Pershing Square’s $900 Million Stake in Howard Hughes: A Bold Bet on Real Estate’s Comeback

The investment landscape is rife with calculated risks, but few moves grab attention like Bill Ackman’s Pershing Square Capital Management committing $900 million to acquire shares of Howard Hughes, a developer of luxury mixed-use properties. The deal, announced in late May, marks Pershing Square’s largest single equity investment in over two years and signals a vote of confidence in Howard Hughes’ strategy to capitalize on the rebound of urban luxury real estate. But what lies behind this bold bet, and what does it mean for investors?

The Players: Howard Hughes and Pershing Square

Howard Hughes Corporation, named after the eccentric billionaire who once owned the company’s Las Vegas properties, is a developer of high-end mixed-use projects. Its portfolio includes major developments like the $8 billion Hudson Yards in New York, the Battersea Power Station in London, and the Downtown Project in Las Vegas. The company’s business model hinges on acquiring undervalued urban land, redeveloping it into luxury residential, retail, and office spaces, and then selling or leasing the finished projects at premium prices.

Pershing Square, led by activist investor Bill Ackman, is known for its hands-on approach to corporate governance. The firm has a history of taking large stakes in companies like Wendy’s, Tiffany & Co., and Restaurant Brands International, often pushing for strategic changes. Its decision to invest in Howard Hughes suggests it sees significant upside in the company’s growth trajectory—or believes it can influence that trajectory.

Why Howard Hughes? The Case for Urban Luxury

The investment comes at a pivotal moment for urban real estate. Post-pandemic, many investors bet on the death of the city, as remote work and suburban migration trends emerged. Yet Howard Hughes’ strategy is predicated on the opposite: that cities will rebound, driven by pent-up demand for high-end living and commercial spaces.

Howard Hughes’ financials support this thesis. In 2023, the company reported a 27% increase in revenue to $1.2 billion, with its Las Vegas and Hudson Yards projects driving strong leasing activity. Its net operating income (NOI) rose 39% year-over-year, and its balance sheet remains relatively clean, with a debt-to-EBITDA ratio of just 3.5x—well below the 5.0x threshold many analysts consider prudent.

But the real catalyst for Pershing Square’s interest may be Howard Hughes’ pipeline. The company has over $11 billion of projects under development or in planning stages, including the $1.5 billion L.A. Live expansion in Los Angeles and the $2 billion 1111 Lincoln Road project in Miami. These assets are concentrated in markets with strong demand for luxury housing and commercial spaces, which could benefit from rising global wealth and urbanization trends.

The Data Behind the Deal

To assess the investment’s merits, investors should scrutinize Howard Hughes’ stock performance and valuation.

Over the past five years, HHC’s stock has underperformed the broader real estate sector, rising just 4% compared to the S&P 500 Real Estate Sector Index’s (RWR) 28% gain. This underperformance may reflect skepticism about Howard Hughes’ ability to execute on its ambitious projects. However, its current trailing P/E of 13.5x is lower than the sector median of 16x, suggesting it’s undervalued relative to peers like Simon Property Group (SPG) or Vornado Realty Trust (VNO).

Pershing Square’s investment could serve as a catalyst to unlock this value. The firm’s stake of 9.9% gives it significant influence, and Ackman has a history of pushing companies to return capital to shareholders or restructure debt. For instance, at Tiffany & Co., Pershing Square advocated for a dividend increase and cost-cutting measures that boosted shareholder returns.

Risks and Challenges

The bet isn’t without risks. Howard Hughes’ success hinges on macroeconomic conditions. Rising interest rates could deter buyers of high-end real estate, while a recession could suppress demand for luxury projects. Additionally, the company’s reliance on a few key markets—New York, Miami, Las Vegas—leaves it vulnerable to local downturns.

Moreover, the real estate development cycle is inherently risky. Delays or cost overruns in projects like Hudson Yards or the Lincoln Road expansion could eat into margins. In 2022, for example, delays at the Battery Park City project in New York contributed to a 12% drop in quarterly NOI.

Conclusion: A High-Reward, High-Risk Gamble

Pershing Square’s $900 million investment in Howard Hughes is a high-stakes wager on the resilience of urban luxury real estate. The company’s strong balance sheet, high-margin projects, and Pershing’s potential to drive governance improvements make it an attractive opportunity.

However, investors must weigh the risks. If Howard Hughes can execute its $11 billion pipeline without major delays and if urban markets continue their recovery, the stock could outperform. For now, the data suggests the stock is undervalued, and Ackman’s track record of turning around companies adds credibility to the bet.

But the road ahead is littered with potholes: rising interest rates, economic uncertainty, and execution risks on large-scale projects. Investors should monitor Howard Hughes’ leasing activity and project timelines closely. If occupancy rates at Hudson Yards or Las Vegas properties rise above 85%—a key threshold for profitability—the stock could see a meaningful uplift. Until then, this remains a speculative, but compelling, play on cities’ comeback.

In short, Pershing Square’s investment is both a vote of confidence and a call to action—one that could pay off handsomely if the urban renaissance continues.