The mall industry is filled with overexpansion, overleveraging, vacancy concerns and paltry productivity. Call it counterintuitive, but that hasn’t phased the Taubmans.
The Bloomfield Hills, Mich.-based family-run shopping-center business has grown through development more than acquisition, and by operating traditional malls and selectively merchandising the space rather than just filling it with tenants willing to pay the most rent.
Despite the company’s recessionary dip in productivity and challenges getting construction going on proposed projects, the Taubmans have a positive outlook on luxury and consumers and contend the draw of a mall, even in the age of the Internet, is still strong. Their mood is buoyed by the company’s 60th anniversary, a milestone being marked today when they ring the closing bell on the New York Stock Exchange.
“We see people buying luxury goods,” Robert Taubman, chairman, president and chief executive officer, said during a joint interview with his brother William, chief operating officer, and their father A. Alfred Taubman, who founded the business. “We see people with pent-up demand. We have really seen fundamental growth for the first time in a number of years in our fashion category apparel.”
Asked to envision the future, Alfred Taubman said, “I’m 86 years old. I can’t give you six years let alone 60 in terms of telling you what’s going to happen. I will make this comment though: I believe our business is very strong, but Taubman will be different. There may be a third generation of Taubmans, or a fourth generation. Maybe it will be shareholder-dominated rather than the family. But this company will continue to operate for the next 60 years.”
Apparel is a “pretty stable” performer in the malls,” William Taubman said. It’s still the core of the regional mall, he said, adding that luxury concepts are starting to expand again, including Prada, which will open in Taubman’s Beverly Center in Los Angeles in November, the brand’s third mall store in the U.S.
“There’s clearly been some downward pressure on rents,” he said. “As sales recover, rents will recover as well, though there’s always some lag. There are currently more vacancies, but not materially. There is no permanent disruption to the fundamentals. Women’s retailing represents north of 30 percent of the Taubman portfolio. Fashion, including women’s, men’s and kids, is about 50 percent. Is the percentage shifting? Not materially. You see a little more electronics in the mall because of the growth of Apple and Microsoft rolling out. You have more food in the malls. On the other hand, books, records and toys have fallen. Home has also fallen, but not a lot.”
Ninety-two percent of Taubman’s space was leased in 2009, flat compared with 2008, while rent per square foot was $43.31, down 1 percent from 2008.
“This has been a very deep recession — a long drought for everyone,” Robert Taubman added. “It’s a long cycle, but we don’t see secular change. Now we are in a recovery mode. You are seeing significant growth in sales and much more of a V-shaped recovery for our assets,” compared to the tentative national economic recovery. “You are going to see strong growth in our properties relative to the rest of the industry.”
Last year, the company, which owns, manages or leases 26 shopping centers, dipped to $498 in sales per square foot from $539 in 2008, though it’s still the industry leader. “Sometime between 2011 and 2012 we are going to be back over $500,” Robert Taubman said. “Through the first quarter, we were running at a 12-month trailing pace of $509. We have been fortunate to come through this whole [recession] period. We didn’t have to issue equity. Pound for pound, we still have the strongest balance sheet in the sector today.”
Taubman was one of only a handful of U.S. REITs that did not sell assets, cut dividends or raise equity last year.
As far as expansion, the company is seeking a new president for Taubman Asia after the departure of Morgan Parker last year. There’s a staff of 20 in South Korea and Hong Kong, though no set development plans. In the U.S., Taubman’s sole project under construction is City Creek Center in Salt Lake City, where Macy’s and Nordstrom plan to open in March 2012. Taubman has six other developments that have been put on hold — largely because of capital constraints and retailers reluctant to open new doors in the tough business climate. It might not be until mid-2011 before the next project sees construction.
The elder Taubman is credited with pioneering regional, multilevel centers with food courts, movie theaters and split-level parking, as well as convincing retailers to build big branch stores to serve as anchors and convincing luxury brands to enter malls when previously they only considered high streets. He sometimes gets involved in the planning and remains active as a philanthropist, supporting stem-cell research at the University of Michigan and education, including The A. Alfred Taubman Center for Design Education at the College for Creative Studies in Detroit. He’s writing a second book, but would not divulge details. In his first book, “Threshold Resistance: The Extraordinary Career of a Luxury Retailing Pioneer,” Taubman maintained his innocence despite being convicted in a price-fixing scandal at Sotheby’s, which he owned.
The elder Taubman’s parents suffered through the Depression, and he started working at age nine as a stock boy in a department store, determined to make money. He studied architecture, saw the growth of the nation’s highway system and population migration to the suburbs as the key to driving mall development, and created upscale developments such as the Mall at Short Hills in New Jersey, Cherry Creek in Denver, International Plaza in Tampa and Beverly Center. He’s known for meticulous planning — from wooing tenants to designing details such as brass railings and terrazzo floors.
“I’ve dealt with the Taubmans for 20-plus years and I think they’re withstanding this recession better than most,” said Richard O’Connell, executive vice president of legal and real estate at Talbots. “They’re not too highly leveraged, and not in a position where they need to frantically adjust their leasing. But they are tough and not always easy to deal with. They know they have leverage with some of their better properties, and they maximize that.”
“They are sometimes uncompromising but continuously striving for the very best,” said Steve Greenberg, president of the Greenberg Group, retail-real-estate consultants. “They seem to micro-manage their properties, which tend to be more elaborate and polished than most. They will let a space stay vacant until they get the right tenant. It may be a public company, but it’s still very much family run.”
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