Howard Hughes and Pershing Square — A New Chapter
Our Take:
On May 5th, Howard Hughes Holdings Inc. (HHH) announced a definitive agreement with Pershing Square Capital Management, in which Pershing Square invested $900 million to purchase 9 million newly issued shares at $100 per share, a 48% premium to the prior day’s closing price. Given that we publicly opposed Bill Ackman’s original offer for the company, many investors have asked for our thoughts on the recent agreement. So here they are:
Key Highlights of the Transaction
Investment Terms: Pershing Square’s $900 million investment increases its ownership to approximately 46.9% of Howard Hughes Holdings.
Voting Rights: Pershing Square’s voting power will be capped at 40%, and beneficial ownership limited to 47%, with a majority of disinterested directors and unaffiliated stockholders required for any change in control.
Leadership Structure:
Bill Ackman returns as Executive Chairman.
Ryan Israel, Pershing Square’s CIO, will become CIO of Howard Hughes.
Compensation Structure:
Pershing Square will receive a quarterly base fee of $3.75 million ($15 million annually).
Additionally, Pershing will receive a fee equal to 1.5% annually (0.375% per quarter) on the increase in Howard Hughes’ share price above $66.14, adjusted each year for inflation.
Strategic Shift: HHH will function as a Berkshire-like permanent capital vehicle, with ambitions to enter the insurance industry and make controlling investments in non-real estate businesses, while remaining publicly traded.
How This Compares to the Initial Proposal
This is a substantial improvement over the original proposal, which offered $85 per share—well below our estimate of the company’s intrinsic value.
We’re pleased to see that the final deal contains stronger shareholder protections, a higher valuation, and greater transparency. We cannot be certain our public opposition played a role, but we are encouraged that the broader chorus of investor feedback may have helped secure a better outcome for minority shareholders.
Remaining Concerns
While the new structure is clearly an improvement over the original offer, it’s not without issues.
First, we remain concerned that using inflation as the performance hurdle for a fee is far too low a bar—especially for someone with Ackman’s investment track record. Shareholders shouldn’t be paying incentive fees simply for beating CPI. Real performance should reflect real value creation, not just nominal appreciation.
One argument Pershing could make is that the fees charged to Howard Hughes shareholders are substantially lower than what Pershing Square charges its fund investors, and that Pershing only earns this fee if the stock price increases on a per-share basis. This structure helps ensure the company can’t simply issue new equity (which would increase market cap but dilute ownership) and collect fees based on that alone—real shareholder value must be created.
That said, this remains a newly introduced fee that minority shareholders did not vote on (it was approved by the board’s Special Committee without a shareholder vote). And it is still an incentive structure in which minority shareholders effectively pay an affiliated external manager. In our view, this diverges from the Berkshire standard.
Second, there’s the question of whether Pershing Square has a genuine edge in private equity. Unlike public investing, control investing often comes down to being the highest bidder—and price discipline can be harder to maintain. There’s also the matter of day-to-day involvement. If Pershing ultimately remains hands-off, the fees are hard to justify.
However, if the intent is for company CEOs to run the day-to-day operations while Pershing remains highly engaged at the ownership and strategic level, then the fee structure becomes somewhat defensible. That remains to be seen…
Still, there’s something uncomfortable about a setup where the controlling investor is both managing and profiting from the company’s structure. Would we prefer a Buffett-style $100K salary? Absolutely. Is this the structure we would’ve designed? No. But to be fair, the status quo wasn’t working—and it’s hard to see Pershing making significant money here without other shareholders also benefiting. Incentives may not be perfect, but they’re likely good enough.
Finally, we should not overlook the less obvious benefit to Pershing Square: the creation of a permanent capital vehicle meaningfully increases the value of its management company—particularly if it eventually goes public. That value accrues to Pershing, not Howard Hughes shareholders. Ideally, there would have been a mechanism to compensate minority holders for that embedded optionality.
Why We’re Staying Invested—for Now
Despite these concerns, we continue to believe Howard Hughes is an undervalued collection of unique real estate assets, with master-planned communities that would be extremely difficult to recreate today. The $900 million capital infusion and Pershing Square’s deep involvement could help unlock value over time—especially if governance remains sound and capital is deployed wisely.
We are cautiously optimistic, but we want more clarity on three key areas before becoming more enthusiastic:
The insurance operation: Float can be a powerful engine of returns—but only when backed by disciplined underwriting.
Capital allocation philosophy: What types of businesses will they pursue, and why?
Shareholder alignment: Will incentives remain balanced and fair to all stakeholders?
To dig deeper into these questions, I’ve invited Bill Ackman to join me on The World According to Boyar to discuss his long-term vision for Howard Hughes and Pershing Square’s evolving role. He has graciously agreed to appear in the future once they’ve made more progress at the company. I look forward to sharing that conversation with you soon.
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