Shopping Centers Today -> May 2006
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EMERGING MARKETS OFFER U.S. DEVELOPERS SPACE TO GROW

American retail REITs, ever eager for growth opportunities, are beginning to see the attraction of the world’s developing markets.

“From a growth perspective, companies that are looking for upsides need to look into emerging markets to take advantage of what could be historical trends going forward,” said Daniel Hurwitz, senior executive vice president and chief investment officer of Developers Diversified Realty Corp., which is exploring development opportunities in China and Mexico. DDR is among a handful of developers that have either entered an emerging market or are considering it. Here are others:

  • General Growth Properties, the largest shopping center developer in the United States, holds a stake in three shopping centers in Brazil and is developing a fourth center there, all in a joint venture with Nacional Iguatemi Group. General Growth is also developing a mall in Costa Rica as part of a venture with Venezuela’s Grupo Sambil and Costa Rica’s Genesis Fund. In addition, General Growth has formed a venture with Germany’s ECE Projektmanagement to develop and acquire shopping centers in Turkey.
  • Simon Property Group’s Simon/Chelsea International subsidiary opened a Hong Kong office to oversee development in eastern and Southeast Asia. Chelsea already operates outlet centers in Japan and South Korea.
  • Kimco Realty Corp. started five projects last year in Mexico, four of them anchored by Wal-Mart and the fifth by a Mercedes-Benz dealership. The firm also owns a half interest in the 57-property Mexican portfolio of American Industries.
  • Taubman Centers created Taubman Asia, a Hong Kong-based unit that it said “will be the platform for Taubman’s future expansion into the Asia-Pacific region.”

    • “Anyone who is serious about external growth needs to understand the potential that the international market brings,” said DDR’s Hurwitz. DDR will have news about its China plans “in the near future,” he says, and information about Mexico sometime after that.

    Behind all this interest is the emergence of a middle class in both China and Mexico, Hurwitz says. “From a retail real estate perspective, the United States is very mature,” he said. “Europe is very mature for the most part, especially Western Europe. Canada is mature, and most of the other markets are immature. Consumerism has emerged and opened up opportunities not just for investment but expansion. It’s hard to believe that Starbucks charges the same for a latte in Shanghai as they do in Cleveland, but they do. Clearly there is an enormous demand for Western products. These countries are becoming extremely branded, as we are here.

    “China moved from no phones to cell phones; they skipped the landline era. They went from bicycles to cars. They went from just being happy to have a shirt, to wanting a branded shirt, and those are the trends that if you’re in retail real estate you hope to be on the front end of. As long as you move prudently and are disciplined, it should be a great opportunity to enhance shareholder value.”

    — CH

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