Simon Property shops for a big deal

Marketplace Staff Feb 16, 2010
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Simon Property shops for a big deal

Marketplace Staff Feb 16, 2010
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Kai Ryssdal: American consumers, as we all know, aren’t doing much buying these days. That has been the retail through-line the past couple of years. But somehow there is shopping going on in the shopping mall business. Today, the country’s largest mall operator, that’s a company named Simon Property, announced a $10 billion offer for its biggest rival, General Growth. General Growth has been operating under the protection of a bankruptcy court since last spring. That tells you something about the overall business environment in retail real estate.

But if the deal does go through, Simon would control a third of all the shopping malls in this country. From Washington, Brett Neely has more.


BRETT NEELY: Simon and General Growth are like the Coke and Pepsi of the mall business. They own lots of high-end malls that skew towards Nordstrom rather than Sears. That’s why Simon has wanted to buy General Growth since it declared bankruptcy last spring says Ivan Friedman, who runs RCS Real Estate Advisors.

IVAN FRIEDMAN: What this means is Simon is eliminating its largest competitor.

Sam Chandan of Real Capital Analytics says both companies ran their malls well, but the financial crisis affected them differently. Simon Property played it safe. General Growth was caught overextended when the credit markets dried up.

SAM CHANDAN: This really is about how it is they made choices about taking on new debt.

Now Simon has the upper hand, not just with its rival. Analyst Ivan Friedman says most big national retail chains have about half their stores in malls run by Simon and General Growth. If a merger goes through, those retailers could get squeezed when negotiating leases.

FRIEDMAN: Now I’m going to have one landlord for 50 percent of the stores. It’s gonna be tougher to negotiate with Simon.

Scott Krugman at the National Retail Federation says retailers should be worried.

SCOTT KRUGMAN: When you see a merger like this and you see one group with such dominant market share, it could stifle competition and that could have a direct impact on retailers that are trying to expand.

Analysts told me shoppers probably won’t notice a thing. They said the economy means most stores won’t be able to pass rent increases onto their customers.

I’m Brett Neely for Marketplace.

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