Item 1. Business
Item 1. Business
OVERVIEW
General On August 11, 2023, Howard Hughes Holdings Inc. (HHH or the Company), a new holding company, replaced The Howard Hughes Corporation (HHC) as the public company trading on the New York Stock Exchange. Existing shares of common stock of HHC were automatically converted, on a one-for-one basis, into shares of common stock of HHH, with the same designations, rights, powers, and preferences, and the same qualifications, limitations, and restrictions, as the shares of HHC common stock immediately prior to the reorganization. HHH became the successor issuer to HHC pursuant to Rule 12g-3 (a) under the Exchange Act and replaced HHC as the public company trading on the New York Stock Exchange under the ticker symbol "HHH."
Seaport Entertainment Spinoff On July 31, 2024, the spinoff of Seaport Entertainment Group Inc. and its subsidiaries (Seaport Entertainment or SEG) was completed. SEG included HHH’s entertainment-related assets in New York and Las Vegas, including the Seaport in Lower Manhattan, the Las Vegas Aviators Triple-A Minor League Baseball team and the Las Vegas Ballpark, as well as the Company’s ownership stake in Jean-Georges Restaurants and other partnerships, and an interest in and to 80% of the air rights above the Fashion Show Mall in Las Vegas.
Under the terms of the separation, each stockholder who held HHH common stock as of the close of business on July 29, 2024, the record date for the distribution, received one share of SEG common stock for every nine shares of HHH common stock held as of the close of business on such date. SEG common stock began trading on the NYSE American stock exchange on August 1, 2024, under the symbol “SEG”.
As the spinoff of SEG represents a strategic shift in the Company’s operations, the results of SEG are presented as discontinued operations for all periods throughout this Annual Report. See Note 2 - Discontinued Operations in the Notes to Consolidated Financial Statements under Item 8 of this Annual Report for additional information.
Business Overview The Company’s award-winning assets include one of the nation's largest portfolios of master planned communities (MPCs), spanning approximately 101,000 gross acres, as well as operating properties, strategic developments, and other assets across five states. We create some of the most sought-after communities in the country by curating an environment tailored to meet the needs of our residents and tenants. Our unique business model allows us to seek attractive risk-adjusted returns while maintaining a sharp focus on sustainability to ensure our communities are equipped with the resources to last several decades.
We operate through three business segments: Operating Assets, MPCs, and Strategic Developments. We create a continuous value-creation cycle through operational and financial synergies associated with these three business segments. In our MPC segment, we plan, develop, and manage small cities and large-scale, mixed-use communities, in markets with strong long-term growth fundamentals. This business focuses on the horizontal development of residential land. The improved acreage is then sold to homebuilders who build and sell homes to new residents. New homeowners create demand for commercial developments, such as retail, office, multifamily, and hospitality offerings. We build these commercial properties through our Strategic Developments business at the appropriate times, which helps mitigate development risk, using the cash flow harvested from the sale of land to homebuilders. Once the commercial developments are completed, the assets transition to our Operating Assets segment, which increases recurring Net Operating Income (NOI), further funding our Strategic Developments. New office, retail, and other commercial amenities make our MPC residential land more appealing to buyers and increase the velocity of land sales at premiums that typically exceed the broader market. This increased demand for residential land generates more cash flow from MPCs, thus continuing the value-creation cycle.
HHH 2024 FORM 10-K | 4
BUSINESS
Table of Contents
Index to Financial Statements
Our assets are located across the United States, with the vast majority of the assets in our Operating Assets segment located within our MPCs. This helps us achieve scale and, in most cases, critical mass, which leads to pricing power in lease and vendor negotiations; increased ability to attract, hire, and retain the best local leadership and leasing teams; flexibility to meet changing customer demands; and enhanced ability to identify and capitalize on emerging opportunities. Our MPCs, including Floreo, our unconsolidated joint venture, span approximately 101,000 gross acres, with approximately 21,000 residential acres of land remaining to be developed and sold in high-demand geographic areas. In addition to the residential land, our MPC segment contains approximately 14,000 acres designated for commercial development or sale to non-competing users such as hospitals. This land is held in our MPC segment until we identify demand for a new commercial development, at which point the land is transitioned into our Strategic Developments segment.
HHH was incorporated in Delaware on August 11, 2023, and its predecessor, The Howard Hughes Corporation (HHC), was incorporated in Delaware on July 1, 2010. Financial information about each of our segments is presented in Note 18 - Segments in the Notes to Consolidated Financial Statements under Item 8 of this Annual Report.
Our Competitive Strengths
We distinguish ourselves from other real estate companies through the following competitive strengths:
– Track Record of Value Creation . We have completed the development of 7.8 million square feet of office and retail operating properties, 5,194 multifamily units, and 909 hospitality keys since 2011. Excluding the value of land that we own, we have invested approximately $3.4 billion in these developments, which is projected to generate a 8.9% yield on cost, a significant spread over market cap rates which, in turn, has generated meaningful value for our stockholders. These investments and returns exclude condominium development as well as projects under construction. We exclude condominium developments since they do not result in recurring NOI, and we exclude projects under development due to the wider range of NOI they are expected to generate upon stabilization. In Ward Village, we have either opened or started construction on 4,727 condominium units, with approximately 98.4% of these units sold or presold as of December 31, 2024.
– Unique, Diverse Portfolio . We own a portfolio with many diverse market-leading assets with a combination of steady cash flow and longer-term value creation opportunities.
– Significant Value Creation Opportunity . We have an exceptional development pipeline with over 100 million square feet of vertical entitlements remaining across our portfolio. This represents approximately 13 times the 7.8 million square feet we have delivered in the last 14 years without having to acquire another development site or external asset, which we believe is a significant competitive advantage over other real estate development corporations.
– Flexible Balance Sheet . We ended the year with $596.1 million of cash on hand. As of December 31, 2024, our total debt equaled approximately 55.7% of the book value of our total assets, which we believe is significantly less than our market value. Our net debt, which includes our share of debt of unconsolidated ventures less cash and Special Improvement District and Municipal Utility District receivables, equaled approximately 48.8% of our total enterprise value. Unconsolidated ventures refer to partnerships or joint ventures primarily for the development and operation of real estate assets. Our strong balance sheet provides substantial insulation against potential downturns and provides us with the flexibility to evaluate new real estate project opportunities.
– Self-Funded Business Plan . One of our key differentiators is our ability to self-fund significant portions of our new development without having to dispose of our recently completed developments. Our residential land sales, recurring NOI, and profits on the sales of condominium units generate substantial amounts of free cash flow, which is used to fund the equity required to execute our many development opportunities. Furthermore, we are not required to pay dividends, nor are we restricted from investing in any asset type, amenity, or service, unlike many other real estate companies, which are limited in their activities because they have elected to be taxed as a real estate investment trust (REIT). We believe our structure currently provides us with significant financial and operating flexibility to maximize the value of our real estate portfolio.
HHH 2024 FORM 10-K | 5
BUSINESS
Table of Contents
Index to Financial Statements
Competition
The nature and extent of our competition depends on the type of property involved. With respect to our Operating Assets segment, we primarily compete for retail, office, and multifamily tenants. We believe the principal factors that retailers consider in making their leasing decisions include: (1) consumer demographics; (2) age, quality, design, and location of properties; (3) neighboring real estate projects that have been developed or that we, or others, may develop in the future; (4) diversity of retailers and anchor tenants at shopping center locations; (5) management and operational expertise; and (6) rental rates. The principal factors influencing tenant leasing decisions for our office space include: (1) rental rates; (2) attractive views; (3) amenities; (4) walkable retail; (5) commute time; (6) efficiency of space; and (7) demographics of the available workforce. For residential tenants of our multifamily properties in our Operating Assets segment, we believe the principal factors that impact their decision of where to live are: (1) walkability/proximity to work; (2) amenities; and (3) the best value for their money.
With respect to our MPC segment, we compete with other landholders and residential and commercial property developers primarily in the development of properties within Las Vegas, Nevada; the greater Houston, Texas area; and Phoenix, Arizona markets. Significant factors that we believe allow us to compete effectively in this business include:
– the size and scope of our MPCs
– our strong reputation within the industry and years of experience serving our communities
– the recreational and cultural amenities available within our communities
– the commercial centers in our communities, including the properties that we own and/or operate or may develop
– our relationships with homebuilders
– the proximity of our developments to major metropolitan areas
With respect to our Strategic Developments segment, our direct competitors include other commercial property developers and other owners of commercial real estate that engage in similar businesses. We also compete with residential condominium developers. With significant existing entitlements, we hold an advantage over many of our competitors in our markets in that we already own or have significant influence over, substantial acreage for development. We also own the majority of square feet of each product type in many of our markets.
Available Information
Our website address is www.howardhughes.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other publicly filed documents, including all exhibits filed therewith, are available and may be accessed free of charge through the Investors section of our website under the Securities and Exchange Commission (SEC) Filings subsection, as soon as reasonably practicable after those documents are filed with, or furnished to, the SEC at www.sec.gov. Also available through the Investors section of our website are reports filed by our directors and executive officers on Forms 3, 4, and 5, and amendments to those reports. Our website and included or linked information on the website are not incorporated into this Annual Report on Form 10-K. From time to time, we use our website as an additional means of disclosing public information to investors, the media, and others interested in us.
BUSINESS SEGMENTS
The following further describes our three business segments and provides a general description of the assets comprising these segments. Refer to Item 2. Properties for additional detail on individual properties, including assets by reportable segment, geographic location, and predominant use at December 31, 2024. This section should be referred to when reading Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations , which contains information about our financial results and operating performance for our business segments.
Operating Assets
We have developed many of the assets in our Operating Assets segment since the Company’s inception in 2010. As of December 31, 2024, we have 74 Operating Assets, including our investments in unconsolidated ventures, consisting of 12 retail properties, 36 office properties, 17 multifamily properties, and 9 other operating properties or investments. Excluding our projects under construction, we own approximately 9.2 million square feet of retail and office space and 5,587 multifamily units.
HHH 2024 FORM 10-K | 6
BUSINESS
Table of Contents
Index to Financial Statements
We believe that the long-term value of our Operating Assets is driven by their concentration in our MPCs, where we believe we have a competitive advantage. We believe that these assets have the potential for future growth by increasing rental rates, absorbing remaining vacancy, and changing the tenant mix in retail centers to improve gross sales revenue of our tenants, thereby increasing rents. Revenue is primarily generated through rental services and is directly impacted by trends in rental rates and operating costs.
We will also occasionally sell an operating asset when it does not complement our existing properties or no longer fits within our current strategy. In 2024, the Company completed the sale of four non-core ground leases and a medical office building in The Woodlands, and a retail property in Bridgeland for total proceeds of $51.6 million.
For certain assets, we believe there are opportunities to improve operating performance through redevelopment or repositioning. Redevelopment plans for these assets may include office, retail, or residential space, shopping centers, movie theaters, parking complexes, or open space. The redevelopment plans may require that we obtain permits, licenses, consents, and/or waivers from various parties. These opportunities will require new capital investment and vary in complexity and scale. The redevelopment opportunities range from those that would have minimal disruption to the property to those requiring partial or full demolition of existing structures for new construction. Factors we evaluate in determining whether to redevelop or reposition an asset include the following: (1) existing and forecasted demographics surrounding the property; (2) competition related to existing and/or alternative uses; (3) existing entitlements of the property and our ability to change them; (4) compatibility of the physical site with proposed uses; and (5) environmental considerations, traffic patterns, and access to the properties.
We generally transfer an operating asset that is being repositioned or redeveloped into our Strategic Developments segment when we close operations at a property and/or begin construction on the redevelopment project. Upon completion of construction or renovation of a development or redevelopment, the asset is fully or partially placed in service and transferred back into our Operating Assets segment.
Master Planned Communities
As of December 31, 2024, our portfolio of MPCs was comprised of Summerlin in Las Vegas; The Woodlands, The Woodlands Hills and Bridgeland in the Houston region; and Teravalis in the Phoenix region. Our MPC segment includes the development and sale of residential and commercial land, primarily in large-scale, long-term projects. These developments often require decades of investment and continued focus on the changing market dynamics surrounding these communities. We believe that the long-term value of our MPCs remains strong because of their competitive positioning in their respective markets, our in-depth experience in diverse land-use planning, and the fact that we have substantially completed the entitlement processes within the majority of our communities.
Our MPCs have won numerous awards for design excellence and for community contribution. Summerlin and Bridgeland were again ranked by Robert Charles Lesser & Co., LLC (RCLCO), capturing fifth and seventh top-selling master planned communities in the nation, respectively, for the year ended December 31, 2024.
We expect the competitive position, desirable locations, and land development expertise to drive the long-term growth of our MPCs. As of December 31, 2024, our MPCs, including Floreo, our unconsolidated joint venture, encompassed approximately 101,000 gross acres of land and include approximately 35,000 acres of land available for sale or development. Residential sales, which are generated primarily from the sale of finished lots and undeveloped superpads to residential homebuilders and developers, include standard and custom parcels designated for detached and attached single-family homes and range from entry-level to luxury homes. Superpad sites are generally 10- to 25-acre parcels of unimproved land where we develop and construct the major utilities (water, sewer, and storm drainage) and roads to the borders of the parcel, and the homebuilder completes the on-site utilities, roads, and finished lots. Revenue is also generated through builder price participation with homebuilders.
We also occasionally sell or lease land for commercial development when we deem its use will not compete with our existing properties or our development strategy. Commercial sales include land parcels designated for retail, office, hospitality, high-density residential projects (condominiums and apartments), services, and other for-profit activities, as well as those parcels designated for use by government, schools, and other not-for-profit entities.
HHH 2024 FORM 10-K | 7
BUSINESS
Table of Contents
Index to Financial Statements
Strategic Developments
Our Strategic Developments segment consists of 15 development or redevelopment projects, including developments within our MPCs that will transition to Operating Assets upon completion and condominium towers at Ward Village in Hawai‘i and The Woodlands. Many of these developments require extensive planning and expertise in large-scale and long-range development to maximize their highest and best uses. The strategic process is complex and unique to each asset and requires ongoing assessment of the changing market dynamics prior to the commencement of construction. We must study each local market, determine the highest and best use of the land and necessary improvements to the area, obtain entitlements and permits, complete architectural design and construction drawings, secure tenant commitments, and obtain and commit sources of capital.
We are in various stages of predevelopment or execution of our strategic plans for many of these assets based on market conditions. As of December 31, 2024, eight properties were under construction and not yet placed into service. We generally obtain construction financing to fund a significant amount of the costs associated with developing these assets.
Ward Village We continue to transform Ward Village into a vibrant neighborhood offering unique retail experiences, dining, and entertainment, along with exceptional residences and workforce housing set among open public spaces and pedestrian-friendly streets. We believe we have found the optimal mix of price point and product in the Honolulu market for condominium development as evidenced by the demand for our condominium projects. In January 2025, the State of Hawai’i approved amendments to the local development rules to include updated guidelines for smart growth in areas including Ward Village. The Company estimates this amendment increases its potential residential entitlements in Ward Village between 2.5 to 3.5 million gross square feet, which could be used for the development of additional condominium towers in future years.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG)
Howard Hughes communities are rooted with a deep respect for the natural environment and provide an exceptional lifestyle that has made them among the most sought-after places to live and work in the country. Today, our portfolio includes approximately 101,000 gross acres in five states. The migration into The Woodlands, Bridgeland, and Summerlin reinforces that thoughtful planning is highly attractive as residents, CEOs, and commercial tenants are seeking and expecting a committed approach to sustainability and community health and wellness.
The strong demand for homes in amenity-rich, business-friendly environments that offer a high quality of life is driving relocation to our communities, and companies are following to take advantage of this talent pool. Through purposeful planning and advanced design of homes, offices, retail, mixed-use commercial areas, as well as public gathering spaces, we promote energy efficiency and conservation of resources, provide access to nature and walkable downtowns, and offer short commutes that foster community engagement and connectivity. We understand the value of having access to the natural environment, which is why we have dedicated at least 20% of our communities across the country to parks, lakes, trails, and nature preserves.
Our program is overseen by our Chief Executive Officer, President, and Board of Directors. Additional details on our sustainable, inclusive, and transparent approach are available in our most recent annual Communities Report, which can be found on the Company’s website (https://www.howardhughes.com/communities/). This annual report, published in October 2024, looks at the collective efforts of our team in 2023. Our disclosure is in reference to the most recent Global Reporting Initiative’s 2021 Standards , includes indices aligned with the Task Force on Climate-related Financial Disclosures (TCFD) and the Sustainability Accounting Standards Board Real Estate Standard. Prior to this report, our most recent Communities Report was published in October 2023, and covered calendar year 2022.
Environmental Strategy and Performance
In the planning and development of our award-winning master planned communities, we take meaningful and measurable action to be more efficient and resilient, as we promote access to green spaces, reduce energy use and carbon emissions, conserve water resources, protect biodiversity, and support healthy living. Our approach starts by embedding industry leading sustainable strategies from the beginning as part of our horizontal land use planning and vertical development process. Best practices are then carried into the construction phase and through the ongoing maintenance and operations of our portfolio. We leverage independent reporting frameworks, third-party certifications, and globally adopted guidance to ensure we are in alignment with industry-recognized standards. Voluntary and industry leadership frameworks pursued in our portfolio currently exceed U.S. regulations and supplement our ambition to be best in class.
HHH 2024 FORM 10-K | 8
BUSINESS
Table of Contents
Index to Financial Statements
We pursue sustainability certifications for all applicable assets, and target a minimum of Leadership in Energy and Environmental Design (LEED) Silver for all new strategic developments to promote third-party verification and reinforce our trusted commitment to sustainable growth. Sustainability certifications require suppliers to align with common goals of energy and water efficiency, environmentally responsible material use, and occupational health. Our suppliers and vendors are strongly encouraged to follow the same ethical standards with respect to environmental impact, social responsibility, and corporate governance principles that guide our business. The Supplier Code of Conduct is available under Governance Documents on the Company’s website.
Each community manages and addresses its unique context through resilient planning, green building design, high operational performance, and ongoing risk management. We continue to monitor and refine our approach as developments transition into operating assets in order to ensure continued support for the responsible use of resources, conservation, and efficiency measures. From an operational standpoint, we measure energy, water, emissions, and waste performance and proactively pursue efforts to reduce our impact across our portfolio. These efforts align with UN Sustainable Development Goals, which focus on climate health and responsible resource stewardship. We complement this holistic approach with programs and actions customized for the age, asset type, and regional considerations of our diverse properties. Data-driven analysis, engineering insights, and occupant feedback drive unique strategies for each of our buildings.
With a goal of transparency, we proactively discuss milestones in quarterly investor videos, earnings calls, investor presentations, and on social channels. Furthermore, we voluntarily report on the program through the annual Global Real Estate Sustainability Benchmark (GRESB) and S&P Global Corporate Sustainability Assessment, helping the company benchmark its performance against peers and determine improvement areas. Using TCFD as a framework, Howard Hughes communicates the environmental impact of its business. To provide useful information to investors, we monitor sustainability ratings from various institutions.
As we continue to manage and measure our portfolio’s environmental performance through independent verification, we seek ways to accelerate progress. In 2024, Howard Hughes conducted a comprehensive carbon inventory in alignment with greenhouse gas protocol and received validation of targets by Science Based Targets initiative (SBTi). SBTi, a nonprofit organization, helps businesses set reduction targets aligned with the latest climate science and the Paris Agreement to limit global warming to 1.5 degrees Celsius. The targets are noted on page 99 of the 2023 Communities Report on the Company’s website. The inventory covered energy use, refrigerants, corporate activities, and all business segments. The analysis developed carbon targets and a decarbonization roadmap through 2030. The targets will guide the company’s overall decarbonization efforts, manage regulatory risks, drive efficiency, and deliver resilience across the portfolio.
In 2024, Howard Hughes was recognized by GRESB for its proven commitment to sustainability and industry leadership across its national portfolio, once again earning the top ranking in the peer group of Americas Diversified Listed real estate companies.
Also in 2024, the entire community of Summerlin in Las Vegas achieved LEED precertification by the U.S. Green Building Council (USGBC), becoming Nevada’s first master planned community to achieve this distinction. Summerlin joins an elite global group of entities, including our communities of The Woodlands, Bridgeland, Merriweather District in Downtown Columbia, and Ward Village, that are recognized by USGBC for their dedication to making their communities healthy, resilient, inclusive, and inherently sustainable for residents. With this addition, Howard Hughes now boasts one of the largest LEED precertified or certified community portfolios in the U.S., covering more than 62,000 acres.
Social Strategy and Impact
Human Capital As of December 31, 2024, our workforce was made up of approximately 545 employees who form the bedrock of our core operations.
Beyond our commitment to community building, we create spaces for our employees to thrive, both within and beyond their professional lives. HHH is committed to fostering an environment where employees can excel both professionally and personally through continuing education, experiences, and exposure to developmental opportunities. We cultivate a culture of continuous learning by offering resources such as tuition reimbursement, student debt management support, financial wellness workshops, and training budgets tailored to development needs. Personal well-being is prioritized through comprehensive benefits that include a robust health package, a 401(k) match program, up to 12 weeks of fully paid parental leave, adoption and surrogacy support, commuter benefits, pet insurance, and wellness incentives designed for all life stages.
HHH 2024 FORM 10-K | 9
BUSINESS
Table of Contents
Index to Financial Statements
Our dedication to workplace culture, employee development, and community involvement resulted in more than 65 unique opportunities for employees across departments and regions to engage in the Company’s culture, market strategy, and corporate initiatives. Location-specific training programs led by subject matter experts empowered employees to grow within their roles and further enhanced our ability to attract, develop, and retain exceptional talent. To support a dynamic and diverse workforce, we continued investing in equitable access to professional development and leveraged both internal networks and strategic partnerships to build an inclusive candidate pipeline.
We continue to invest in attracting a qualified and well-rounded candidate pool. The Summer Associates program spearheaded our effort to attract early career talent. This exceptional intern population was 46% ethnically diverse. As of December 31, 2024, our full-time workforce was 56% female and 40% ethnically diverse. Employees at the Vice President level and above were 38% female and 21% ethnically diverse. These results underscore our ongoing commitment to cultivating teams with varied perspectives, which are critical to innovation and performance.
We also remain deeply committed to community impact through our HHCares program, supporting 178 local charities via monetary donations and employee volunteerism. In 2024, the Company donated nearly $3.4 million nationwide, as well as an additional $230,000 in employee contributions and company matches to 501(c)(3) organizations. Our employees collectively volunteered 3,700 hours, a greater than 30% increase from the prior year, showcasing their dedication to strengthening communities where we live and work.
At Howard Hughes, we recognize that our people are the heart of our organization and the communities we serve. By investing in their development, well-being, and impact, we continue to build a foundation for success that drives meaningful change.
Governance and Risk Management
Sound corporate governance is fundamental to protecting stakeholder interests, upholding the values and reputation of the organization, maintaining regulatory compliance, and more. As such, we adhere to the highest possible standards of oversight, accountability, integrity, and ethics; this includes our executives, our team members, and our Board of Directors.
Howard Hughes has a Risk Committee, consisting of independent members of the Board of Directors, which guides key topics as contemplated by the committee charter which, along with the charters of other Board committees, can be found under Governance Documents on the Company’s website (https://investor.howardhughes.com/governance/). In addition, Howard Hughes has formal Enterprise Risk Management (ERM) Program that is overseen by the Risk Committee and led by an Executive Vice President of Risk Management. The Risk Committee evaluates the effectiveness of the ERM Program and monitors risks that are considered critical by management. The committee reviews both emerging risks and risk mitigation activities deemed material by management, and oversees management’s approach to fostering a risk-intelligent culture.
HHH’s overall governance program is shaped and supported by the Board and encompasses a range of corporate governance policies and guidelines that include but are not limited to: Supplier Code of Conduct, Human Rights Policy, Anti-Corruption Compliance Policy, Code of Conduct, Code of Conduct and Ethics for Board of Directors, Corporate Governance Guidelines, Diversity Policy, and the Whistleblower Hotline. These documents are published under Governance Documents on the Company’s website.
HHH 2024 FORM 10-K | 10
BUSINESS
Table of Contents
Index to Financial Statements
REGULATORY MATTERS
A portion of our business is dedicated to the development and sale of condominiums. Condominiums are generally regulated by an agency of the state in which they are located or where the condominiums are marketed to be sold. In connection with our development and offering of condominium units for sale, we must submit regulatory filings to various state agencies and engage in an entitlement process by which real property owned under one title is converted into individual units. Responses or comments on our condominium filings may delay our ability to sell condominiums in certain states and other jurisdictions in a timely manner, or at all. In addition, approval to develop real property sometimes requires political support and generally entails an extensive entitlement process involving multiple and overlapping regulatory jurisdictions and often requires discretionary action by local governments. Real estate projects must generally comply with local land development regulations and may need to comply with state and federal regulations. We incur substantial costs to comply with legal and regulatory requirements.
Various local, state, and federal statutes, ordinances, rules and regulations concerning building, health and safety, site and building design, environment, zoning, sales and similar matters apply to and/or affect the real estate development industry. Our ability to obtain or renew permits or approvals and the continued effectiveness of permits already granted or approvals already obtained depends on factors beyond our control, such as changes in federal, state, and local policies, rules and regulations, and their interpretations and application.
There is a variety of legislation being enacted, or considered for enactment, at the federal, state, and local levels relating to energy and climate change. This legislation relates to items such as carbon dioxide emissions control and building codes that impose energy efficiency standards. New building code requirements that impose stricter energy efficiency standards could significantly increase our cost to construct buildings. As climate change concerns continue to grow, legislation and regulations of this nature are expected to continue and become more costly to comply with. We may be required to apply for additional approvals or modify our existing approvals because of changes in local circumstances or applicable law. Energy-related initiatives affect a wide variety of companies throughout the United States and the world and, because our operations are heavily dependent on significant amounts of raw materials, such as lumber, steel, and concrete, they could have an indirect adverse impact on our operations and profitability to the extent the manufacturers and suppliers of our materials are burdened with expensive cap and trade and similar energy-related taxes and regulations. Governmental regulation also affects sales activities, mortgage lending activities, and other dealings with consumers. Further, government agencies routinely initiate audits, reviews, or investigations of our business practices to ensure compliance with applicable laws and regulations, which can cause us to incur costs or create other disruptions in our business that can be significant. We may experience delays and increased expenses as a result of legal challenges to our proposed communities, whether brought by governmental authorities or private parties.
Under various federal, state, and local laws and regulations, an owner of real estate is liable for the costs of remediation of certain hazardous substances, including petroleum and certain toxic substances (collectively hazardous substances) on such real estate. These laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of such hazardous substances. The costs of remediation of such substances may be substantial, and the presence of such substances, or the failure to remediate such substances, may adversely affect the owner’s ability to sell such real estate or to obtain financing using such real estate as collateral. Other federal, state, and local laws, ordinances and regulations require abatement or removal of asbestos-containing materials in the event of demolition or certain renovations or remodeling, the cost of which may be substantial for certain redevelopments, and also govern emissions of and exposure to asbestos fibers in the air. Federal and state laws also regulate the operation and removal of underground storage tanks. In connection with our ownership, operation, and management of certain properties, we could be held liable for the costs of remedial action with respect to these regulated substances or tanks or related claims.
For further information see Governance and Risk Management above.
HHH 2024 FORM 10-K | 11
RISK FACTORS
Table of Contents
Index to Financial Statements