David Simon doesn't like to take no for an answer. The chairman and CEO of Indianapolis-based Simon Property Group didn't grow his company into the nation's largest public real estate firm, with 382 properties, by being a shrinking violet.

Simon (NYSE: SPG) has amassed 162 regional malls, 41 Premium Outlet Centers and 16 Mills retail centers generating combined annual sales of more than $60 billion. Among shopping center owners, the company is No. 1 in gross leasable area, with 245 million sq. ft. It also ranks as the nation's largest real estate investment trust (REIT) by market capitalization.

But Simon still has an appetite for growth. General Growth Properties, that is. Although his $10 billion offer to buy the nation's second-largest mall owner was rejected in February, Simon's CEO has no intention of backing down as the Chicago-based REIT struggles to emerge from Chapter 11 bankruptcy.

Simon can afford the prize he covets. At a time when many other commercial real estate companies are taking drastic steps just to survive the effects of a devastating recession and credit shortage, Simon has stockpiled a war chest of $7.4 billion, including $4.3 billion in cash and $3.1 billion in corporate credit. “That firepower is available for something like a General Growth, among other things,” the CEO says.

He will use some of the capital, along with other financing sources, to buy Baltimore-based Prime Outlets Acquisition Co. and its 22 stores for $2.3 billion, a deal scheduled to close later this year.

“It's got to be smart growth,” says Simon. But he is determined to expand the REIT's portfolio. “I think our shareholders would like to see us grow the company. We certainly would like to see us grow the company.”

But cautionary tales abound, demonstrating the downside of what can happen when a commercial real estate firm grows too quickly. General Growth's plunge into bankruptcy last April, the largest real estate failure in U.S. history, is often blamed on its $14.2 billion acquisition of mall owner Rouse Cos. in 2004, which was highly leveraged. General Growth Chairman John Bucksbaum, however, said in February that the unavailability of credit to refinance maturing mortgages caused the collapse.

Simon is well aware of the dangers of expansion. “We think about them all the time,” he says. “You've got to learn from history.” But he has a duty to shareholders to maximize their investment. “It's a public company. The expectation is to grow, but don't do it to the point where you risk the foundation. We've seen that before in our industry. We certainly have no intention of following in those footsteps.”

Shoes of the father

The footsteps David Simon follows are those of his father, the late Melvin Simon, who became a legend in Indianapolis after he founded the real estate company Melvin Simon & Associates in 1960 with his brother Herb. Melvin Simon developed grocery-anchored, open-air centers and shopping plazas, signing major tenants such as Sears before building the first enclosed malls in Indiana.

The company grew steadily, riding a wave of suburban development as it expanded into Illinois and Michigan and branched into Western states. In the process, the developer helped to shape the American postwar landscape. Known for his eclectic interests and gregarious personality, Melvin Simon started a film production company, and with his brother bought the Indiana Pacers basketball team.

In the meantime, David, the oldest son, graduated from Indiana University in 1983 and earned an MBA from Columbia University's Graduate School of Business in 1985. He took a job at First Boston Corp. and in 1988 moved on to Wasserstein Perella & Co. in New York, a Wall Street investment banking firm specializing in mergers, acquisitions and leveraged buyouts.

Bruce Wasserstein, a former banker at First Boston, was a prolific dealmaker and a philanthropist. Wasserstein, who died in October at 61, has been credited with turning major takeover deals into high art, using strategies more commonly associated with battlefields, according to an obituary.

Simon quickly absorbed Wasserstein's lessons and strategies. At 29, he was a vice president at Wasserstein Perella when he left to join his father's firm in 1990 as chief financial officer.

It didn't take the newcomer long to put his own ideas to work. He started a program of upgrading the company's properties, and in 1993 led the ambitious project to take the family firm public with an initial public offering (IPO) of $840 million — setting a record for the largest IPO in the country at the time, according to The National Association of Real Estate Investment Trusts. With that feat, Simon Property Group was formed. Two years later, in 1995, David Simon became CEO.

It has been a long road, acknowledges Simon, now 48. And the company he guides has a great deal to show for the journey. “We went from $2.5 billion of assets to $50 billion of assets over the last 16 years,” he says.

Along the way, he acquired some firms that bore the names of old family dynasties that had reigned in the retail property realm for generations. In 1996, just a year after his promotion to CEO, he steered the company through a bold, $3 billion merger with rival mall owner DeBartolo Realty Corp., founded by the late Youngstown, Ohio developer Edward DeBartolo.

The merger created the largest U.S. mall company at the time, Simon DeBartolo Group, with 111 regional shopping centers, 66 community centers and six specialty centers. It gave the company a presence in 32 states. In 1998, the company dropped the DeBartolo name and again became Simon Property Group.

Growth spurt?

If David Simon prevails in absorbing General Growth's 200 regional shopping malls, it would bring the REIT's portfolio to more than 500 malls and the company would command a hefty 40% of the mall market, analysts point out.

Extending from the Ala Moana Center in Honolulu, where Chanel, Coach, Fendi and other upscale shops draw 42 million visitors annually, to the Staten Island Mall with its 2 Cute, Ann Taylor and Disney stores, General Growth encompasses more than 24,000 retailers.

But Simon is not the only company angling for General Growth. Rival Brookfield Asset Management, based in Toronto, reached an agreement with General Growth in February to invest $2.6 billion and acquire a 30% stake in the company. Undeterred, Simon Property issued a public statement Feb. 24, calling the rival plan a risky equity play and an inferior proposal.

Simon's offer would give the bankrupt company $9 billion in cash upfront, rather than just $2 billion and “the hope of additional cash down the road,” scoffed Simon's statement.

General Growth's initial response to Simon's offer was to thumb its nose and call $9 per share insufficient. The flurry of public letters and terse exchanges has made for great theater, but Brookfield, for one, is unfazed.

“We're very pleased. This is quite a step in the right direction,” says Denis Couture, senior vice president of Brookfield, which manages $40 billion of global property, infrastructure and financial assets.

Bankruptcy Judge Allan Gropper's March 3 decision to give General Growth four more months to develop a plan to emerge from bankruptcy works in Brookfield's favor. If its proposal is approved, it would be a coup for the Canadian company. “That would give us a platform in the U.S. that we have coveted for a number of years,” says Couture.