This column of Strolling the Agora is from the May 17, 2010 issue of the twice-monthly SHOPPING CENTER DIGEST
There has been a substantial buzz in the industry about the possibilities of the Federal Trade Commission looking into Simon Property Group and its efforts to acquire General Growth Properties, the number two owner-developer in the industry regarding the size of its portfolio in malls. This issue, of course, is moot, since the bankruptcy court last week approved GGP’s choice of an $8.5 billion reorganization plan offered by Brookfield Asset Management.
Here is not the forum to analyze which of the two proposals would be better for the bankrupt owner-developer and its shareholders; David Simon has said his company is bowing out, ending the acquisition/merger effort and will not continue the fight.
Regarding the FTC, he discounted that as an issue, stating SPG owns only 3.5% of the 7 billion square feet of shopping center space in the US and “anti-trust authorities have consistently recognized the retail real estate industry is highly competitive and fragmented and is one of the only industries exempted from Hart-Scott-Rodino filing requirements [which require companies to submit merger plans before announcing the deal]. Tenants, whether they are discount retailers, manufacturers or otherwise, can and do lease retail space in a variety of locations.”
Wellllllllllllllllllll, yes and no, if you want to discuss some of the “fragments” of that 7 billion sq. ft. of space. If you eliminate the overwhelming bulk of shopping centers, the neighborhood strips and concentrate on the number of remaining projects, SPG owns or has an interest in 387 properties totaling some 263 million sq. ft. of retail space; GGP has over 200 malls totaling some 200 million sq. ft.
Back To The ‘70s
The FTC has examined our industry and the possibilities of restraint of trade dating back to the early ‘70s, mainly focusing on the dealmaking leverage and conflicts that could involve special agreements between landlords and key tenants. These early examinations centered on Tysons Corner and its anchors, against Gimbel Brothers, the industry’s leasing practices-- including the suit filed by the operator of a gift shop franchise against some leading owner-developers-- and the like. And in 1978, a small Pennsylvania supermarket chain brought an antitrust suit against a larger food operator that operated in PA,WV, and OH for trying to keep it out of a specific strip shopping center; in 1956 the lease had been amended to add a clause prohibiting the leasing of any part of Bon Aire Shopping Center to a chain supermarket that would compete with Thorofare.
And then, in 1989, Sears, Roebuck & Co filed a request to modify a ’77 consent order prohibiting it from using radius clauses, use clauses and easement agreements, especially those involving Homart Development Co—which was the shopping center development arm of the retail giant.
All of the cases involve what could be considered—by today’s operation—outmoded or obsolete. Though in the past, some high-end malls would try to prevent discounters or big-box users from becoming a tenant, because they “conflicted” with the main concept or retail direction of the project, today that point is almost meaningless. There are numerous high-end and fashion-oriented malls that include these types of tenants, and even value-oriented retailers.
And the use of radius clauses, so a tenant would not compete or siphon off sales from one store to another two miles down the road, may be considered quaint; even if the clause is included in a lease, it is not vigorously enforced by landlord or tenant. I remember speaking to one sports retailer who ignored this restriction to open in a nearby, new project, now the top mall in the market: “I’d much rather take that new location and, perhaps impact my sales at the older center, than let the new store go to a competitor who would hurt me more.”
Developers, Anchors And 3.5%
It’s interesting, also, that the major restraint of trade investigation into this shopping center industry began when a retailer was turned down from becoming a tenant in a high-end fashion mall. His consultant, shortly after, was appointed to the FTC; and soon after that was when the federal authorities began a major investigation into arrangements between mall landlords and the relationships they had with their anchors, mostly department stores.
Now, getting back to SPG and its 3.5%, across the board, concentrating only on that ratio without any quantification, it appears almost laughable that one landlord could have such influence that its decisions could constitute a restraint of trade.
However, if there’s a trade area with three or four malls, and two or three are owned by one company, there’s a different perspective regarding negotiating a lease between equals.
If you have a niche within the industry, say off-price and factory outlets or value-oriented centers--which may total some 300 projects--and one landlord has an extremely high percentage of these projects, it may become another issue.
SPG is the largest landlord in this “fragment” with some 45 Chelsea Premium Outlets; it expects to close soon on its planned acquisition of Prime Retail, which will add 22 or so more centers totaling some 8.2 million sq. ft. to its portfolio. The next largest landlord is Tanger Outlet Centers with 33 centers in 22 states.
According to some in the industry, SPG would control 80% of the top 50 of these projects.
The pending acquisition, it concedes, is now being reviewed by the FTC.
Whatever decision is reached, I'm certain it will result in much introspection and discussion in this shopping center/retail chain industry.
Further information on SHOPPING CENTER DIGEST, EXPANDING RETAILERS, the weekly SCD Eflash, DIRECTORY OF MAJOR MALLS, and our other products may be obtained from our website, www.shoppingcenters.com .
Monday, May 17, 2010
Monday, May 3, 2010
Money Is Now Available For Mergers And Acquisitions And In The Forefront Are The Behemoths Simon Property Group And Kimco Realty
This Strolling the Agora column appears in the May 3, 2010 issue of the twice-monthly newsletter, SHOPPING CENTER DIGEST
While much of the shopping center/retail chain industry has been focusing on opposing forces waving billions of dollars to acquire or joint venture with bankrupt General Growth Properties, the financial markets are also finally opening their purses wide to begin investing once more in retail properties. Traditional life insurance companies such as TIAA-CREF, Prudential Mortgage Capital and Pacific Life Insurance Co have stated their interest in large offerings primarily directed at top regional malls and grocery-anchored neighborhood shopping centers; the requirement for one is malls with annual sales over $400 per sq. ft..
And there are a number of real estate investment trusts that have already announced they would be launching IPOs (Initial Public Offerings) to raise capital to acquire new shopping center properties.
Since March 1, there have been more than 90 filings in the US for companies seeking to raise more than $50 billion, and more offerings are anticipated within the next few months. (Note. These are for REITs of all categories, residential, hospitality, medical, etc., not just retail).
In addition, the US, according to many, is the main locale for foreign interests seeking to invest in commercial real estate; leading the offshore pack are investors from Germany, Mexico and Israel, and, of course, the Far East.
But to personalize the quest for prime retail properties, one cannot discuss acquisitions and mergers of landlord portfolios without concentrating on the two leading behemoths in their respective niches: Simon Property Group, which owns some 387 or so properties totaling 263 million sq. ft., and Kimco Realty Corp, with about 1,478 shopping centers totaling 152 million sq. ft. This includes relatively minor interests each has around the globe, with the two giants focusing on distinctly different types of properties.
FTC Attention?
SPG emphasizes the larger retail centers, and is also, by far, the largest and most powerful landlord in the niche within a niche, outlet centers; in number of projects and total GLA, it easily outranks the number two landlord of regional and super-regional malls, GGP. The number three owner-developer is Westfield USA, which has less than 60 malls.
Because of its already looming presence that over-shadows all other owner-developers in the field, many in the industry have raised the question of whether its acquisition or jv with GGP would create a monopoly because of its control of such a large percentage of projects within this category, and could result in restraint of trade action by the Federal Trade Commission. This issue was raised by Brookfield Asset Management, which is competing with SPG over GGP.
David Simon of SPG said his proposal would limit its board representation to two people who do not work for his company.
Retailers, especially, are nervous about what would happen if SPG is successful in its quest. Their fear is that in key markets, Simon may be the only landlord in the trade area and they either deal with SPG and its rent demands or “multi-center deals” or be “locked out” of that market.
Some years back the FTC took a look at possible restraint of trade issues within the shopping center industry. Some token concessions were made; tradition has it, however, that many private arrangements were never written down, but that personal relationships between department store anchors and owner-developers existed and helped maintain retail orientation and control within malls.
Kimco And CPP
It is unlikely that the federal government would take a close look at any acquisitions made by Kimco, which recently announced a long-term partnership with the Canada Pension Plan to acquire shopping centers in the US (see the item in this issue’s column of didja hear…???); its first deal of $370 million was for five centers. Though it is, by far, the largest owner of neighborhood or strip shopping centers in the industry, it does not control the much-smaller trade areas served by these centers, where there could be four and five retail centers in single market, each owned by a different landlord. Once the supermarket and/or discount anchors are in place, landlords must compete among each other to line up the best merchants and rent-paying tenants, many of them Moms and Pops or small franchisees.
Though Kimco may control nationwide some 1,300-plus properties, that is a small percentage of the total number of neighborhood shopping centers in the US, estimated at close to 70,000. There are numerous other landlords who own a substantial number of grocery-anchored, neighborhood centers: Developers Diversified, Regency, Weingarten, Inland, Edens and Avant, Vornado, Sembler, etc., etc.
Certainly Kimco could package multiple leasing deals with retailers, but it does not have the same type of leverage as SPG would have with a mall-oriented tenant with many less locations meeting its criteria.
Some Could Be Sold Off
If SPG were to acquire GGP, some in the industry believe, some of the malls in the package could be sold off to other owner-developers; the only way this could happen, they believe, is if one property was a bad fit with the rest of the portfolio, for one reason or another, or Simon wanted to reduce its debt obligations. Among those landlords mentioned who might be interested in certain properties are other REITs: Westfield, Macerich, CBL.
Since Kimco would be acquiring much smaller portfolios or individual, it is unlikely that any of these shopping centers would then be put on the block to be sold off.
Of course, anyone can speculate. There are a number of very prominent landlords who might be interested in specific GGP malls, if any of these were to go to market, say a high-end operator such as Taubman, or a major player in secondary markets as Cafaro, or those who are mainly owners of strip and community centers, but who also have projects that range in size up to small malls. All, or any of these landlords, could be interested in acquiring a mall or two if they meet their criteria or make a good fit within their existing portfolios.
So, few expect any action regarding GGP to be completed any sooner than by late summer. With Kimco and the amount of funds waiting to be placed into solid US real estate, another announcement could be only weeks away.
More information on SHOPPING CENTER DIGEST, EXPANDING RETAILERS, the weekly SCD Eflash, DIRECTORY OF MAJOR MALLS, and our other products may be obtained from our website, www.shoppingcenters.com .
Strolling the Agora
While much of the shopping center/retail chain industry has been focusing on opposing forces waving billions of dollars to acquire or joint venture with bankrupt General Growth Properties, the financial markets are also finally opening their purses wide to begin investing once more in retail properties. Traditional life insurance companies such as TIAA-CREF, Prudential Mortgage Capital and Pacific Life Insurance Co have stated their interest in large offerings primarily directed at top regional malls and grocery-anchored neighborhood shopping centers; the requirement for one is malls with annual sales over $400 per sq. ft..
And there are a number of real estate investment trusts that have already announced they would be launching IPOs (Initial Public Offerings) to raise capital to acquire new shopping center properties.
Since March 1, there have been more than 90 filings in the US for companies seeking to raise more than $50 billion, and more offerings are anticipated within the next few months. (Note. These are for REITs of all categories, residential, hospitality, medical, etc., not just retail).
In addition, the US, according to many, is the main locale for foreign interests seeking to invest in commercial real estate; leading the offshore pack are investors from Germany, Mexico and Israel, and, of course, the Far East.
But to personalize the quest for prime retail properties, one cannot discuss acquisitions and mergers of landlord portfolios without concentrating on the two leading behemoths in their respective niches: Simon Property Group, which owns some 387 or so properties totaling 263 million sq. ft., and Kimco Realty Corp, with about 1,478 shopping centers totaling 152 million sq. ft. This includes relatively minor interests each has around the globe, with the two giants focusing on distinctly different types of properties.
FTC Attention?
SPG emphasizes the larger retail centers, and is also, by far, the largest and most powerful landlord in the niche within a niche, outlet centers; in number of projects and total GLA, it easily outranks the number two landlord of regional and super-regional malls, GGP. The number three owner-developer is Westfield USA, which has less than 60 malls.
Because of its already looming presence that over-shadows all other owner-developers in the field, many in the industry have raised the question of whether its acquisition or jv with GGP would create a monopoly because of its control of such a large percentage of projects within this category, and could result in restraint of trade action by the Federal Trade Commission. This issue was raised by Brookfield Asset Management, which is competing with SPG over GGP.
David Simon of SPG said his proposal would limit its board representation to two people who do not work for his company.
Retailers, especially, are nervous about what would happen if SPG is successful in its quest. Their fear is that in key markets, Simon may be the only landlord in the trade area and they either deal with SPG and its rent demands or “multi-center deals” or be “locked out” of that market.
Some years back the FTC took a look at possible restraint of trade issues within the shopping center industry. Some token concessions were made; tradition has it, however, that many private arrangements were never written down, but that personal relationships between department store anchors and owner-developers existed and helped maintain retail orientation and control within malls.
Kimco And CPP
It is unlikely that the federal government would take a close look at any acquisitions made by Kimco, which recently announced a long-term partnership with the Canada Pension Plan to acquire shopping centers in the US (see the item in this issue’s column of didja hear…???); its first deal of $370 million was for five centers. Though it is, by far, the largest owner of neighborhood or strip shopping centers in the industry, it does not control the much-smaller trade areas served by these centers, where there could be four and five retail centers in single market, each owned by a different landlord. Once the supermarket and/or discount anchors are in place, landlords must compete among each other to line up the best merchants and rent-paying tenants, many of them Moms and Pops or small franchisees.
Though Kimco may control nationwide some 1,300-plus properties, that is a small percentage of the total number of neighborhood shopping centers in the US, estimated at close to 70,000. There are numerous other landlords who own a substantial number of grocery-anchored, neighborhood centers: Developers Diversified, Regency, Weingarten, Inland, Edens and Avant, Vornado, Sembler, etc., etc.
Certainly Kimco could package multiple leasing deals with retailers, but it does not have the same type of leverage as SPG would have with a mall-oriented tenant with many less locations meeting its criteria.
Some Could Be Sold Off
If SPG were to acquire GGP, some in the industry believe, some of the malls in the package could be sold off to other owner-developers; the only way this could happen, they believe, is if one property was a bad fit with the rest of the portfolio, for one reason or another, or Simon wanted to reduce its debt obligations. Among those landlords mentioned who might be interested in certain properties are other REITs: Westfield, Macerich, CBL.
Since Kimco would be acquiring much smaller portfolios or individual, it is unlikely that any of these shopping centers would then be put on the block to be sold off.
Of course, anyone can speculate. There are a number of very prominent landlords who might be interested in specific GGP malls, if any of these were to go to market, say a high-end operator such as Taubman, or a major player in secondary markets as Cafaro, or those who are mainly owners of strip and community centers, but who also have projects that range in size up to small malls. All, or any of these landlords, could be interested in acquiring a mall or two if they meet their criteria or make a good fit within their existing portfolios.
So, few expect any action regarding GGP to be completed any sooner than by late summer. With Kimco and the amount of funds waiting to be placed into solid US real estate, another announcement could be only weeks away.
More information on SHOPPING CENTER DIGEST, EXPANDING RETAILERS, the weekly SCD Eflash, DIRECTORY OF MAJOR MALLS, and our other products may be obtained from our website, www.shoppingcenters.com .
Strolling the Agora
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