A deep dive into Seaport entertainment: Premium NY real estate trading at a discount."
Howard Hughes’ Biggest Error Could Be Your Best Investment
Key points:
Neglected Prime Real Estate: Seaport Entertainment owns and operates a portfolio of prime real estate assets that were undervalued and mismanaged under Howard Hughes Holdings. These assets include iconic properties like Pier 17, the Tin Building, and the Las Vegas Ballpark.
Significant Asset Base: Seaport's $1.5 billion real estate investment includes prime properties with high potential, such as 250 Water Street (a valuable development site) and the Las Vegas Ballpark, which has untapped cash flow potential.
Pershing Square’s Vote of Confidence: Pershing Square, led by Bill Ackman, holds a 40% stake in Seaport Entertainment, signaling strong confidence in the value of these assets. The recent $166.7 million equity raise at $25 per share provides the company with liquidity to stabilize operations and chart a growth path.
Index
Introduction
Assets
Management
Cash generation
Risks
Final valuation
1. Introduction:
Seaport Entertainment Group was spun out of Howard Hughes Holdings (HHH) on July 31, 2024, emerging as a standalone company with a diverse portfolio of real estate assets spanning hospitality, retail, live entertainment, and sports. These assets, which required an investment of approximately $1.5 billion under HHH’s ownership, represent a significant foundation for the company’s future growth. Despite this substantial asset base, the company faces high cash burn as it works to optimize operations and unlock the full potential of its properties.
To support its transition, Seaport Entertainment recently raised $166.7 million through an equity offering at $25 per share. Notably, Pershing Square, led by Bill Ackman, acquired a 40% stake in the company, offering a vote of confidence in the intrinsic value of Seaport's assets. Ackman’s renowned expertise in real estate bolsters investor confidence in the strategic vision and long-term prospects of the business.
Seaport’s portfolio includes key properties such as Pier 17, the Tin Building by Jean-Georges, the Las Vegas Ballpark, and 250 Water Street, along with other ventures in hospitality and live entertainment. These assets hold significant potential to generate cash flow, but the company must first address operational inefficiencies, high overhead costs, and underperforming properties like the Tin Building.
The investment thesis for Seaport Entertainment is compelling, driven by an asymmetric risk-reward profile. The company offers substantial downside protection, given the inherent value of its real estate assets, while presenting significant upside potential if management can make its properties cash flow positive and capitalize on strategic opportunities. Conservative estimates suggest that the company’s portfolio could be worth several times its current valuation, particularly as assets like 250 Water Street and the Las Vegas Ballpark are monetized or developed further.
This report evaluates Seaport’s real estate portfolio, its operational challenges, and its long-term growth prospects, providing a detailed assessment of the company’s potential value. With an experienced management team, strategic backing from Pershing Square, and a focus on improving cash flow, Seaport Entertainment is positioned as a unique investment opportunity in the real estate and entertainment sectors.
2. Assets:
We will analyze and value all the assets the company owns so we get an accurate picture of its sum of parts valuation.
New York assets:
250 Water ST
In 2021, the Company received the necessary approvals for its 250 Water Street development project, which includes a mixed-use development with affordable and market-rate apartments, community-oriented spaces, and office space. In May 2021, the Company received approval from the New York City Landmarks Preservation Commission (“LPC”) for its proposed design for the 250 Water Street site. The Company received final approvals in December 2021 through the New York City Uniform Land Use Review Procedure (ULURP), which allowed the transfer of development rights to the parking lot site.
The Company began initial foundation and voluntary site remediation work in the second quarter of 2022 and completed remediation work in December 2023. The development project faced legal resistance from petitioners who questioned the development approvals and sought to prevent the construction of the project. However, the Company successfully won the legal proceedings on May 21, 2024, and the petitioners no longer have any options for further appeal, making the judgment final. As a result, the project is fully approved for 27 stories, totaling 547,000 square feet, and is entitled to 421-a tax credits. The approval process, which typically spans several years, has now been completed. The land is ready to start developing and is likely to be sold to a developer, as Seaport does not have enough capital to fund the project itself. This creates a strong catalyst for a sale in the near term.
Located just 10 minutes from Wall Street and 5 minutes from the waterfront, the property offers a rare opportunity in Lower Manhattan. Development opportunities in this area, especially those ready to build and without the need to demolish an existing building, are very difficult to find, significantly enhancing the value of this land. The 421-a tax credits mean that the residential portion of the construction will be exempt from residential taxes. Since these credits are no longer offered, the property is even more attractive. These credits are available because 25% of the residential apartments being built will be offered at affordable prices.