Billionaire Bill Ackman's Big Bet: What You Need to Know

Key Points

• Ackman is providing new capital and leadership with the goal of reshaping Howard Hughes into a more diversified holding company.

• Recent results highlight both the resilience and the cyclical nature of Howard Hughes's master planned communities.

• The potential for upside will depend on disciplined capital allocation and strong governance as Howard Hughes looks to expand beyond real estate.

• 10 stocks we like better than Howard Hughes ›

Howard Hughes Holdings (NYSE: HHH) is drawing attention for a new reason over the summer: a shift in strategy. In May, Bill Ackman's Pershing Square invested additional capital in the company and outlined a plan to move it beyond its traditional focus on land development and operating properties.

Howard Hughes owns and develops large-scale master planned communities across the U.S. (including Summerlin near Las Vegas, Bridgeland and The Woodlands in Texas, and Ward Village in Honolulu), along with income-producing retail, office, and hospitality assets. But the proposition now is bigger than real estate. Ackman is positioning Howard Hughes as a long-term holding platform that can buy controlling stakes in high-quality operating businesses while continuing to compound value in its core portfolio.

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All of this prompts investors to consider what this new direction could mean for Howard Hughes' potential over the long term.

Image source: Getty Images.

What's changing under Pershing Square

In short, Bill Ackman is bringing capital, vision, and discipline. But a longer explanation is needed: In May, Pershing Square agreed to invest $900 million for nine million newly issued shares, lifting its economic stake to roughly 47% while contractually capping voting power at 40%. Ackman also returned to the company as executive chairman. Additionally, Pershing Square partner Ryan Israel will become Howard Hughes' chief investment officer, with existing management continuing to run the real estate operations. This structure is designed to add deal-sourcing and capital allocation muscle without overshadowing the operating team that knows the assets best.

Just as important is intent. In a January letter to Howard Hughes's board, Ackman laid out the blueprint: transform Howard Hughes into a holding company -- a permanent capital vehicle able to acquire controlling interests in public and private companies. He emphasized that Pershing Square intends to hold its Howard Hughes investment for the long term and detailed a services arrangement, including a 1.5% annualized fee (0.375% per quarter) based on Howard Hughes's equity market cap, which gives Howard Hughes access to Pershing Square's investment, financing, and risk-management capabilities. Additionally, Pershing Square collects a $3.75 million quarterly fee.

The goal is to combine permanent capital, operating autonomy for the real estate subsidiary, and a broader opportunity set for acquisitions -- a model designed to create long-term value while protecting minority shareholders through governance safeguards like limits on voting power and a commitment to board independence.

Given how fresh Bill Ackman's capital infusion in the company and his plans for it are, Howard Hughes' performance today still depends heavily on how its established communities are doing, as well as the broader economic environment. In Q2, Howard Hughes sold 487 new homes -- about 16% fewer than the year before, mostly because there just weren't as many available. Still, main developments like Summerlin and Bridgeland continue to be top sellers nationwide. So, while steady demand helps drive land sales, the limited supply means numbers can swing quite a bit from one quarter to the next.

Betting on Bill Ackman

The potential upside is clear: If Pershing Square can compound capital at attractive rates within Howard Hughes, while the core real estate portfolio continues to generate cash and appreciate over time, investors could own an emerging holding company at a reasonable entry point.

Perhaps helping explain why the stock trades at such a cheap valuation (less than 1.4 times book value), there are some significant risks. Obvious risks in real estate include real estate cycles, sensitivity to interest rates, and the timing of home and condo deliveries, which can all affect near-term results, as seen in recent quarters. Execution risk is also significant. Expanding beyond real estate will require patience on the pace of deals, careful underwriting, and clear disclosure around incentives. And investors should monitor how Pershing Square's services fee impacts long-term returns.

Ultimately, the investment thesis relies on Howard Hughes' core business performing well and Ackman's prudent capital allocation. Fortunately, Pershing has the long-term in mind. But that means investors will need to exercise patience.

Pershing has said its Howard Hughes stake is intended to be permanent, that the real estate business will remain under the current team, and that future investments will focus on durable, high-quality companies. If the strategy succeeds, Howard Hughes could transition from a real estate developer to a more resilient long-term compounder. Until new acquisitions start to contribute, however, the stock is likely to trade based on housing and local market conditions. So, if you want to back Bill Ackman and Howard Hughes, you're going to have to have a bit of faith and even more patience.

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Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Howard Hughes. The Motley Fool has a disclosure policy.