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VETERANS TELL HOW THEY HELPED BUILD INDUSTRY

BY ANNA ROBATON

When Matthew and Martin Bucksbaum, founders of Chicago-based General Growth Properties, built their first shopping center in the mid-1950s, they stumbled through the process. At one point they even resorted to hawking some of the family’s jewels to help cover their costs.

“We should have spent more time doing due diligence and understanding the process,” said General Growth Chairman Matthew Bucksbaum, who was among a group of shopping center industry pioneers sharing their hard-learned lessons with and offering advice to newcomers at this year’s Spring Convention.

Having come from the grocery business, the Bucksbaums turned to an architect to help design that first center, Town & Country Center, Cedar Rapids, Iowa, and ended up with a building “so overdesigned” that they “could have put a 10-story building on the same steel,” said Bucksbaum. For all those missteps, Bucksbaum went on to build a mall empire that is now the second-largest in North America.

As part of a panel called “In the Company of Champions: Industry Greats and You,” Bucksbaum and other speakers said that not only did they have to learn fast, they must also continue learning to keep up with a rapidly changing industry.

“You have to stay on your toes, catch the next wind of change,” said Norman M. Kranzdorf, vice president of retail at Urdang & Associates Real Estate Advisers, a Plymouth Meeting, Pa.–based investment management firm. Mr. Kranzdorf joined Urdang last year after resigning his post as chairman of Kramont Realty Trust, which was formed by the merger of CV REIT and Kranzco Realty Trust, a shopping center REIT he co-founded in 1992.

Kranzdorf said he once paid a high price for failing to follow his own advice. In the mid-1960s and early 1970s, he built a number of enclosed minimalls measuring only 150,000 to 200,000 square feet and anchored by drugstores and supermarkets. The malls, which failed because they didn’t generate enough foot traffic, were torn down and replaced by strip centers.

“The industry changes yearly, maybe monthly, and you have to be attuned to it,” said Kranzdorf. He encouraged those new to the business to become actively involved with ICSC, attributing his own success to just such involvement with the association.

If mall owners are to stay competitive in the face of change, Bucksbaum said, they need sufficient capital to reinvest in their properties and insulate them from the challenges posed by new concepts, such as the lifestyle centers that have been proliferating of late. He pointed to General Growth’s aggressive efforts in recent years to renovate, redevelop and remerchandise its malls.

“Malls are very flexible … and have great locations,” he said. “The key is you need to have money to reinvest, because the depreciation is real.”

Another key to success is to avoid greed in making business decisions, said John M. Hart, chairman and CEO of Simsbury, Conn.–based Hart Advisers, a real estate investment consulting firm. Before he founded the firm, Hart spent 20 years in the real estate development department of Connecticut General Life Insurance Co., now CIGNA Corp.

Hart urged his audience not to ignore the fundamentals of real estate deals. “Greed led us into some of our worst mistakes,” he said. Recalling a time when the prime rate, now about 4 percent, was more than five times higher, he said: “It’s very hard to make the math work on any real estate deal with a prime of 22 percent … [T]hat’s what put institutions into the equity business. Some of it wasn’t necessarily planned.”
Relationships are key, said Michael Lowenkron, vice president and director of real estate at J.C. Penney. He urged leasing executives who want to build relationships with department stores to network.

“You are just going to have to knock down doors and go after them,” Lowenkron said, adding that one of the most effective ways to do so is to become actively involved with ICSC. But networking will be futile, he said, if leasing executives aren’t selling a viable project, meaning a “good site with a good deal.”

Looking ahead, Lowenkron predicts more consolidation in the department store sector. Department stores need to do a better job of leveraging their strength in fashion apparel, he asserted, especially in the face of strong competition from Wal-Mart and other mass merchants.

“The real interesting thing about Wal-Mart is [that] they are a distributor,” Lowenkron said. “They get merchandise in, get it priced right and get it out. A lot of the product they sell they haven’t paid for until after they sell it. That’s what your department stores and other stores have to learn — how to distribute fashion quicker and better.”

For shopping center marketing executives, the big test is to create programs that have a measurable impact on sales, said Rebecca L. Maccardini, SCMD, president of Rebecca Maccardini Resources, Ann Arbor, Mich. Budget allocations for shopping center marketing have diminished with the shift by many companies to public ownership. That’s because public companies are most interested in what contributes directly to profits, she said, and the returns on marketing aren’t always clear.

Maccardini urged marketing directors to think of the marketing budget as “seed money to create money or seed money to create impact” through partnerships or sponsorships or specialty leasing programs.

That focus on “creating value is the thing that we [marketing executives] often take our eye off of,” she said. “If we had kept our eye on it from the beginning, we would be further ahead.”

The discussion, moderated by former ICSC President John T. Riordan, was organized as part of this year’s “Legacy of Excellence” theme.