Broken Deals & Big Opportunities with Mark Cover, CEO (Southwest Region & Mexico), Hines

In this episode, managing partner Aaron Strauss sits down with  Mark Cover, CEO for the Southwest region at Hines. Founded in 1957 by Gerald D. Hines, Hines is a privately-owned global real estate investment firm with over $95 billion in assets under management and more than 96 million square feet of assets for which it provides property-level services.

As CEO for the Southwest region, Mark is responsible for key investment partner relationships and oversees all development, acquisition and operational activities in the Southwest, Mexico and Central America. Mark is also a member of the firm’s Executive Committee. He’s a graduate of Bob Jones University (Greenville, SC) and a retired CPA. 

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Transcript

A.Y. Strauss: Hello and welcome to The Dealmakers’ Edge. Today we're excited to be joined by Mark Cover, CEO of the Southwest region at Hines. Founded in 1957, Hines is a privately-owned global real estate investment firm with over $95 billion in assets under management, and more than 96 million square feet of assets for which it provides property-level services. As CEO for the Southwest region, Mark is responsible for key investment partner relationships and oversees all development, acquisition, and operational activities, and within Mexico and Central America as well. Mark is also a member of the firm's executive committee and is a retired CPA. Thank you again, Mark, for making the time. We're really, really happy you're on today with us. 

Mark Cover: Thanks, Aaron. Glad to be here today. 

A.Y. Strauss: And the typical question we usually like to start off with is background. I know you've been with the firm for quite a number of years… 

Mark Cover: …40 years as of this September [2023].

A.Y. Strauss: 40 years, and congratulations on that milestone. You've certainly seen a tremendous amount of growth and we're going to hear all about it. But, maybe you can back up to what you were doing before you started Hines and how you got into the business, and your background. 

Mark Cover: Yeah, it's a fairly short background prior to joining Hines, but I go back this is a little weird to go back into childhood maybe but it really had a huge impact. I grew up on a significantly…fairly large family farm in Kansas. And on that farm, we hired people…we had enough size that we had to have additional employees. And so I actually learned a lot about the management of people growing up on the farm. And then long-term investing. I mean, farming is an operating business but the land side of it and the property and equipment side of it is long-term investing. So there are some interesting parallels from that that I really learned a little bit as a kid. And then I left home. We didn't travel much. We stayed very close to the farm. The farm requires you to sort of be there, be present. And so I went away to school at Bob Jones University in South Carolina. [I] met my wife there, which is not the way people typically do things these days, but that was also really meaningful. We got married between our junior and senior years. And so we needed to find a place where we both had job offers, and it was Houston, Texas. So that's how we wound up here. And then I was recruited here by Arthur Anderson, the old accounting firm, and joined them. And then about 14 months later, moved to Hines, who was one of their clients. And so I started really in the accounting side at the bottom level, [the] bottom professional level. And so I was learning real estate from the ground up through that lens. And then kind of as time went by, [I] went into more acquisitions and workouts and problems as the Texas markets in Houston in particular went through really tough times with the energy industry in the eighties. So I think, you know, it was hard at the time. I didn't know…there's a lot I didn't know. Of course, I'm learning. But watching that unfold, the energy crisis and what it did to real estate, I couldn't have had a better post-graduate education if you will. That really set me up for what I've done since then. 

A.Y. Strauss: Amazing. And I love the nuance of being raised on the farmland and everything else. Taking care of others, right? It's a theme. It's a theme if you can. 

Mark Cover: Yeah. I know it is. 

A.Y. Strauss: Take care of the farm. You can take care of your people and your team, and your projects and your property. It teaches responsibility from a very young age. Does it not? 

Mark Cover: Yeah. You know, whether you're, 10, 12, 14 year old taking care of a very expensive piece of equipment; running it safely, not destroying it, whatever. You're just doing things that children really, very rarely today get to do. And then, when the hay crews would come out to help with the work cause it's manual, it takes a lot of people, and you know, your dad and uncle are off running some other heavy equipment and, and you're tasked with running the hay crew when you're a teenager, there are a lot of dynamics that go on in an experience like that, that are just really great, irreplaceable things. So it's great. The other thing, and I'll just briefly tell you this, it's kind of a fun story. The way I think about it, I tell people all the time that real estate development is really similar to farming. And people don't realize it, but you know, a farmer goes and he gets all the money together that he can get with his banker and whatever investors and he puts all that money in the ground, in the form of a crop, you know, prepares the ground, puts it in there, and grows the crop. And he hopes at the end that the bugs didn't eat the plants and there's a market to sell the crop to…a decent market. And he has good weather and all this stuff has to happen. And then he harvests it and he sees what he has. And with real estate, you know, we go dig a big hole in the ground. We get a bunch of money, we throw all the money in the hole in the form of materials. And then, you need to lease that building, so you hope there's a market. And then you need to sell that building, so you hope there's a market.  And then you move the building on, and then you go back and do it again. And so it's actually interesting to me how similar those are. 

A.Y. Strauss: It's an amazing metaphor for life and business as well. And it's so funny, I keep thinking of all the analogies as well to it. I mean, farming relationships, farming all the collaboration that has to happen, and the trust that there'll be something to harvest at the end. Different seasons come and different seasons go. So fabulous. And I mean, you've been there just about 40 years, so the growth of the firm and your career growth have absolutely been astronomical. Inextricably intertwined, I should say as well. So maybe you could talk about some of your early years. It seems like it's a common theme [in] interviewing a lot of people who have really risen to high levels in large-scale institutional real estate operating firms. Oftentimes they've come out of big four accounting firms or big law firms. They have some sort of natural entry point in—almost through the client service side—and then they enter. So it seems like it's a good theme. Somebody listening to this, it's not a bad idea to start some institutional service business, but maybe you could talk about those early years. I mean you've learned a ton. You've grown a ton. But years zero to five, what's it like transitioning from Arthur Anderson to just starting at Hines? And what was it like back then at the firm? 

Mark Cover: So the firm was much smaller, it was plus or minus a thousand employees at that time, and it was actually centralized in Houston where it was founded in 1957. And there was so much change going on in the world. The PC was introduced to the world in 1980. I joined Hines in ’83. And I had been trained actually really well at Arthur Anderson on PCs. They were forward-leaning and invested in technology to push their business forward and make it more efficient. And so I’d learned some of the rudimentary spreadsheet software and things like that, that were available at that point in time, but they were cutting edge at that time. And I got into Hines, and Hines was busy building buildings and had invested as much in that arena. So there was so much change. You had all this technological change. So I just saw opportunities and I think, thinking about young people going into their career and their organization, look around at what's changing and say, “How can I bring this to bear?” Because a lot of times young people are they experiment, they try new stuff. And I've told some of our people here recently that I think it's a super exciting time. People are very nervous and talking. It's a hot topic right now with AI. What's going on and how's that going to change the business? And to me, AI coming in right now is a little bit analogous to PCs being introduced back then. And so I got really involved in creating lots of efficiencies. I mean, I literally was able to do twice as much work throughput as I could do before without a PC when I first joined. And so then there was a proliferation of PCs across the firm, but at the very same time, that was macro but micro in the firm, Gerald Hines had decided to “decentralize” the firm. That's the term we used back then. And so rather than have it all based in Houston, he said, “This is a local business and we need local leaders.” And so we opened up an office in San Francisco with a key leader there and an office in New York and an office in Chicago and Atlanta, et cetera. And so we decentralized the firm. So many, many people left Houston and spread out, and Jerry saw it as a way of risk reduction, but also a massive growth opportunity for the firm. And so a lot of authority left Houston and went to those places and then that's how it started. And so at that point in time, I saw my boss, my boss's boss, people were leaving and moving to other cities. Houston was pretty crappy. I mean, you had the oil crash and people were getting laid off. Companies were going broke. And so there was some opportunity that came out of that. I wound up at age 25, I was a controller. I wasn't a staff person. I was a controller all of a sudden, and then I was doing all these workouts. And I didn't really know what I was doing, but I could run numbers and I could analyze things. That auditing background was actually, as you suggested earlier, it was actually really helpful. You had people saying, “I'm broke, I can't pay.” And that was sometimes true and sometimes not true. But I knew how to kind of go through the books and records and see where to look for assets that might be hiding. And then, out of that everything got repriced, SNLs are going broke all over the place, and the whole industry crashed. And out of that, I was involved with others in the early days of starting to really acquire assets at scale. And so that was kind of an important growth piece in my experience. And then eventually, it got to the point that I was actually acquiring assets directly on behalf of the firm. And then a little later on, we had some really notable transactions. And so along the way there, I was talking with my boss one day and I said, “you know, it'd be really interesting what might be possible if I did this full-time as opposed to being the controller". And so they were kind enough to agree and said, "Replace yourself. Find another person to be the controller and move over full-time in the business side". So[VF1]  that then took me into Mexico, because we were expanding globally as a firm and Mexico was included in the Southwest region. And so I started working down there. And so in fairly short order, the people that were running that left, as many people did in that timeframe, and chased a bit of an internet dream, if you will. And so they went to real estate and internet services. And so that created that opportunity. I took on Mexico and then I took on some of the cities in the Southwest. And then a few years later, my boss was retiring and they asked me to replace him. So it was kind of a different or odd career track. I had done a lot of different things all on the finance side, but for instance, I had never actually overseen building a building, which was kind of an interesting, differentiated background for Hines people. But I was always interested in new and creative things. And then the other thing that … you talked about growth, the firm was growing for sure, but we were very much an office firm with very few exceptions. And I just saw the growth of population in the Southwestern U.S. and in Mexico. It was younger and it was on the rise as an emerging markets country. And I just said we should be in a lot more product types. We should provide great real estate, and be true to what we do [at a] relatively high standard of quality. But we can do this in other arenas. So in no exact order, we got into industrial parks years ago. We got into single-family master plans. We got into apartments. We've gone on now into life science. We're doing even self-storage. So we're doing a variety of product types and so we initiated a lot of that in the Southwest region. I think mainly because I was interested in it. I didn't have a huge region geographically and so I didn't have geography to grow. I had counterparts in other regions. So we grew, I'll call it “vertically”. 

A.Y. Strauss: Amazing. And what a testament to the culture that they can take somebody who's talented with one thing. Well, I guess two parties to the story. You had, not only the aptitude, but you had the inclination to want to grow and want to develop and want to expand your horizons and have a company that embraces that. I was reading about Jerry Hines. I think he just passed at the age of 95 in 2020, and I think his last project was the Bravo on the side of the Houston Chronicles' former Park Garage. So he must have been involved intimately until the end. It was his love, but obviously, there was a special culture created there so that someone like you can be a rising star and keep rising and rising and rising. Oftentimes these companies, the stars have to leave because the company's not growing as fast as they are. But you kanow, I'm curious to hear about what was the special sauce that people listening to this may want to try to scale their own business? Something special has been cooking at this firm for a long time. Maybe you can talk about some of the cultural aspects of it? 

Mark Cover: So that's really an interesting and great question. I mean, I, again preaching all the way farming, incredibly entrepreneurial. To do that, it's a risky, capital intensive business. And so Jerry was always amazing and he's inquisitive, he's curious, he's always interested in the next news thing. And he always wanted to do things with excellence and do it really well. So just personally that fit Jerry. I talked to him. I had an opportunity to visit with him one time. We were on a trip, just the two of us. I asked him, I said, "In the early days when the money was really, really tight and you were trying to weigh between making money—which you desperately needed to pay the bills—and on the other hand, doing excellent properties, how did you sort of weigh between how excellent is this property on one hand and making money on the other hand?" And he was really clear. He had great clarity on that. He just said, "Mark, I always felt if I did a fantastic property, that it was a lower risk and the money would follow". And I think that philosophy has certainly been very true in my case. I mean, I certainly … I love that philosophy. I adopted that philosophy. So I came at it from the standpoint of let's do really good things. Let's build great buildings. Let's make communities better than we found them. When we go into the nasty developer construct that exists out there, some of that's earned. It's absolutely earned. Yeah. We didn't wanna be that, and I didn't want to be that. I didn't be want to be part of that was that. But on the other side, if a young person had great ideas and had conviction and would do the work. We're pretty data driven. We always have been in many ways. But if we really would do the work and get behind it, Jerry would encourage us. And Jeff and Laura, you know, following on in the family, they have been, I think, a very interesting family in that they're engaged and they're interested. They're not a distant owner; they're in the company. But they do and they ask a lot of good questions, but they do let people pursue opportunities and take risks. And I think, a lot of that has to do with the fact that—and Jerry set this up many years ago, and we've stayed very true to it—but basically, you know, we're aligned with the family. It's like “you believe in that? Okay. You put your money in, we'll put our money in, and we'll do this together.” So the senior employees are absolutely partners with the Hines family, and we make money right along beside them. We don't make money ahead of the family. We don't make money behind the family. We make money with the family. And so that alignment of interest is something that's really deep in our culture. But they understand. You've got to grow and change and lead, or you're dying. You're dying a slow death. And so, the firm's always about wanting to grow and lead. 

A.Y. Strauss: I think that was a fantastic articulation of a first-class culture with first-class people. And I think there are never any shortcuts to establishing that type of culture, especially for people starting out. It's so tempting to earn a fee or get a promote or do something at a cheaper cost than may in the short term have more profitability, but your brand and your reputation, your excellence will, over time, have you rise to the top. And you're living proof of that and the firm's living proof of that, so congratulations as well. And like they're always trying to reinvent themselves. I'm sure you have conversations with your colleagues all the time about the next five, or ten years, but those values will never change, and that North Star will never change. So if you can approach technology, approach AI, approach all these new emerging trends with the same values, I'm sure the success will continue for many, many years. So that was awesome. Thank you very much for that. 

And maybe we could talk a little bit about technology before we hit some macro topics. I mean, when we met previously talked about even on the construction side, there's some really special, interesting technology you're employing. You have such an amazing, amazing, iconic portfolio of assets to which you can deploy technology to, whether it's to be built or an existing office or whatnot. Maybe you could talk about what's exciting to you, what the next few years may hold for you and the firm, and what people should be thinking about today? 

Mark Cover: Yeah, there's so much that could be said there. I think the customer—the actual users of the building—are increasingly discriminating and they're increasingly discriminating across a wide array of issues. So, let's take, ESG for a moment. People want to be in buildings that are not harming the environment. They care. They ask. The HR managers of some of our office clients tell us, you know, young people come in the door and say, “What's the carbon footprint of this building?” They're asking questions like that. And so, you know, we want to be responsive there. Well, there's a lot of technology around that and Hines has been a leader for decades as far as energy consumption. So we were thinking about it in a consumption and efficiency way. You take that very same issue though, and it's also very oriented toward climate as well. You use less energy, and you're having less impact in a negative sense. So we're very focused on that. So there's a lot of technology. There's a lot of study there; a lot of work we're doing in-house in that arena. So I am excited about that. I think seeing the industry now … focused on being efficient actually gives more ability… if everybody's working on it together, just more is going to happen. And so that's really exciting to me. And there are lots of technologies around air conditioning, about microgrid, electricity production, you know, these huge glass boxes or industrial parks with these acres of rooftops that are collecting sunshine every single day. There are just a lot of ideas that I think are going to show fruit over the next five or ten years. So that's an area. Then on the client service side, I really started seeing this when we got really into the multifamily business. Cause all of a sudden, Hines for the first time was beginning to literally touch the customers, the end-users in the buildings. And [for] the office buildings, you work with the corporate real estate people and then they're working through HR to the employees. So there's that gap. And so we see that gap, that gap needs to close and is closing. And so technology is part of how that gap closes. So if we can create an environment in a building where we're meeting people's needs and we're making their life simpler, they can get the services they need in their 24/7 life close to where they work, close to where they live, and technology leverages their knowledge and their ability to have those services close by, then I think that's a great thing. One of the things we're doing, again, I'm kind of doing real estate and technology together here, I realize. But you know, I love where I think mixed-use environments are going. We're going to see more—I think over time, at least at the high end—we're going to see more and more mixed-use development where people can—it sounds trite now—but kind of live, work, and play in a very closely-defined area. Again, that's better for the environment. It's better for people's time, frankly. And so, I think we're doing that. Then the whole construction business. It's a business that produces a lot of carbon. Takes a tremendous amount of energy. It employs a lot of people while it's going on. And so it's expensive. And so anything that you can do to reduce waste and improve efficiency in that arena, we want to do and we are doing. And so, this is everything from making the construction process more accurate; get it right the first time, rather than build something, have to tear it out, and replace it. It's shocking how much of that goes on in the construction business even today. But technology tools are absolutely helping in that arena. Technology tools are helping us analyze our utility usage in detail. Technology tools now you sort of get into, you know, heavy chemistry and stuff, but lightweight concrete that is super strong but lighter weight—so it's easier to move it, it's easier to do various things. I think all that stuff is coming. I recently toured where they're building 3-D printed houses and went all through one that's there and existing and fully furnished and then went to a site and watched it actually in process. And I think there's a lot of opportunity coming to our industry in those kinds of arenas. So, they are the merging of technology with the product. Then also—and again, I touched on AI a moment ago—but I think AI is also going to help our industry, and all industries, analyze very, very quickly how to do things. My one concern about AI is on one hand it can think and morph [] AI can think so it can come up with new ideas. I worry that AI in its goal is to optimize everything. We may get into a world where things get kind of same old, same old, same old because it's maximized to this ultimate degree. So that's a bit of a worry I have. I think the world's more interesting. If you see creative things and you see things that are, they might be beautiful but they're not efficient, or they might be efficient, but they're not beautiful. We kind of want to work toward both. There's a soft skill side of that that AI may or may not be very good at. 

A.Y. Strauss: Well, well, well said. And I'm sure every day there are, very respectful, heated debates about the utilization of space and places (Cover: Yes.) versus the profitability of using materials in a certain way. And I think the best development firms such as the one you're at do their best to balance and apply that human element where they should. And I agree that the human element will never go away. We touched a bit on the real estate side—and you're involved in so many projects and you've seen so many things. Maybe you could talk about just on a macro-level what's interesting to you on the sort of two to five-year time horizon, obviously as development firm you always have shovels in the ground or approvals underway, but sort of on a macro basis and we can avoid the whole back to office thing because I know we talked about that at length separately. In different markets, different spaces, everybody's different. But just a macro-level, the next five, seven years per, you know, say… What's sort of exciting to you on the global macro real estate front because you have such a great macro view from where you sit?

Mark Cover: Let's just talk about the financial markets for a moment as it touches real estate because I am actually super excited right now. I think that there is a lot of stress in the system. As interest rates have risen so much, equity returns also want to rise because everybody needs a spread over the cost of the debt. There's a war here that's going to be fought in our industry and many others around that. So there are going to be a lot of broken deals and broken deals create opportunity. There are going to be a lot of very, very good assets that are just priced at a level of bubble. And that bubble must be pricked. It must pop. And then it has to be worked through. Interesting things are already being done in the background where there are assets out there where I think you can buy things with tremendous upside in them because you can get things for free. [] This is an environment where you can get free stuff. That's not always true, but it is true right now. There's some terrible stuff to buy. (laughs) Very risky. And there's some really wonderful stuff to buy. And so the way I think about free stuff: it may be somebody's worked for three or four or five years in a really difficult entitlement environment to get their entitlements in place. But it was all based on yesterday's cost of money. So it no longer works, the deal's broken, and you can go in and you can buy that deal at a discount to where it was priced and complete that deal. And the way I look at it is you got a discount. Whether the discount is they're throwing in all their plans and specs and entitlements for free—which cost them real money to get, or the price, the land is reduced, and then you buy that stuff—however you look at it, you're getting free stuff. And so, there's going to be a lot of that for a while. I was really concerned 90-120 days ago about the state of banking relative to our industry. The regional banks are super important to real estate. And I'm a lot less worried about that at this point in time. But the problem is still there. I mean, if you're borrowing money at three or four and now you're borrowing money at seven or eight, it's hard to make things pencil. So that stress is going to create a lot of opportunity. So I'm pretty bullish on the opportunity set that's going to be out there, but there's going to be a real pain too, and we'll be on both sides of that. And we have a big portfolio. We've got assets that have and will have stress. And we've got some money and their assets we'll acquire things to buy as well as broken deals we can finish. We're already doing, we're already working on both sides of that. I think pretty much everyone is. 

A.Y. Strauss: And I think that's the key to a downturn: never waste an opportunity, right? Because every downturn represents an opportunity. I like the way you described it as free stuff. I mean, I think for the distressed developer who may be, you know, losing an asset or having to struggle, it sounds kind of weird. But for a well-heeled developer, I guess that's a nice way of phrasing it. 

Perhaps the last question, because we've had you for quite a bit here. I want to make sure we don't take up too much of your time, but I'm somebody who just got on your calendar. I'm sure every day somebody pings you, can you meet me for coffee, meet me for lunch? Maybe it's a friend, their son or daughter who's two or three is out of school and they're just looking for broader advice. They want to get into commercial real estate. Maybe they're at some institution, [and] it's not going well. We've touched on some of the macro themes and you've done a great job articulating it, so I really want to thank you and I know people listening thank you. But maybe you could talk about just macro-career guidance. The ups and downs in the beginning part of your career sort of stay through to that next step and reach higher levels. What type of advice you'd give that type of person? 

Mark Cover: Our business is very, very much a long, long-dated business. And it's a relationship-driven business. And so just really investing in relationships. If you're a young person and you want to be sort of on the frontline doing the business, the relationships are really, really critical. And I could give stories about relationships. But you kind of grow up together. So if you're 28 years old, a lot of the people you know well are going to be around your age, but some of those people are going to become the head decision-makers at other firms that you're going to want to do business with. So, you want to make those relationships as good as they can be. And sometimes you go through hard things and relationships ebb and flow a little bit. Relationships are just really critical. As time went by, the ability for me to pick up the phone and call a decision maker, someone I met earlier in my career, who's now in a decision-making role that I need, whether it's I need money or I need service, or I need just some advice and help. Those relationships are really critical. The other thing about our business—and I think it's true in most businesses—is that I tell our young people a lot: people do business with people. They don't do business with projects. I say “we don't want to throw spaghetti at the wall”. “Hey, how do you like this deal? How do you like that deal?” It's more about philosophically, “here's what we're trying to do, here's what we're trying to accomplish, and do that.” And then you find the deals that fit that philosophy. The import in raising of money isn't for a deal. It's around meeting needs. Investors need to make money. Maybe they've got insurance policies or maybe they've got pension earners, or maybe it's a sovereign wealth funder or maybe it's a family that's very, very wealthy and just trying to be good stewards of the assets that they're stewarding. It doesn't matter. At the end of the day, they've got needs, they've got a risk profile, [and] they've got certain things they want to do. And that then leads me to, well, if I have a relationship with them—and again, my accounting background touches this—I need to understand how they measure things and what they need. So if I'm talking to someone from an insurance company, I know that they have actuarial needs. What does that actually mean? That informs how they want to invest. So I don't want to show them investments that are maybe great investments but structured in a way that doesn't work to meet their needs. A pension fund has specific kinds of needs. A high net-worth family? It's more of a discussion. Some of those take a lot of risks and want to lean in that way, and some of them want to be very, very careful with their money and almost really low risk. So I need to hear, I need to understand and be a good listener, [and] understand what they want to do and what they're trying to accomplish. That's just critical, I think in this business. And then it goes without saying, but I'm going to say it; I'm going to sound a little bit paternal saying it, I know, but you shouldn't need to talk about this, but we do today. A lot of people kind of want to fake it till they make it. And the truth is that really being substantive, reading your documents, learning the business, like really deeply learning the business is important. And then just being super honest and transparent. My favorite relationships in this business are the people that I do business with over and over again—over 20, 30, 40 years—those are really special relationships. They run deep. You go through thick and thin. You're not going to be perfect. You know, sometimes they don't go perfectly, but the respect is there and that just makes for a really … then when you hit a great cycle—because you hit good cycles and bad cycles—when you hit a great cycle, you can have a lot of fun and make a lot of money doing it while you're having fun during those great cycles because the relationships, know what you do. They know what you don't do. They invest in people. 

A.Y. Strauss: I gotta’ tell you, you've really done an amazing job encapsulating your personal vision, your career trajectory, the vision of the firm, and all the wonderful cultural values. And I've learned a ton speaking with you today, and I know people listening will have as well. And, I'm going to let you get back to your really busy day. But again, Mark, I really, really want to thank you again for being on and to be continued. I can't wait to watch the continued success. And thank you for serving as an inspiration to a lot of people listening here today. 

Mark Cover: Thanks, Aaron. Alright, take care.

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