Howard Hughes Corporation Letter to Shareholders
The following is an excerpt taken from a letter to Howard Hughes Corporation Shareholders from the CEO, David R. Weinreb on March 5, 2013 which speaks to their holdings in Kakaako (former Victoria Ward holdings): In Honolulu, we are preparing to break ground this summer on ONE Ala Moana (www.onealamoana.com), a 206-unit luxury condo tower that is being developedin partnership with Honolulu-based developers Kobayashi Group and TheMacNaughton Group. These talented and highly respected local developers ledthe acceleration of this development which sold out in two days during themonth of December. Units at ONE Ala Moana sold for an average price of $1.6 million, or approximately $1,170 per square foot. At an assumed cost ofapproximately $900 per square foot, including the value of our air rights, theproject is anticipated to generate approximately $66 million in total profit. At the closing of the construction loan, The Howard Hughes Corporation will receive $47.5 million of proceeds for its air rights. In addition, at project completion, we expect that the company will have received approximately $73million of total proceeds. This asset has a book value of $22.8 million. The strong response at ONE Ala Moana is good news for Ward Village, one of the company's key value creation opportunities. In its current state, Ward Village generates approximately $23 million of annual net operating income. However, Ward has an approved master plan that allows for up to 9.3 million total square feet of mixed-use development, including more than 4,000 residential units and approximately 1.5 million square feet of retail and other commercial space. Ward Village has development rights for 22 high-rise towers in an urban master planned community setting. Over the next decade, Ward Centers will transform into Ward Village, a vibrant neighborhood complete with unique retail experiences and exceptional residences set among dynamic public open spaces and pedestrian-friendly streets. In October 2012, we announced plans tomove forward with the first phase of Ward Village, which will consist ofapproximately 500 market rate condominium units and at least 125 workforcehousing units. We also commenced the redevelopment of the historic IBM Building into a contemporary information and sales center, which will showcase the unparalleled neighborhood we are creating at Ward Village. While we have not yet determined pricing for our first phase towers, market data suggest that comparable existing “front row” product with unobstructed ocean views re-sold in 2012 at an average price of approximately $1,400 persquare foot. Hokua, which is a condominium tower adjacent to Ward, resells atthe highest average price per foot of any condominium tower in Honolulu,approximately $1,400 per square foot. Hawaii's residential market ischallenged by supply. Economic forecasts indicate approximately 20,000 housingunits must be delivered to meet demand by 2020. This has led economists toproject home prices will increase as much as 40% in the next few years. Themarket will be extremely challenged to deliver this supply given the hurdlesthat must be overcome to achieve development entitlements, which gives WardVillage new product a significant competitive advantage. In the same way that buyers pay substantial premiums to live in Summerlin or The Woodlands, by delivering a comprehensive master planned communityenvironment that no other competitor can deliver, we expect Ward Village to capture similar premiums and generate substantial value over the life of the project not only for our shareholders, but also for the new residents. I encourage each of you to follow our progress by visiting our website www.avisionforward.com.