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Shopping Centers Today -> May 2002
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| Melvin Simon |
WILL IT WORK? DID IT EVER!
By Debra Hazel
They said it wouldn’t work. And at times, it looked like it wouldn’t.
Bloomington, Minn., needed something to replace its old Metropolitan Stadium, which was rendered obsolete by the 1982 departure of the Minnesota Twins and Vikings to the Metrodome in downtown Minneapolis. An Urban Land Institute study recommended a mixed-use project, an idea that really caught fire in 1985 when Triple Five Group hosted Bloomington officials at its 5.3 million-square-foot West Edmonton (Canada) Mall.
Accordingly, Triple Five got the job, proposing a $1.3 billion, 10 million-square-foot variation of the retail, amusement park and hotel mix at West Edmonton Mall, the world’s largest center. At one point considering the construction of a lake at Mall of America like the one at West Edmonton, Triple Five even loaded up a submarine and drove it across North America.
But then everything seemed to unravel. The $60 million in financing the city had agreed to provide fell short of Triple Five’s needs, and the company substantially scaled back the project. Even then it could not raise the $475 million in private financing that was needed, and the ground-breaking was postponed.
Another bad omen was the electoral defeat of the city’s pro-mall mayor to an anti-mall successor. The mall’s fortunes appeared to be at their lowest ebb.
Then came a critical turning point. In 1987 Triple Five brought in Indianapolis-based Melvin Simon & Associates (today Simon Property Group), and things began to happen.
“[The] Simons saw the potential of this once-in-a-lifetime project and approached us with a proposal that we develop Mall of America as partners,” said Nader Ghermezian, one of four brothers behind Triple Five, in a written response to SCT’s questions. The Simons became 22.5 percent owners of the project, taking over the leasing and day-to-day development; the Ghermezians also held 22.5 percent; and New York-based Teachers Insurance and Annuity Association (the mortgage and real estate division of TIAA-CREF) took a 55 percent majority stake in the mall, its largest single retail investment ever.
Simon pieced together construction loans from a consortium of Japanese banks, including Mitsubishi, which replaced Citicorp as the lead lender on the project. Bloomingdale’s, Macy’s and Nordstrom — each of which received about $30 million in incentives — announced they were coming into the mall. Other retailers followed, including Kohl’s, Sears and Service Merchandise.
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| The Ghermezians, who first envisioned Mall of America, in a family portrait. From left to right: standing, Nader, Raphael and Bahman; sitting, Eskandar, Jacob and Myriam. |
Meanwhile, on the entertainment side, the mall had signed up Knotts Camp Snoopy, a 1.6 million-square-foot theme park, and ground was broken in 1989.
But even then, things didn’t go entirely as planned. Dayton’s (today Marshall Field’s), a mainstay at most Twin Cities malls, declined to take space, preferring to expand its presence at proven centers. And Federated Department Stores, parent of anchors Bloomingdale’s and Macy’s, filed for Chapter 11.
Skeptics were having a field day.
“Mall of America will be somewhat successful as entertainment, but not as a shopping center,” said a Midwestern developer who dubbed the project “a megamistake.”
Not even Houdini could make the project work, said a prominent East Coast developer, who, like other critics, requested anonymity.
The real estate collapse of the early 1990s only added to the general skepticism surrounding the mall. Local observers questioned whether it was being built too late, given the renovation plans of neighboring centers. Others doubted that area shoppers would visit the center more than once, or that tourists would come at all.
Melvin Simon, today co-chairman of Simon Property Group, bristled when he was collared in 1991 between meetings at ICSC’s Spring Convention by an SCT reporter for a response to his critics.
“Look at [West] Edmonton [Mall],” he said. “They draw from an 800-mile radius. I’m only trying for 300.
“Where’s the nearest Bloomingdale’s? Chicago. Where’s the nearest Nordstrom? Chicago. Where’s the nearest Macy’s? New York, probably. Where’s the nearest Lego factory? Denmark.”
The developers had by now spent considerable time defending the project, both in the media and before bankers.
“This was a tremendous risk,” said Stephen E. Sterrett, CFO of Simon Property Group. “Some of the press was just brutal.”
But construction proceeded smoothly and when the $650 million mall opened on Aug. 11, 1992, customers flocked to the center. By 1994 the mall was 90 percent leased; today it is 99 percent leased and occupied.
Over time the mall has changed, and so have its owners. Melvin Simon & Associates became a REIT in December 1993 and was renamed Simon Property Group, though Mall of America was not initially among the properties in the new REIT’s portfolio. That changed in October 1999, when Simon acquired half of Teachers Insurance’s stake for $241 million in cash, stock and assumed debt. The public and private Simon entities (Melvin Simon & Associates still exists) now own 50 percent of the center, Teachers Insurance has 27.5 percent and Triple Five holds its original 22.5 percent.
In March 2000 Triple Five sued Simon over the deal, contending that the acquisition violated the ownership contract between the two developers; the suit is still in the courts. The two developers and Teachers Insurance, however, will be investors in the megamall’s expansion, planned for a 2004 opening ( see story).
Despite the tough hurdles and the nay-saying the developers faced getting Mall of America built, Ghermezian remembers those days fondly.
“I remember many very long nights planning the various components of MOA,” he told SCT. “What an exciting time the 1980s was as we put our hearts and souls into the project. … Mall of America was our whole life for a long time.”
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