Internet no match for good malls, Simon says
Publish Date: March 11, 2014
Who’s afraid of the big bad Internet? Not David Simon. Well-maintained, smartly tenanted malls in strategic locations will always hold their own against online retail, the chairman and CEO of Simon Property Group told audience members attending this year’s Charles Grossman Lecture in Philadelphia Monday.
Simon was interviewed by real estate veteran Glenn Rufrano, CEO at O’Connor Capital Partners. The lecture series, organized by the ICSC Foundation, takes place each year as part of the University of Shopping Centers curriculum at the University of Pennsylvania’s Wharton School.
Citing the example of a prime asset nearby, Simon said “I don’t care what the Internet does, it’s never going to affect the King of Prussia [Mall].” The Pennsylvania mall and any number of other such key shopping centers can offer shoppers a more attractive diversion than the Internet if they are properly run.
Looking ahead, “We have to make the mall experience a better experience for the consumer,” he said. To that end, there is scope for plenty of mall maintenance and redevelopment in the U.S. to ensure that shoppers feel the same satisfaction experienced by guests at a well-run hotel.
Simon recalled some of the highlights of the company’s dramatic growth since going public 1993, through its own development and the acquisition of other developers such as DeBartolo Realty Corp. in 1996; The Retail Property Trust (1997); Corporate Property Investors (1998); Chelsea Premium Outlets (now Premium Outlets) in 2004; The Kravco Co. (2003); and The Mills Corp. (2007). The company also owns a 29 percent-stake in Paris-based Klépierre, which owns centers in 13 European countries.
“It took a little bit of guts to do it,” he said, recalling the first of those acquisitions, and there were naysayers for many subsequent deals too. “We were criticized along the way with all these deals.”
But Simon said he knew that growth would be critical in bringing down the cost of capital, providing economies of scale, and strengthening relationships with retailers. Those advantages gave Simon an edge when it found itself competing with rival landlords to buy additional companies, as happened when The Rouse Co. entered the fray to purchase Corporate Property Investors, he said; ultimately Simon could afford to pay more, taking a longer-term view on the investment. By the same token, the company found itself in a better position to weather the Great Recession, he noted. “We saw some opportunities … and grew our way out.”
Today SPG is the largest U.S. REIT, with full or part-ownership in 328 retail properties, amounting to 243 million square feet, including such high-profile centers as Houston Galleria; Dadeland Mall, near Miami; Fashion Valley Mall, San Diego; and Stanford Shopping Center, Palo Alto, Calif.
SPG recently spun off its smaller malls and strip centers, creating Washington Prime Group — initially called Spinco. This asset class was somewhat overlooked as the company focused on its prime assets and growth, Simon said. “It just got neglected,” he said. “We starved it for growth capital.” Now that property will get the attention it deserves, which bodes well for Washington Prime, Simon said. “I think there’s good real estate to buy in that sector,” he said. “It’s got potential to grow just as Simon did.”
Looking overseas, Simon said “we are very very cautious” about such emerging markets as Brazil, China and Russia, noting that such markets are experiencing “varying degrees of dislocation.” Simon says he is far more comfortable investing in Europe. “What I saw was the same model as in the United States.”
The Charles Grossman Lecture Series is named after the late Charles Grossman, an active ICSC member for more than 30 years. Grossman was chairman of ICSC and the ICSC Foundation and was a managing director at ING Clarion Partners.