Old rivalries resurface

A Brookfield victory would also be payback, of sorts, for a run-in with Simon several years ago. In 2007, Brookfield consented to buy The Mills Corp., a shopping mall REIT based in Chevy Chase, Md. “We made an agreement with them and at the last minute in the bankruptcy proceeding, Simon Property Group [submitted a larger bid],” says Couture. “We had a right to match it and decided not to.”

Old memories may not fade. “Brookfield has been trying to figure out a way to snatch the company away from Simon,” asserts Ralph Block, a REIT historian and author in Westlake Village, Calif. As for General Growth, it wants to remain an independent company, says Block. “They've been looking for Brookfield to help them stay independent.”

Simon may team up with New York-based private equity firm The Blackstone Group to acquire all or part of General Growth, says Block. “Blackstone's muscle means that it would reduce the risk that Simon could be overexposed after swallowing the company.”

The friction between Simon and General Growth isn't surprising, says Dennis Mitchell, vice president at Sentry Select, a wealth management company based in Toronto. “These two families are rivals,” he says of the Simons and Bucksbaums.

“If Simon Property were to take over General Growth, they would have no use for the Bucksbaum family. They would have no use for most of the existing executive and senior level management. So the Brookfield Asset Management alternative sort of preserves the Bucksbaums as the managing family or influential shareholder and allows them to continue their legacy,” says Mitchell.

With many old retail real estate dynasties, preserving a family name is worth fighting for. “You start talking about family-created businesses that have been around for 40, 50 years, those sorts of things matter,” says Mitchell.

But to prevail, the Bucksbaums would have to outfox David Simon, and that won't be easy. “He doesn't like to lose. He's very, very competitive,” says Mitchell. “For him, winning means that he's got better assets and he's making money.” If General Growth turns down Simon's offer, says Mitchell, “I think they'll take it to court.”

But David Simon doesn't always win. “The only deal he wanted that he didn't get was Taubman,” says Barry Vinocur, editor of the newsletter REIT Wrap, based in Novato, Calif.

In late 2002 and 2003, Simon made a hostile offer to acquire mall owner Taubman Centers, based in Bloomfield Hills, Mich. The offer came after founder Albert Taubman resigned as chairman following his conviction and brief imprisonment in an antitrust case involving price-fixing at auctioneers Christie's and Sotheby's, where he had been chairman.

In a bitter, 11-month fight for control of the malls, Taubman managed to get a law enacted prohibiting Simon's planned $1.7 billion takeover and Simon withdrew. “When the history is written people will have to remember that Taubman escaped Simon's clutches by getting the law changed in Michigan,” says Vinocur, who calls David Simon a “superb” leader. Otherwise, Simon might have won, he adds.

“Anybody that's in that business will tell you that he's a tough-as-nails competitor. He's a take-no-prisoners type of guy,” says Vinocur. “When you go to war, you want a general out in front who's experienced and able to lead the troops into battle. And that's what David is.” Vinocur has known Simon for 20 years and watched him become a dominant force in the REIT industry.

Retail malls of the caliber owned by Taubman or General Growth only rarely become available. They represent business and real estate prizes that took family dynasties generations to build, and it stands to reason that competition for them will be rough.

“This is like the Super Bowl,” says Vinocur. “When guys get to the Super Bowl, they come to play. They know they're going to get knocked around, they know they're going to knock some other people around. This is the big game.”

Denise Kalette is senior associate editor.

Asia intrigues Simon as venue for expansion

As Simon Property Group looks for new acquisitions and projects, some of them undoubtedly will be in Asia, according to David Simon, chairman and CEO of the Indianapolis-based real estate investment trust (REIT).

“We have a very strong outlet business in Japan, and that continues to prosper. We also have a wonderful outlet center in South Korea. We're looking at another development opportunity there,” says Simon. “I like the outlet business in Asia. We'll continue to hopefully broaden that appropriately.”

It's unlikely that the REIT will open shopping centers or malls catering to middle-class consumers in China in the immediate future, however. In late 2009, Simon sold its joint venture interest in the development and operations of its shopping centers in China to its Chinese partner, SZITIC Commercial Property Co. Ltd., for about $29 million. Simon lost some $20 million on the venture.

The Chinese middle class is not yet ready for discretionary spending at shopping centers, he says. “The high-end spending in major metro markets in China has obviously been successful. But the middle-market consumer, kind of the suburban shopper there, still needs increased disposable income, we think, to support a lot of the retail development activity that's transpired there.”

He expects the market to improve with time. “It's a great opportunity, but you've got to be very patient for that consumer.”

In Europe, meanwhile, Simon and Montreal-based developer Ivanhoe Cambridge agreed to sell their interest in Simon Ivanhoe, headquartered in Paris, to investor and developer Unibail-Rodamco, also based in Paris. The portfolio is valued at 715 million euros ($U.S. 970 million) and includes assets in Poland and France. Simon expects to gain $300 million this year when the sale closes.

“We're always looking to allocate capital appropriately,” says Simon. “We thought it was a good price and we can reallocate that capital toward higher returns. And we feel those [returns] right now are in the U.S.”

His company is buying Baltimore-based Prime Outlets Acquisition Co. for $2.3 billion. Other purchases will depend on the market and price.

“We're not just a high-end mall company, or a mall company or a strip center company. We have exposure to all forms of retail real estate,” says Simon. “It's important because retailers themselves are very diverse. It just boils down to having good, quality real estate.”
— Denise Kalette

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