we're going to finish the South Street Seaport. I'll talk about that in a second. We're going to put , uh, more condominiums in Hawaii. The question is , how much is this business worth?
So the problem here is that if you look at Irvine Ranch's financial statements, uh, you're going to have a hard time understanding what this is . You know, this is a development business. There is huge depreciation. A lot of capital is being invested there . You know, gap accounting, uh, you know, it's just not the best way to think about business.
Looking at short-term cash flows, they are incredibly volatile based on land sales this quarter. This doesn't really say much. The carrying amount does not reflect the long-term value of assets. So we believe the best approach is what I would call a back-of-the- envelope approach. Certainly, one that I can do in 15 minutes in front of a group.
So, the easiest thing to assess is what we have, uh, you know, operating assets. These are newly constructed assets in various stages of leasing, worth approximately $240 million in stabilized net investment capital. You can assign a capitalization rate. We believe they will be at this level in two years.
Discount these cash flows. The interesting thing is that these assets are mostly within master plan communities, and we control the supply. This is a much less risky property. So the risk that someone... the problem with a lot of real estate deals is that in one market you think you need another apartment building, and then you have four developers building another apartment building at the same time.
Here we can control and prevent this problem from occurring. So the capitalization rate you would use to value these assets is much lower . If you think about residential land, many people consider development to be a risky business, but when you sell the remaining lots in an established community, there is certainty that those lots will sell.
You know, macro factors will have some impact on the exact timing of the sale, but you know, you're going to sell them, and overall we were able to value these assets at a rate similar to what we think these cash flows should be discounted at because of the high confidence. So, you can look at today's values to estimate the value of these assets.
And then we have a bunch of other things. So, the asset at 110 North Wacker was the old GGP headquarters. We are building a 1.35 million square foot office building. We just signed a lease with Bank of America for half a million square feet. And this is going on, and I need to hurry up because I'm running out of time.
So we believe that the operating assets, that is, the stabilized or future stabilized income-generating assets, the residential land, these lots that will be sold over time, any list of other assets, including 110 Northwhacker, are roughly equal to the enterprise value of the company and the business value per share, which is about $120 per share.
So what else do you get for your money? Well, you understand. This is the new marine terminal on South Street. If you go to the city center , it looks like this today. It is not open yet. It will open in 2018 , but it's 400,000 square feet, about 170,000 feet on the pier. The next building is what's called a tin building, a 50,000-foot building, plus all this other land, uh, you know, to the west, is part of that asset.
And it will be a great place for work, entertainment, fun, and attending concerts. The roof terrace can accommodate 4,000 people for an open-air concert. John George is opening the equivalent of Harrods Marketplace in this location, and it's one of the most valuable pieces of real estate I've seen in my career.
It will open in a year. You will get it for free. You will get this too. It's 60 acres in Hawaii on the beach, with approval for over 9 million square feet of new buildings. And in fact, we have made significant progress. We have built almost 1,100 condominiums. Actually, we sold 1,100. We sold about 86%.
And we're building a new complex, uh, again, only as needed. There is no pressure. Uh, but we only build until we see demand. This is what it looked like, uh, last year. Here is one of the completed, uh, buildings. And then it's about that. Uh, this is what it looks like fully built up . And again, when you build a whole bunch of high-rise condominiums, of course, it makes the retail, the street, more valuable .
Uh, the most valuable or one of the most valuable shopping malls in the country is located less than half a mile from the project. It is called Alam Moana Shopping Center. It was recently sold for value, half a share was sold for a couple of billion dollars, and we own a similar sized trading opportunity in that location.
What else do you get for your money? You get 37 million square feet of development in MPC that is not yet built, and these are projects that we expect to get high returns from. How can you understand this? We have built almost four million square feet in the last six years. Net investment income (NOI) is about 144 million, which is about 9% of the cost.
These assets, we think, are, you know, five- six% assets, you know, and, you know, the opportunities in the future are about 10 times greater than you getting it for free. Then you say, what about taxes? Interestingly, this is mostly a very tax-efficient business. Uh, you know, interest expense for depreciation, we benefited from significant net operating loss (NOL ).
We have some assets with a high base. Er, the nature of land development allows for tax deferral. Uh, and, uh, we are of course the beneficiary of the tax rate cuts. Our balance sheet is almost entirely non-resource. We limit the amount of recourse debt, uh, that we have. We are about two- thirds non-resource.
And we have a great management team . Er, and the CEO is compensated in a somewhat unusual way. When we turned the company over to shareholders, he invested $15 million in six-year warrants that he couldn't sell until the fifth year. He still owns them. The term expires in November. Obviously, his incentive is to see a higher stock price, but he is going to reinvest $50 million in new warrants when he sells the old warrants, and retain 50 million common shares from their exercise.
So our CEO certainly thinks so, as do other members of the management team. And with that, uh, I'll tell you how you can learn more. Uh, we kept the company a bit of a secret. Uh, we have very little analytical coverage. We had our first earnings call in the first quarter. We will have our first investor day. And if you want to come, uh, it will be very soon. So thank you very much.
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