Plural Investing 的 Chris Waller 谈 Seaport $SEG 娱乐与酒店业务的扭转

With me today, I'm happy to have on, I believe for the third time, my friend, the founder of Plural Investing and Hidden Gems, Chris Waller. Chris, how's it going?

Thank you, Andrew. It's great to be back. Thanks for having me on for a third time.

Chris, it's the third time, which, for those on YouTube, raises the question: Where's the hat, my friend? Where's the hat?

That's a good point. I do have that hat somewhere, but I haven't got it with me right now.

Let me start this podcast the way I do every podcast: a quick disclaimer to remind everyone that nothing on the podcast is investing advice. That's always true, but I'll add an extra disclosure. I can only speak for myself, but I think I speak for Chris, too: I have a position in the stock we're going to talk about today. You should keep in mind that I am very much talking my own book, as Chris is talking his own book.

We've got those disclaimers out of the way. Chris, the company we're going to talk about today is Seaport Entertainment. The ticker here is SEG. As I mentioned, I have a position in it. You did a fantastically detailed write-up on your site, Hidden Gems. I'll include a link to it in the show notes.

I say it's fantastically written because when I have a position the size that I have in Seaport, I generally don't expect to find anything new when I'm reading write-ups and stuff. You had some nuggets, especially some on-the-ground research, that I thought were really interesting—some thoughts on developments and everything. We'll probably talk about all that. I just wanted to mention how good the report is for listeners.

Why don't we back up a bit and kick us off with what Seaport Entertainment is?

Thanks, Andrew, and thanks for the comment on the report. Seaport Entertainment is a company that was spun out of Howard Hughes in July 2024. As many of the people watching and listening may know, Howard Hughes is a real estate firm, but Seaport had a collection of assets that was very different from Howard Hughes's traditional business. The company was spun out for that reason.

Seaport, or SEG, is a collection of loss-making and complicated properties, primarily in the Seaport District of New York, but they also have some assets in Las Vegas. This is a pool of assets that has essentially been dragging down Howard Hughes's stock for a number of years, and I think the stock has probably been sold off by former shareholders since the spin.

Just to give you some context as to why I thought this was really interesting, my estimate is that Howard Hughes invested about $1.5 billion over a number of years into this pool of properties. Today, Seaport's market cap is about $250 million, and the company has $50 million of net cash. That's split roughly between $115 million of debt and a little bit of preferred stock, non-recourse on 2 of the properties, and about $160 million of cash.

When you take a step back, many of these properties are in an area of New York that should be attractive. The Seaport District is in Lower Manhattan. It overlooks the Brooklyn Bridge, it's on the East River, and it's about a 10-minute walk from Wall Street. This is really an area that should be prime real estate but has been neglected over a number of years.

Howard Hughes invested to rebuild some of these properties and construct new ones, but they don't really have a background in entertainment and hospitality, which is where the new management team is coming in and looking to take this destination. Both the new CEO and CFO have the right background for this, I think. They both moved their families to New York to take this opportunity, and I think their upside is going to be largely determined through the stock price rather than their base compensation. So I think that gives a good indication that they believe they can recover a good chunk of the value.

The stock today is at about $20 per share. I think they could probably recover it to about $50 in 3 years, which obviously means there's quite significant upside. I also think that a couple of these properties are in a more stabilized position, meaning that we can more reliably estimate what their values are. Those properties alone, I think, cover the entire market cap today. Then you get everything else, which I think has a lot of upside but is more uncertain. In some ways, you get that for free, so I quite like the risk-reward from that perspective.

The last thing I think is worth commenting on is that Pershing Square owned 38% of this business at the time of the spin. Bill Ackman was chairman of Howard Hughes for 13 years, including at the time that this spin-off was announced.

Interestingly, although the spin-off happened in July, in October they did a rights offering to essentially fund the company with cash to cover the current losses and make the investments necessary to turn it around. Pershing Square backstopped that rights offering at $25 a share. In fact, that meant they could have ended up owning up to 70% of the company.

In the end, the offering was oversubscribed, so they didn't need to do that, but they did add another 2% to their position through the oversubscription privilege. They own 40% of the company today. That's basically where things stand, and I can give you an overview of which are the key properties. Maybe we'll talk about that in a second.

That's a great overview. It's so funny because with Seaport, you can go, as you've done and as I've done, really granular and start inspecting the Seaport District literally building by building, or you can just say, at a high level, they put a lot of capital into these things.

There are lots of areas I want to discuss with you here, but let me start with the general question I always like to start with. The market is a competitive place. What are you seeing that the market is missing that makes you—and, you know, I disclose that I've got a position too—believe that this is a risk-adjusted alpha opportunity?

The disclosures with this company were very limited, certainly on a property-by-property basis. There's only really 1 property where you can get financials for, which is a food hall called the Tin Building, which is losing a lot of money. I'm sure we'll definitely be getting to that.

Essentially, all the other properties, including what I think is the most valuable property—Pier 17, which I think could be worth as much as everything else put together—don't have property-by-property financials available. There are just very limited disclosures.

What a lot of investors are seeing is a cash-burning and very complicated pool of assets with limited disclosures. They own a ballpark, air rights, undeveloped land, a food hall, and a pier. It's quite difficult to get a handle on what this is really worth and how this gets turned around.

As a result, a lot of the focus from investors right now is on cash burn, particularly at the Tin Building. That is really the big focus, when in fact I think most of the value at the company is going to be around the pier and the neighborhood more holistically rather than 1 specific property in the Tin Building.

I just think this is 1 where you can do a lot of diligence and uncover a lot of the economics and detail that the company is not making readily available.

Let's start with cash burn. I say that for 2 reasons. Number 1, you mentioned the Tin Building, and we'll talk about the Tin Building in particular. But it is not lost on me that, I believe it was in mid-January, there was an article published—I can't remember if it was a quote or if the headline was—“I went to the food hall that's losing $100,000 per day.”

Because the Tin Building is losing $100,000 per day. It’s not lost on me that since that article came out, the stock has been straight down. The number one question I get from investors on Seaport is about the cash burn.

We’ll talk about individual properties and stuff in a second, but I’d love to talk about the overall cash burn. Go look at the financials—anyone can look. The cash burn is very high here. They’ve got a ton of cash on the balance sheet, but you can’t burn cash this long and have cash on your balance sheet. I’d love to talk about the cash burn, what’s driving it, and what the outlook for it is.

To put that into context, they just released results for Q4, which is the first quarter post-spin-off and post-rights offering as well. A lot of the changes have not taken place, and this is a seasonally weak quarter because the number of visitors to this location is much higher in the summer.

Just to give everyone some context, operating cash flow in that quarter was negative $7 million. Equity losses were another $9 million, and that is where the Tin Building is booked because it’s actually an equity investment. So that’s about $16 million in 1 quarter before capex.

In terms of maintenance capex, there isn’t a lot because of the nature of these properties, but there will be some growth capex to redevelop them, and that will come on top. So that’s obviously a lot of cash burn for 1 quarter.

What you can see from that is that about half, or maybe even a bit more than half, of the cash burn is currently at the Tin Building. There are a number of things we could talk about in terms of how they’re going to bring that down to 0, but I think there are a few big levers the company can pull at a high level.

At the Tin Building, there’s a lot of cost-cutting that I think is possible, and we’ll go through what that is. The second thing is that, if you look at the central cost—the corporate expense of the company—it’s been massively inflated if you look at their previous financials. The company is doing a lot to bring that down, and they did bring it down in the quarter. They talked about how there’s quite a bit more they can do to bring that down.

The third thing, which is probably the most important in the long term, is increasing the number of people going to this neighborhood. That is the single most important thing. This neighborhood of New York is about 10 minutes from the subway, so it’s a little bit out of the way for New Yorkers. There just aren’t enough people going to this area, and the cash burn at the Tin Building is partly a symptom of that broader problem.

This is where Pier 17, the attractions they’re bringing to it, and what they’re doing at some of these other properties are really going to help increase the number of people coming to this neighborhood. That will improve the economics at all the buildings.

I want to pick out a point there because it’s another thing that I talk to people about and they debate with me. The Seaport, as you mentioned, for those who don’t know, is in southern Manhattan, all the way down by the East River, and it’s about a 10-minute walk from the subway. It’s also against the water.

I’ve heard people push back and say, “This very simple bull case is that they control a whole district in Manhattan. How often do you have the chance to do that?” If the old cliché is that real estate in Manhattan goes up, you control a whole district. You can zone it, you can plan it, and that’s going to be worth a fortune over time as the city continues to grow.

The pushback I continue to hear is, “It’s against the water and it’s 10 minutes from the subway, so you’re actually missing something.” If you’re in the middle of Manhattan, you have people who can come from both directions and you have really easy access to the subway. They’ll say, “It’s a 10-minute walk, you’ve got the water on the other side, so the density isn’t great,” and they’ll push back on a lot of that.

I have my own thoughts there, but you’re the guest. I’d love to get your thoughts on that pushback. Is the district really that valuable?

It’s both a strength and a weakness, and the management, or the previous management, did not do a good job of capitalizing on the strengths and mitigating the weaknesses.

Where it’s a weakness is if you build a food hall like the Tin Building next to the water. On one side, you’ve got no people coming in because it’s on the water, and on the other side there’s actually a highway. It’s a bit out of the way. It’s not like Eataly, which is a food hall concept typically in the middle of numerous office buildings, where you have those office workers coming in every day.

If that’s going to be the concept, then the location is going to be a big problem, and that is 1 of the reasons why the Tin Building is losing so much money.

Where it can be a strength is with 1 of the key properties they have called 250 Water Street, which is currently an undeveloped piece of land, but is zoned for a 545,000-square-foot residential building and an office building that’s going to have views overlooking the Brooklyn Bridge and the East River. That’s really going to make those apartments premium apartments.

They basically have to reorient this. If you look at the Pier, for example, it has a rooftop overlooking the water, the Brooklyn Bridge, and the Manhattan skyline, and it’s been highly successful. I think it’s really just about how management changes the concepts to take advantage of this.

The other thing I would say is that if you go back 15 or 20 years, this was a popular destination for workers in the Financial District after work because it is within walking distance, and it was a very busy neighborhood for that reason.

What happened is that it essentially got neglected. There have been other developments farther west in Manhattan, around 1 World Trade Center, with different shopping malls and concepts there. Then Hurricane Sandy had a very significant impact, with the Seaport being on the water.

You’ve got these different factors that have meant a location that should really be a strength has actually become a weakness. But I think that can be turned around.

I completely agree with you. Would you rather the location be Times Square, where there are 100 different subways and you literally get off and you’re there? Sure. But there’s a price for everything.

There are plenty of examples of things on the far-out Upper West Side, and some of the developments just south of Hell’s Kitchen, that are very far from the subway system and are still hugely successful. As you said, the water is both a blessing and a curse.

To me, I look at this at a $250 million market cap. We’ll definitely talk about 250 Water Street in a second. We can talk about the stadium and all these different things. I just say it feels like you get multiple ways to win and not a lot of ways to lose.

One thing I want to mention before we start diving into the things: I’d be remiss because if people Google around, they’ll find my write-up on this pretty quickly. One of the things that initially attracted me here was the setup.

Howard Hughes—I’d encourage anyone who’s interested in the idea to go read Howard Hughes’ history here. For years, they were saying this was going to be the premier development in all of Manhattan. They thought they were going to sell it to a sovereign wealth fund at a 2% cap rate or something. Go read the other history here.

The thing that attracted me was that this was a spin-off into a rights offering. Whenever I hear “spin-off,” my ears perk up. Whenever I hear “rights offering,” my ears perk up. A spin-off into a rights offering—I haven’t seen 1 of those done since before I was an investor. These are the things of legends. That’s what got me involved.

I quickly want to talk about how this came about and maybe the opportunity set and overhang from that, if all of that makes sense.

The background is that Howard Hughes is a company that believes it has successfully developed a lot of these master-planned communities where it has a lot of control, but its share price hasn’t, in its view, really reflected that.

Meanwhile, it had this collection of properties in Manhattan where there is some control, but it’s not a master-planned community. It’s losing a lot of money, and it’s an unusual set of assets. So the company, analysts, and investors were very happy to essentially get this spun off.

This was the bad company, whereas Howard Hughes was the good company. That’s why you have this setup where the stock is being dumped by those prior shareholders, who are quite happy to get rid of it, and it’s a very small percentage of their stake in Howard Hughes.

At the same time, you have Pershing Square, which knows the asset very well, backstopping a rights offering in order to provide it with the capital to make the necessary changes. But you've then also got a lot of these shareholders who really just bought in for the rights offering. What the rights offering meant was that you could buy stock and would have the ability to oversubscribe and buy more stock at $25.

So, hypothetically, if the stock was trading at $30, you could, through the rights offering and the oversubscription, get additional stock at $25, sell it at $30, and exit—just make that kind of arbitrage. And so you've had this technical trading dynamic, I think, since the rights offering, which has meant that there's been a lot of selling pressure and not really a lot of fundamental buying pressure.

If I could just jump in with one thing, I think one of the interesting things is that, heading into the spin-off, they were clear: “We're going to spin off Seaport, and we're going to do a rights offering at $25 per share.” For every share you owned, if I remember correctly, you could buy about 1.7 more shares in the rights offering.

One of the things that jumped out to me was that the $25 was set before they spun Seaport out. They didn't know what the stock was trading for in the market. So where did the $25 come from? Everyone anchors on the $25. How do you think that number was chosen?

I suspect that's obviously a price that Bill Ackman thought would be incredibly attractive, and really a number where you almost couldn't lose over time, because he was willing to ultimately own over 70% of the company. I don't think that, even though it's a relatively small amount of capital for Pershing Square, owning 70% of a publicly traded company could be without complexities.

I think he was very instrumental, obviously, in setting that price and thought it was very attractive. I don't know—you might have some thoughts yourself as well.

No, that's my understanding. It's just really interesting because you have a spin-off being negotiated, and the rights offering price being negotiated, before the company knows that it needs cash. Because it's a rights offering and everyone has the chance to participate equally, they could set it at $1 if they wanted. They need a level that lets people participate.

Things can change over time. Obviously, we're 6 months post-spin-off, and it's a different world today. But I think that $25 price was a big signal. Ackman said, “I will take every share you can give me. You will give them to me at $25.” I think it's a big signal that he saw value much, much higher than that.

He could be right, he could be wrong, but I think—and again, I've got a position here—that's where he's going to be right. The stock's at $20 today, so we're getting it at a 20% discount to what an extremely discounted price was supposed to be.

Look, we're going to go to all the individual properties in 1 second, but since we mentioned Ackman, we might as well talk about it now. The other big question that I get here is the cash burn, whether the company will be attractive, and the third one is Ackman. He owns about 40% of the stock.

It's also not lost on me that since he made the offer to take over Howard Hughes—in quotes, “take over Howard Hughes,” but basically inject money into it and turn it into an externally managed company where he's going to charge a fee—the stock has lost about 20% of its value since then. The market has been volatile. There's absolutely no doubt about that. But I think a lot of people have started to look at Seaport and said, “Hey, Ackman owns a lot of this thing. It’s really small. Could we run into capital allocation control or those types of issues?”

People have started saying, “Hey, is this getting an Ackman discount?” I'd just love to get your thoughts on that.

Yeah, it's a tricky one to answer. There was a theory at the time of the spin-off that Ackman wanted to facilitate this in order to make an acquisition or merger with Howard Hughes much easier, because you wouldn't have this sort of complex, loss-making asset where there could be very big differences of opinion on what this was really worth.

That was a theory, but I think there are a lot of ways that Howard Hughes could have spun this off. I don't think Pershing Square backstopping a rights offering and potentially owning 70% of the company was the only way this could have happened. If he just wanted to sell this asset or have it spun off, he could have done a normal spin-off without backstopping a rights offering.

So there are easier ways to do this. I certainly don't subscribe to the theory that this was just all a spin-off at any price, even if you lose a significant amount of capital through the Seaport stock, just to make a Howard Hughes purchase happen.

I would just highlight that the amount of money they raised in the rights offering was $200 million, which is not an insignificant sum, but they structured this as a spin-off into a rights offering. If Ackman wanted absolutely nothing to do with this, basically all of that $200 million came from Ackman, right?

If he wanted nothing to do with this, he could have said, “Hey, spin it off. Howard Hughes has $200 million. You guys can just put the $200 million in there.” Whether it's in the form of preferred stock or you guys give it to it, it doesn't matter. To me, the fact that he wanted to put money in is a signal of the value, right? He wanted more of this thing.

I generally have a lot of respect for Ackman. I've talked to him a few times in my life, so I can't say we're friends or anything. Generally, via his Twitter account, we've got divergent opinions on quite a few things as well, but I've generally had a lot of respect for him as an investor.

I think he just sees an opportunity to make money. I don't think we're going to see him pull what he's pulling with Howard Hughes here. It's a $200 million market cap company. You're going to get $2 million of management fees if you get this externally managed, and maybe torch your reputation by turning this into a weird, complicated, externally managed structure. I just don't see the upside-downside. Maybe if the stock was a lot higher.

One alternate theory as to why the company really didn't communicate so much, and Ackman did not really disclose too many details about the economics of the buildings or lay out the pathway ahead of the spin-off, could be—if you want to get a little more conspiratorial—that maybe Ackman wanted the stock to trade below $25, in which case he would have ended up with 70% of the company and then perhaps done a full acquisition afterward.

Arguably, his incentive was actually to take it all at $25. The other thing I would say is that if he really believes these assets are incredibly cheap at $25, then the lower and lower you go, the more likely it is that he might just buy the whole thing. Maybe, with a Howard Hughes deal happening at the same time, perhaps these couldn't both happen.

But I would just put that out there: There is actually a potential acquirer who's shown interest at $25.

Interesting. From today's price, you say $25 and think, “That'd be a pretty nice mark.” But I think there's so much more value here than $25. Let's talk about some of the individual properties.

I want to start with the Tin Building. It gets most of the press, and we'll get to that second, but let's start with what I think both of us believe is the headliner. There's also been news here, and I know a lot of people are saying, “In Q4, there weren't a lot of results. These guys just got in the seats.”

I actually think the results they're driving are pretty good here. So let's start with Pier 17. I'd love for you to quickly give an overview of what Pier 17 is, and then maybe we can talk about the big new lease that they've got there.

Pier 17, as the name suggests, is a pier right on the East River overlooking the Brooklyn Bridge. There are really 3 parts to this building. There's a rooftop concert venue, which has been quite successful, and that will likely be expanded throughout the year. It's been primarily a summer concert series so far, and management has announced that it will now go year-round.

There's then, at the ground floor, currently 5 restaurants and a couple of smaller concepts. Some of those have worked pretty well; some of them have not. The biggest space, which is about a quarter of the entire space, was very unproductive—almost empty at times. That has now been leased to a new concept called Jōtō, which is a restaurant-nightclub. I believe it actually had its opening this week, so that's been a very quick turnaround in that regard.

Then you've got 3 floors of office space. I believe it was about 215,000 square feet, if I've got the numbers right, but there's a significant amount of office space that is currently about half empty. The reason for that is that this pier was designed before COVID, and obviously since then, office demand in Manhattan has structurally reduced.

That office space has become incredibly unproductive, and the single biggest task facing this management team is to redevelop it into an entertainment and hospitality space to bring the large number of visitors required to the Seaport area.

That, again, will then benefit all the properties. There was a very big announcement at the recent results on this exact issue: a concept called Meow Wolf has leased 75,000 square feet of that office space. It’s an attraction that has been successful in, I think, 7 or 8 locations across the US. The CEO knows the concept very well because, when he was managing CityCenter in Vegas, there was a Meow Wolf competitor in that area, and it attracted, I believe, over 1 million visitors.

Can I pause you there for a second? As you know, I think you’re on the fence, but I’m going to Planet MicroCap in Vegas in about a month. If anyone’s going, reach out. One of my things is that I love escape rooms, so I went on all my escape-room blogs—and you obviously have the invite. I was looking for escape rooms to do in Vegas, and 2 of them said, “You’ve got to check out this Meow Wolf thing. It’s an interactive thing.” I believe 1 review called it “interactive Sleep No More.”

I already knew about this thing, and then they announced the deal. As soon as they said it, I was like, “This is perfect for what Seaport needs. It drives hundreds of visitors per day.” Those visitors go to Meow Wolf and interact. Obviously, it’s going to take up a big space, but then those visitors trickle out through the rest of the property.

Maybe they want to get a meal after they go through a 3- to 4-hour experience. One review I saw called it “an interactive Sleep No More,” which it was. Maybe they want to get a meal, maybe they want to go grab a drink—whatever it is, it drives the foot traffic there. To me, I still can’t believe the stock wasn’t up when they announced this. They get a 20-year lease. It’s exactly what you want: it drives visitors, drives traffic, and gets that whole flywheel going.

I just wanted to give my background and views on it because I thought it was perfect—exactly what you wanted in this space.

This is going to be the single most important thing that management does to turn this company around. It’s a concept that has been successful in 7 or 8 locations. You can Google it, look at the Google reviews, and look at the number of ratings. Obviously, there’s no guarantee that just because it’s been successful everywhere else, it will succeed here, but I think that’s true of every concept. This is as close to a guarantee as you will get.

It’s an immersive experience that’s been really successful. If you did a thought experiment, on the west side of Manhattan you have the Whitney Museum of American Art. If you could teleport that into Pier 17, with all the visitors that it brings, it would make the whole area successful because of the number of visitors it would bring. That’s sort of what this concept is supposed to do.

If you look at the numbers and try to put some numbers to it, I think the pier today attracts maybe 1 million visitors per year. It’s very hard to know because no one really discloses this, but if you add up the concert venue, the restaurants, the offices, and so on, I think it gets to just under 1 million. This particular concept in Vegas attracts over 1 million people—just 1 concept. The CEO, on the earnings call, talked about hopefully having over 1 million visitors in New York as well.

New York will be the biggest, most impressive, and newest build-out of this. We can’t guarantee it will work, but I think the indications suggest this is going to bring over 1 million visitors to the area—more than doubling what the pier is currently bringing in.

If I could just add 1 more thing, I completely agree with everything you said. You mentioned that ESPN had a big office space here—its studios. If you watched Get Up in the morning—I don’t even have cable, but if you watched Get Up in the morning—there’d be Mike Greenberg, and behind him there’d be this beautiful view of New York City. That’s where the ESPN studios were.

That’s a great tenant to have if you are an office building, but it’s a terrible tenant to have if you’re trying to design something that drives a lot of foot traffic. Think about that beautiful view: the ESPN series had 3 anchors and maybe 2 cameramen behind them, taking up 100,000 square feet—5 people. You replace this with Meow Wolf, which during the day could be driving hundreds and hundreds of visitors, and that’s going to be so much better.

That’s hundreds and hundreds more people who have the potential to go hit some retail stores, buy some food, and do all that sort of stuff. I just think it’s check, check, check. It was an A-plus signing, and I’m very excited to have them there. I’m very excited to go to Meow Wolf in Vegas because now it’s a research trip. It’s no longer Andrew just having fun, and I’m very excited to go in 2027. Anything else you want to say about Pier 17?

I would just say that I did not think they would make such a big move and get an anchor tenant like this in so quickly. I thought it would be next year. I thought it would be an extra thing. This was really impressive. They’re also not finished.

There is still probably half the space at the pier that they can do something with. If they got something similar and, instead of bringing an extra 1 million people, brought 2 million, that would be a huge home run. I’m excited to see what they’ll do.

Just to think about the flywheel, if you will, let’s imagine it was 1 floor. Before, if you were leasing half the floor, the person had to say, “The other half’s empty. I’ve got to drive all this traffic on my own.” Now, if you’re leasing half the floor, you say, “Meow Wolf will be there in about 18 months. They’re going to drive 1 million people.”

If I build something, you probably don’t want to build another interactive art exhibit, although in Japan I believe there are several places that have interactive art exhibits right next to each other. But if I build something, I can piggyback off some of that foot traffic. I know there are going to be 1 million people per year, and I can try to drive them in and build a concept that plays well with what’s going on there.

I just think that’s interesting, and it’s all about getting those multiple spending points. Right now, you go to a restaurant and that’s it. There’s not really a natural second opportunity to spend, but now you can go to Meow Wolf and then go to the Tin Building. It’s all about bringing in multiple opportunities to spend in that 1 area.

You can go to Meow Wolf and then—and I was texting with another mutual friend of ours—we need to plan a value investors’ night out at Lawn Club, which is another 1 of their concepts, so that we can have fun, see some other value investors, but also take our value-investor friends’ money and put it into Lawn Club and indirectly into our pockets through Seaport.

Let’s talk about the next building. This is the building that gets all the press. This is the Tin Building. If I’m being honest with you, this is where I thought you did the best work in your report. You’ve got the comps to Eataly and everything. I’ll just back up: why don’t you describe the Tin Building, what the vision was for it, why it’s been so bad, and why you think you can turn it around?

The Tin Building is a luxury food hall and market, which has about 15 to 20 concepts, depending on how you want to count them. Some of these are restaurants. Probably half of the revenues of this building come from restaurants. There are also cafés and bars, a grocery section, and several retail sections.

The idea was to take the Eataly concept—although they don’t like to be compared to Eataly—where you have grocery, retail, and restaurants all in 1 environment, and then make it much higher-end. It was actually modeled off Harrods in London. Although, to be honest, it is very luxurious for a food hall, I don’t think it’s really comparable to Harrods. That was the idea behind it.

Right now, it’s generating just over $30 million a year in revenues and about $70 million a year in expenses. That’s an enormous gap that needs to be bridged. You can imagine it’s pretty daunting, looking at those numbers at first glance and thinking, “How on earth can they even bridge a gap that big?”

I do think there’s a way to get to breakeven. I don’t believe this building is ever going to make a substantial profit, and that’s why, in my valuation, I say that although this company gets a lot of press, in some ways it’s actually not that important, as long as they can right-size those losses because it’s never going to be a highly profitable business.

Seaport is also the landlord, so it generates about $10 million to $11 million a year in rent. It does get that rental income, which is quite valuable.

The Tin Building is also a partnership with Jean-Georges. As some people may know, Jean-Georges is a very famous high-end chef and restaurateur. He has restaurants in Manhattan, but he also has a business—a group of many restaurants—across the world. This is actually the Tin Building by Jean-Georges, and that’s part of the branding and why it’s so high-end.

The issue up until very recently has been not just a flawed set of concepts—too high-end, too much retail, and too much grocery, which just doesn’t work in this location because it’s not next to office buildings—but also quite distorted incentives. Jean-Georges’s company was managing the building, and Jean-Georges effectively gets paid in 2 ways.

Seaport put up the capital, or Howard Hughes put up the capital, but then Jean-Georges would get a share of the profits. He's also providing all these services—the staff and so on are provided by his company. Now, because the building has lost so much money, there is no realistic prospect for Jean-Georges to make money off future profits, because Seaport has the right to earn back all the existing losses. So, effectively, you no longer have any profit motive. But if he supplies more services, he does get paid for that, and so his incentive is to supply the maximum number of high-quality services, which massively increases costs. Maybe it boosts revenue, maybe it doesn't, but it certainly increases costs, and that's really his incentive.

And so that's a very fundamental issue that needed resolving. The other thing I was very impressed with management on is that, in January, they announced that they had effectively taken over a company called CCMC, which is the company Jean-Georges used to operate this building. So, effectively, what we're now going to see is that the Seaport company will be the operator, not just the supplier of capital. As a result, you're probably going to see a big reduction in costs, some of which has already begun, and also a change in the restaurant concepts.

The rough math of how you get to break-even with $30 million of revenue and $70 million of costs is that what's ultimately going to happen is they're going to cut costs from roughly $70 million to $50 million. By reorienting the concepts, I think they can get revenues from $30 million close to $50 million. Maybe the last bit of that will require Meow Wolf and other concepts to bring visitors to the area, but I think that's what they ultimately try to do.

And just in terms of the concepts they have, many of the restaurants are quite successful, but they're space-constrained. Maybe this is getting a bit too micro, but essentially, some of the restaurants are very successful, but they're limited on space because you've got less successful restaurants right next to them. What this management team is going to do is shut the unsuccessful restaurants, expand the space for the successful ones, and then probably shut down or greatly reduce the grocery and retail space, which is very unproductive right now.

I did some estimates in my report in terms of what I think the restaurants are earning and what I think the grocery and retail are earning. Essentially, the successful restaurants are probably already earning what they need to in terms of dollars per square foot. But then you've got the unsuccessful restaurants below that, and then you've got the grocery and retail, which is very unproductive. That's really the mix shift that needs to happen.

So, I agree with everything you said. I do believe that I have heard that there is some requirement to have some type of grocery in the Seaport building, or in the Tin Building, so I don't think they can fully shut it down. But look, if you're in New York or if you're visiting, I'd encourage you to go right now. They have this beautiful grocery store. You walk in, and there's fresh fish laid out on ice, and there are all these beautiful cuts of steak and stuff.

I've been to the Tin Building probably 7 or 8 times. I've never seen one person—not that that means no one ever has—aside from my daughter, who was about 15 months old at the time, even look at the fish. There are these beautiful cuts of fish, right? So, even if they shrink that footprint a little bit and change it from fish on ice on display, it's taking up a ton of space and it's got to be such a huge cost. Change that. Do you want to talk about the kitchen consolidation, because I think that's just another really interesting example of maybe the Jean-Georges misincentives and one way to drive costs down?

Yeah. Just one other point on the revenue side that I forgot to make: I looked at other concepts in New York food halls, some of which had been successful and some of which were similar, and I tried to understand what they're earning currently per square foot.

You've got very successful concepts like Chelsea Market, Eataly, and Flatiron. Those are generating between $2,000 and $2,400 per square foot in revenue. The Tin Building's at $600. You could say, well, Chelsea Market is an iconic location, it's in the perfect place, and so on. But actually, on the west side of Manhattan, there's Pier 57, which is also on the water. It's also got a highway, and that's earning probably $900 per square foot in revenues. That's actually run by a nonprofit, so it's not even trying to profit-maximize.

There is actually quite a similar situation in Manhattan that is earning 50% more in revenue per square foot. Just to give you a sense, this is absolutely achievable. It has been achieved in other parts of Manhattan.

Just on the cost side of things, right now every concept effectively operates independently. You've got a head chef for each one, as well as individual procurement, and that is incredibly inefficient. Management is going to do 2 things. First of all, they're going to reduce the number of concepts, and that's going to consolidate them. Then they are going to effectively run them as 1 and buy as 1 unit rather than as 15 or 20 different units. I think that is going to make a very significant difference in terms of procurement costs.

If you look at the cost structure of the Tin Building today, labor is about 80% of revenue, and the number of employees is massively higher than it should be with that amount of sales. Sales per employee are significantly higher at other food halls. You've then got a lot of general and administrative expense and a lot of other expenses. It's not exactly clear what they are.

There are a lot of expenses here that are not to do with food and beverage or retail, and I think there's a lot of cost-cutting potential. Management has already begun doing that. You mentioned that there was an article earlier in January. The company did do a reduction of the employee base, I think by about 20%. I'd have to check the exact numbers, and maybe it's a little bit higher than that because they might rehire some people to fill those positions. But there's really a lot of scope for cost reduction, and I think this is pretty much all within management's control.

No, that's great. And again, if you got the Tin Building to break even, it's a huge win from here because you are the landlord as well. You'll be making money on the rent there. That's kind of like fixed cost, but just bring it down to break-even, and I think everything else in this can really shine through.

Again, it's not going to happen overnight, but I think the cost cuts come in, and they come in quickly. I went to the Seaport maybe 2 or 3 weeks ago. I'm sure you've been recently. When you go right now, there are a lot of concepts that have been shut down or are going to get shut down.

Traffic isn't where you want it to be, but shutting down these unprofitable concepts is in process. Then you expand the profitable concepts, maybe bring some new ones in. That gets the cash burn under control. Hopefully, over the next 18 months, as Meow Wolf kicks in, people see that we can get spots at the restaurants we actually want to eat at, versus the popular restaurants being completely full and the unpopular restaurants being empty. Hopefully, it spurs that.

Anything else you want to talk about on the Tin Building, or should we talk about some of the other assets here?

Yeah, just one more point in terms of the actual management of the Tin Building. If you look at the employees of the Tin Building, nearly the entire senior management has changed in the last 12 to 18 months. That includes a lot of people who are coming from Eataly, which has run 3 quite successful locations in New York. That's just another thing to point out.

Perfect. Let's talk about some of the other assets here. We can talk about some of the other assets in Seaport. We haven't even talked about the Vegas assets yet, which I think there's a significant amount of value there. Oh—you know what? We probably have to go to 250 Water Street. This is probably the other big asset and the other thing that I thought was great news in the earnings report. So why don't we talk about 250 Water, and then we can go to the other ones?

Yeah. So, 250 Water Street is also in the Seaport neighborhood. It's currently an undeveloped plot of land, but it has been zoned and fully approved for 545,000 square feet of mixed-use space, mostly residential. These are going to be apartment buildings overlooking the Brooklyn Bridge and the East River, as well as some commercial space, which could be used for offices or other commercial purposes, and maybe a little bit of retail on the ground floor.

At a high level, it's very rare to find a plot of land of this size in Manhattan where you don't have to demolish an existing building. It's fully approved, and it has what's called a 421-a tax abatement, which essentially means that you don't have to pay property taxes on the residential portion of the building. That makes a really big difference in terms of the economics for a developer.

So, this is really prime real estate in a great location, and it should be a very valuable piece of land. Seaport is not really the best company to construct this building. I think management's expertise, unlike Howard Hughes's, is not really in building buildings but actually in building consumer and entertainment concepts.

The likely outcome, which they talked about in their recent results, is to explore either a full sale of this asset or some type of joint venture with a partner who would basically do the actual work of construction and development. I think a sale would be a very significant win for this company.

You can do different math on what the developer economics are, and there are a lot of different ways you could try to figure out the value of this asset, but I think this could sell for something like $160 million. Some people have much higher estimates. As I say, it's more of an art, frankly, than a science to know exactly what it will go for.

But just to give you the context on that, remember $160 million. They have a $60 million non-recourse mortgage on it, so that's about $100 million net. The entire market cap of the company is just over double that. This could be a very significant catalyst for the stock.

I don't know the timing, but I would imagine that they've been having discussions ever since the spin-off, maybe even beforehand, and there's really no reason to wait. This is fully approved and ready to go. Construction costs go up over time, so I would imagine that they are going to look to sell or joint venture this as soon as possible.

No, look, I think you're 100% right. I believe I had a friend who told me he's got access to these commercial real estate listings, and I think he said he's seen the listing pop up in the very recent past. So, I think there's progress being made there.

If I remember correctly, the 421-a program does require you to get it built. It's not like you could start building it in 2025 and have it up in 2035 and be like, “All right, where are our tax credits?” There is an expiration date, and you have to have it built before then.

It doesn't have to be tomorrow or the next day, but I would probably guarantee that this is going to be resolved in the next 2 years because if they don't, they start risking those tax credits. As you said, there's huge value there, so I think this is a near- to medium-term thing.

As you said, if you asked me what I would prefer, I'd say bring that cash in the door. Maybe I love that cash. But it should be equivalent if they said, “Hey, we got $100 million of cash,” or, “Hey, we got a 20% equity stake, where the other guy's going to cover everything, and at the end we own 20% of the building.” The other guy funds everything, he's on the hook for all the cost overruns, and we just continue to own a stake in this asset that should get better as 250 Water comes on and brings on hundreds of residents. As more foot traffic drives people, that might be an interesting thought there, too. Anything else on 250?

No, I just think the way I look at it is this building and then there's another building which is fully leased up. Those 2, if you add them together, are probably worth the entire market cap of Seaport today.

I think they're actually quite important—not because they're as interesting or as valuable as standalone assets, but I think you can quite reliably estimate what their values are. Because that's actually very similar to what the market cap is today, I think that really makes the risk-reward of this investment attractive, in my view.

Speaking of things that may not be worth the market cap but might be worth the EV, why don't we quickly talk about the Vegas assets?

Yeah. They have some quite different assets in Vegas. They own the Las Vegas Ballpark and the Aviators, which is a Triple-A baseball team. They also own 80% of the air rights above the Fashion Show Mall. Brookfield owns the other 20%.

It's tricky with these assets. In my valuation, I actually haven't put any value on the air rights. Some investors think that this could be one of the most valuable assets. It's in a great location in Vegas, and you've got a natural developer in Brookfield who's right there and who could buy these and develop that site.

But it's sort of binary. Either this transaction will happen and it could be very accretive, or it won't, and investors probably are not going to give it value until that point. There are hotels coming on in Vegas all the time, and I think the pipeline over the next couple of years is pretty full, which might make it less likely for Brookfield to decide to develop a hotel or some other property there.

Again, it could happen at any point. You don't really have visibility on that, and it could be significant.

The nice thing about the air rights is that I have fallen into your camp. I know people who think these are worth a lot, but I am very skeptical. The nice thing about the air rights is that they are a free call option because there's basically no cash burn associated with them, and I don't think there's any time limit on them.

Who knows? All you need in the next 20 years is for Vegas to get really hot for one period of time and for somebody to say, “Hey, we must build something right here.” If they're worth $20 million—I'm just throwing out a number—that's roughly 10% of the market cap right now, and you and I are both putting that at zero.

There's just so many different things in here. You mentioned the ballpark and the team, but I don't think you mentioned that there are some ways to roughly estimate their value. Do you want to throw that out there?

Yeah. In terms of the capital that was invested, it's about $150 million in the ballpark. The baseball team is hard to get the numbers for because it was actually quite a while ago, but the number I came to was about $25 million.

It's difficult with these sporting assets to know how much of it was bought for an appreciation in value versus other reasons. It's difficult to know.

Just to add those 2 numbers, the cost was $175 million. I do think that there is room to utilize the ballpark more. I know that's something management is very keen to do. $175 million is not far off the total market cap of the company today.

There is a bit of debt associated with the ballpark, but the point is that it's potentially very significant and not something that I, frankly, have put too much value on—and probably not other investors as well.

The other thing is that the major league team, the A's, is moving to Vegas in the next few years. The Aviators are the A's' sister team. I think some investors have said, “Could this cannibalize attendance at the ballpark?”

The people I've spoken to have said that in situations where this has happened in the past—and I think it's actually happened to a team in Vegas before—it has increased attendance because people can see the young players who are ultimately going to move up to the major leagues, as well as all the injured players who are coming back. They can see those players on the minor league team. There have actually been quite a lot of instances where it has boosted attendance, but we'll see what happens.

No, look, it makes total sense to me that it would boost attendance because it should boost awareness of baseball around there. I think the product of a Triple-A team versus a major league team is so different. Maybe this is just me, but I would go to Triple-A when I was in high school because we had nothing better to do. The tickets are crazy cheap. You almost go for free.

When we got into college, it was like, “Hey, we can drink 4 beers,” and it's not stadium pricing. It's more expensive than if you bought it at a grocery store, but you can just be drinking 4 beers and hanging out. Versus a professional team, you're going for—that's a different experience and a different feel.

But I think you're right. I don't know, but again, you threw out $175 million at cost. Call it half of cost, and boom, you're a third to a half of the market cap. How many things have we mentioned in here where you take a conservative assumption and take a haircut? It's the third staff. It's one of the reasons I love this stock so much.

Let's quickly go back to Seaport District. There are other assets in there. Obviously, we can't hit everything, but they own the historic district, they've got a few more joint ventures in there, and they've got some leased buildings. Just quickly, if there's anything in there you want to talk about?

Yeah, so the historic district is a cobblestone area of Manhattan.

It's almost a block of space, quite unique actually to find that in Manhattan. I would compare it a bit to the Meatpacking District. There's a lot that can be done there. Right now, that space has a lot of retail stores that aren't as busy as they really should be, and there are a lot of empty spaces where retail stores should be. So there's a lot that could be done.

As Pier 17 draws people to the area, there are going to be a lot of opportunities to add stores and monetize that. The one thing I would highlight is that there is one particular building called the Fulton Market Building. It is 115,000 square feet, and it's fully leased up. The reason that's important is that there are 3 tenants. They've disclosed the economics for 1 of them. The Lawn Club, which is a concept that Seaport has a JV with, is another tenant, and then there's a third tenant in that building.

They don't give you the economics for all the leases, but they do give you some of them, and so my guess is that they're earning about $85 per square foot in this building, which is about $10 million in revenue. If you assume that converts to, let's say, $6.5 million in EBIT—so 65% conversion—and then you put a 6% cap rate on that, which would be quite normal for this type of building in Manhattan, that would be $110 million in value. Let's call it $100 million. Again, that's half the market cap today. If you add that plus 250 Water Street, you get the whole market cap today.

This is a fully leased-up building with fairly long-term leases, and so I think the value can be quite reliably estimated, which is why I think it's actually important.

Look, I completely agree with you. Let me end with one question. I keep looking at this thing—and again, I am long it, so people know my disclosure and know where my bread is buttered here—and I say, look, they've got all this cash on the balance sheet. You gave the total debt number, but most of the debt is non-recourse and associated with 250 Water Street. So in a disaster, they're actually quite well protected here, with all these different assets and everything.

I keep saying, “Andrew, how, if you look back 5 years from now, are you going to have taken a material impairment on this investment?” I have some ideas, and I personally think and hope they're far-fetched, but I'd love to ask you the same question. The thing that really attracts me here is I see lots of ways to win and possibly win big, given all the numbers we've thrown out, and it's hard for me to see the ways to lose. So I'd love to talk to you about how you see the ways to lose.

Yeah, well, I think it's important to say that, obviously, at this point in time, it is a cash-burning company, and so we are assuming that changes. If that does not change, then of course that will very heavily impact the value. They could ultimately burn the cash they currently have and need even more cash. So that would really be the primary way you could lose from this point.

What would it take for them to never break even and just keep burning cash forever? I think the Tin Building is about half the cash burn today. So if they are just unsuccessful in turning that around, which would mean that expanding successful restaurants doesn't necessarily bring in the actual revenue you would anticipate, it would mean that as you make these cost cuts, that has an impact on the service level and the number of customers coming in, even though benchmarks—food halls in New York—have been able to support that amount of revenue with those employees.

So I think that would have to happen, and then you would need, for example, Meow Wolf to not be successful. We think it'll be successful because it's been successful pretty much everywhere else, but there's always a risk when you bring in a new concept that it just doesn't translate to the local audience. So I think that would be another way, and they could always do something dumb with the cash they currently have. That's unfortunately been how we've ended up in the situation where these assets are in need of a turnaround.

Unfortunately, most of the companies I invest in really love to do dumb stuff with their cash. That's one of the tough things. But, to your last point, Ackman owns 40% here. We talked about the Ackman possible discount that's getting assigned.

You'd hope Ackman is a very sophisticated financial player. You'd hope if the management team came and said, “Hey, we want to spend all of our cash on buying a piñata and cracking it open or something,” you'd hope Ackman would say no. This cash will be deployed in rational manners, whether that's good acquisitions, buying buildings, investing in tenant improvements to get this spruced up, or maybe, once they cut all the cash burn, saying, “Hey, let's turn this into a capital return story.”

I don't know, but you'd hope the bad thing that we talked about earlier actually works in your favor, and this management team has been brought in on that mandate.

I mean, they don't have the same mindset as the previous management team. If you look at the Tin Building, which is probably the most egregious example of the philosophy that was previously taken to build this kind of really luxury food hall in the wrong place, this management team isn't wedded to that idea. They are going to change things quite drastically. I think it's good that you have new people coming in who don't have the same ideas.

Chris, this has been awesome. If I can toot your horn one more time, I think I put it in my yearly review, but last year I did a podcast with you. What was the second podcast we did? Watches of Switzerland. I did a Watches of Switzerland podcast with you, and then the next day, my friend Kyle Moyer came on and we did a Driven podcast. I had so much fun and learned so much on them. I was like, “Look, we're high-grading the guests. Anyone—they've got to be Chris Waller- and Kyle Moyer-quality.” It's tough to match that, but, Chris, this has been great.

Let's wrap it up with this. We covered a lot here. Actually, there is a lot more that we could cover because there's just endless things, but I think we did hit all the main things. Any last thoughts you want to share, or anything you think we should have hit that we didn't hit?

No, I think it's a small company by market cap, but unusually complicated, and that is partly why the opportunity exists. I think that as we see some of these changes that management has made take hold, I would hope that the stock would start pricing that in. I think there's maybe been a bit of frustration so far because if you look at Q4 results, there hasn't really been a significant improvement, but bear in mind that is before all these changes have been made. The changes to the Tin Building were in Q1. These leases are going to come in at a later date. So there is a time that we have to wait and be patient.

I'll just use myself as an example. When I first saw the results, I was like, “Damn, I thought this management team understood: get the cash burn down.” Then I thought for 30 seconds and I was like, “Hey, this is real estate. They just took it over; the spin basically happened in Q4, and they're reporting Q4 results. It was basically 6 months ago.”

This is real estate. It takes a little time for them to come in. They have to restructure leases and the Tin Building. I guess you could, but it's not like you can just throw in, “This is closed, and we're redoing everything.” You have to—it takes a little bit of time.

When I had more than 30 seconds to get past the Bloomberg-flash headline of “Here's the cash burn,” I was personally really impressed, especially by Meow Wolf and a lot of things, and I think they are clearly driving in the right direction. I hope you agree, but if you disagree, please tell me otherwise.

Yeah, I agree. Obviously, I own the stock as well, but I think that these changes had not happened prior to Q4, so why would the results be much better if the changes were afterwards? They filed an 8-K that said, “Hey, we took over CCMC, which operates everything.” They filed an 8-K at the beginning of January, and I think it was as of January 1. So how could the cash-burning Q4 have been better? You kind of knew it.

Also, bear in mind that some of these things do have to be spent up front. When you reduce the number of staff significantly, you do have to pay severance. When you close concepts, there is a period of time when they're shut and earning zero. When you spend to bring in these new concepts, whether it's new restaurants or so on, you have to spend up front. But those are the right decisions to make, and so there is a bit of cost up front, but that's what we should want them to do.

The Meow Wolf thing that you and I both think is like a borderline grand slam—Meow Wolf's not going to be here until 2027. So it's coming, but guess what? It's not going to be in the results for the next 21 months, unless some tenants that can move in quicker say, “Oh, Meow Wolf's coming. Let's grab some leases now.”

But Meow Wolf, which I think is transformative, doesn't come for 21 months. Chris, we're way over an hour here. I really appreciate you popping on. The weather is starting to get really nice in New York, so you, me, and some of our friends are going to go down to the Lawn Club. They've got beer pong with giant trash cans and giant balls, and we're going to play some of that.

We’re going to play some shuffleboard. It’s going to be a ton of fun.

Yeah, looking forward to it. Thank you.

Chris, I’m looking forward to having you on for a fourth time, fifth time. I’ll get you this shirt, so you’re getting there.

Great. Thank you, Andrew. Thanks for having me.

Nothing on this podcast should be considered investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial adviser.