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BACK IN THE OWNER'S SEAT

ROSS GLICKMAN AND LEN TOBIASKI ARE RETURNING URBAN RETAIL TO THE DEAL TABLE

By Joel Groover

The sale of Oakland Mall, in Troy, Mich., last November was noteworthy to anyone who follows real estate in metro Detroit. After all, the 1.5 million-square-foot mall, with 125 specialty stores, and anchors JCPenney, Macy's and Sears, has been part of the local retail equation since the 1960s. But the deal also carried national significance, if not so much for the mall itself, then at least for the buyer: Urban Retail Properties.

For veterans of the U.S. shopping center industry, the one-word moniker "Urban" is shorthand for the Chicago-based company that, amid a string of ownership changes over 30 years, built such Windy City icons as Water Tower Place and 900 North Michigan Shops; Boston's blue-chip Copley Place; major malls like the Galleria at Roseville (Calif.); and some 70 other retail, hotel and office projects. Urban Retail also earned a reputation for snapping up marquis malls like the Galleria, in Houston, and Century City Shopping Center, in Los Angeles. "For those of us with a little history in the business, Urban has always been synonymous with some of the highest-quality retail developments in the United States," said Dan Martin, managing director of the Arlington Heights, Ill., office of Sperry Van Ness. "The name still carries a lot of weight."

For the past seven years or so, however, the Urban name has been conspicuously absent from headlines about major new retail developments and property acquisitions. The Oakland Mall deal signals that Urban Retail is back in the game, flush with new institutional financing and looking to build new centers and make opportunistic plays.

If Urban Retail does resurrect itself as a major owner, it will owe its return to some strategic moves by Chairman and CEO Ross B. Glickman and President and COO Len W. Tobiaski, including a buyback of the company from three heavy-hitting mall REITs in May 2005. Both men trace their roots back to JMB Realty Corp., which bought the original Urban Investment & Development Corp. in 1984 and launched Urban Shopping Centers, a public REIT, in 1993.

What happened to Urban Retail's historic focus on ownership? The change began in October 2000, when Netherlands-based pension fund Rodamco bought Urban Shopping Centers for $3.4 billion. Under the deal's terms, the management division, Urban Retail Properties, retained its name. But Urban Shopping Centers itself was delisted from the New York Stock Exchange and became part of the newly formed, Amsterdam-based Rodamco North America. This ownership structure changed yet again in May 2002 when Simon Property Group, Westfield and The Rouse Co. (later acquired by General Growth Properties) swooped in and bought Rodamco North America - and thus all of Urban Retail's former real estate assets as well as its management division - for $5.3 billion.

"They took the 36 or 38 assets that [Rodamco North America] owned, dispersed them among themselves and left us, meaning Urban Retail Properties, with the property management company," Glickman said. "We were precluded from developing or acquiring. We were tasked only with property leasing and management, third-party development, et cetera. We had no asset base. All we were was a fee-based business."

Glickman and Tobiaski made the best of the situation. Under their leadership before the buyback, Urban Retail Properties diversified its thriving, third-party management portfolio, which ranks among the largest in the country, with over 40 million square feet of retail, office, government and residential space. Urban Retail also diversified its business model in creative ways. Its revenue streams now include a catering and event-planning affiliate with 600 employees and major government contracts; a global consulting practice with an office in China and another in the works for the United Arab Emirates; and some strategic alliances with the Borealis light-emitting diode company, the Maya Cinemas chain and MGM Studios. "When we were restricted by our previous ownership from developing and acquiring, we had to be aggressive and find other revenue-sourcing devices that could keep us in business," Glickman said. "Those other offshoots became a necessity for us, and each of them became viable and vibrant business plans."

That said, Glickman and Tobiaski still chafed at the limitations on Urban Retail's growth. They became determined to engineer a management buyout that would free Urban Retail from its Wall Street-driven overlords and also leave them in charge as business partners. "We decided that, sooner rather than later, we had to buy ourselves back," Glickman said. "We felt that we had to develop a pipeline and resurrect ourselves as a major developer."

The move, which required intricate negotiations with three of the most powerful REITs in the shopping center industry, did more than restore Urban Retail as an independent, privately owned company, Tobiaski says. "We were concerned about what the future would bring for the employees of the company," he said. "At the time Ross and I bought the company back in May 2005, we had about 75 employment contracts that still remained. Those contracts were to expire at the end of August, and we had no knowledge of what the three REITs planned to do with [Urban Retail] thereafter."

The buyout was just a first step, however. The second, lining up ready sources of equity and debt for the nascent pipeline, was equally important. Urban Retail tackled the latter obstacle in the fall of 2006 by negotiating an agreement with Des Moines, Iowa-based Principal Global Financial Group, an adviser to California pension fund CalSTRS, which holds some $18 billion in real estate investments and total assets of about $144 billion. CalSTRS will reportedly dedicate up to $500 million to help Urban Retail buy and build retail centers, and that funding could rise to $1.5 billion through the addition of debt. Meanwhile, RAIT Financial Trust, a Philadelphia-based mortgage REIT, bought 25 percent of Urban Retail late last year for an undisclosed sum.

"[RAIT] can provide us debt if we need it, and they can also provide us opportunities with mortgages that they hold for other entities that we may find interesting," Glickman said. "It rounded out our financial capabilities to the point that, now, we really don't have to go to the marketplace and look for either equity or debt." Given the emergence of the credit crunch this summer, Glickman and Tobiaski acknowledge that the timing of these financing arrangements was fortuitous. "When we have an acquisition or development opportunity, it goes right to CalSTRS," Glickman said. "We've protected ourselves from the credit crunch."

The men relish the idea of once again making Urban Retail a force in the development business. Tobiaski, who started at JMB in 1975 as an assistant controller, has lived through much of Urban Retail's history as an insider. The Chicago native studied accounting and finance at St. Joseph's College, in Rensselaer, Ind.

He served in the National Guard after graduation in 1970 and became interested in real estate while working on the JMB account as a senior auditor at Altschuler, Melvoin and Glasser, a Chicago accounting firm. Over the next 30 years, Tobiaski handled a wide variety of responsibilities at both JMB and Urban Retail, including asset management, acquisition and deal structure analysis, property accounting, financial reporting and three computer system conversions. He was Urban Retail's CFO before the buyback.

Glickman earned a formidable reputation during the 1970s and '80s in executive posts at major chains before JMB recruited him as president of leasing in 1991. Indeed, Glickman co-founded one of those chains, The Athlete's Foot, in 1973. Over the next seven years, he expanded its franchise operations from five to some 400 stores.

He repeated the feat as director of real estate at General Nutrition Centers, tripling the number of company-owned stores to 1,500 during a four-year tenure. In 1984 Glickman became director of real estate at The Limited, where he spearheaded the expansions of a number of brands, including Limited Express, Lane Bryant and Victoria's Secret.

In his 35-year career Glickman has worked alongside such retail visionaries as Limited founder Les Wexner and deal maker Steven Roth, chairman and CEO of Vornado Realty Trust (with whom Glickman formed shopping center development firm Glickman Properties in the late 1980s). Nonetheless, he cites a brief stint in politics as his greatest life lesson. Glickman was a state senate page in Ohio as a political science major at Ohio State University, and he also worked for U.S. Rep. Charles A. Mosher of Ohio after graduation in 1971. About nine months into that job, he got a call from Sen. Hubert Humphrey's presidential campaign.

"I was Mrs. Humphrey's advance man for the '72 campaign every day for the better part of a year," he said. "If I were meeting with her at night I would say, ‘Mrs. Humphrey, this is what we are doing tomorrow. I will be with you every step of the way.' " The job was to make sure all the details of her campaign stops were in perfect order. "At age 22 it threw me into an area of responsibility where there was no margin of error," Glickman said. "You're on a national campaign, a national stage, and you're with a major player where there's no room for mistakes. That was a defining moment for me in dealing with people."