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GENERAL GROWTH’S GROWTH GETS EVEN MORE GENERAL

When General Growth Properties bought The Rouse Co. in 2004, what was driving the deal was obvious: Rouse’s world-class portfolio of retail properties. Less obvious to outsiders was General Growth’s interest in the community-development business for which Rouse had become famous.

At the time, General Growth CEO John L. Bucksbaum, SCSM, sounded an upbeat but cautious note about Rouse’s nonretail operations. “This is an area where we don’t have a lot of experience, but with the talented group at Rouse, we expect to build on that success over the years,” he said.

Now, little more than a year later, the cautious tone is gone. “I couldn’t be more pleased to be involved in the master-planned community business,” Bucksbaum said. “It’s exceeded all of our expectations.”

To analysts, it seems clear that General Growth has grown more comfortable with community development and has more fully realized the value this can bring to its broader business. “When they bought Rouse, there were rumors they would sell the master-planned community business, but I think as they’ve analyzed it better, they’ve seen it’s another venue for providing good earnings and cash flow to the company,” said Philip M. Kibel, senior vice president at Moody’s Investors Service. “Retail is where they’re at and what they’re focused on, but master-planned communities is a business line that will feed the retail business.”

Whatever those rumors, Bucksbaum made it clear the week the deal was announced that General Growth intended to keep Rouse’s community development assets. Now he says having become better acquainted with Rouse’s nonretail operations over the past year “has been an eye-opener, and it’s been incredibly exciting. The things it allows me to envision for the future open up a whole new vista for the company.”

To a large degree, retail development and community development have become complementary businesses. Developers of planned communities start with the residential component and move into developing the commercial center. Owners of large retail properties, meanwhile, are moving to add residential and office components in order to increase density and value.

“The experience that comes from the community development business is going to serve us tremendously well as we apply it to our retail properties and our town centers,” said Bucksbaum.

Among the assets General Growth acquired in the Rouse deal was undeveloped land in the planned communities of Columbia, Md., and The Woodlands, near Houston, as well as the massive Summerlin master-planned community west of Las Vegas. At Summerlin, Bucksbaum says, the firm has begun designing the town center, which will offer as much as 1.5 million square feet of retail, as well as residential, office and possibly hospitality space. It is a process he describes with enthusiasm.“All of that gets to be laid out and planned so as to work together,” he said, “as opposed to building retail and deciding down the road that there’s an opportunity for office or residential and plopping it down in the middle.”

At the other end of the spectrum, General Growth faces the challenge of essentially retrofitting the 507-acre core of Columbia by adding retail and increasing its residential and office density. “The demands on the town center are vastly different than they were 30 years ago,” Bucksbaum said.

Plans to build office and retail on 52 downtown acres have drawn determined resistance from residents, who earlier had stymied efforts to build more homes there. Bucksbaum says General Growth is working closely with the community and county officials to gain agreement.

All this is taking place as General Growth and other retail REITs seek to add new uses to their centers. Indeed, Bucksbaum told securities analysts recently that adding mixed-use and increasing density “will be the driving force behind General Growth Properties in the next 25 years.” For Bucksbaum, there is synergy between the new and the established parts of the company. “A lot of the knowledge we’re deriving from the community-development business we can start to apply to other retail properties we own, which heretofore have been regional shopping malls,” he said. “This is an appropriate time to be reviewing all of the things that have been done over the past 30 or 40 years.”

— CH