Second-generation real estate icons David Simon chairman and CEO of Simon Property Group, and Stuart Miller, CEO of The Lennar Corporation, engaged in a humor-laced late-afternoon conversation during the University of Miami’s 2017 Real Estate Impact Conference. The duo briefly discussed growing up as a second-generation real estate leaders under powerful father figures, as well as the evolution of the retail industry from bricks to clicks and from Wall Street to Main Street.

For context, Simon is a global leader in retail real estate ownership, management and development and an S&P 100 company. Simon’s retail properties and investments across North America, Europe and Asia provide shopping experiences for millions of consumers every day and generate billions in annual retail sales. Lennar is one of the nation's largest homebuilders, building affordable, move-up and retirement homes. Lennar's Financial Services segment provides mortgage financing, title insurance and closing services.

Neither of the men are strangers to the drastic impact of economic recessions on real estate. As a homebuilder, the Great Recession of 2008 was especially significant to Lennar. Simon recalled what he referred to as a “real real estate recession” during the early 1990s that led him to quit his job on Wall Street and move go back to work in the family business.

“I was in the corporate finance merger group, so I had done a lot of deals,” Simon recalled. When he went to Simon Property Group, he added, “All my buddies on Wall Street said, ‘You are so lucky.’ I said, ‘You don’t know what is going on.’ It was dog-eat-dog. There was no liquidity in the market. We weren’t public. I spent the first few years doing stabilization. We were in workout mode.”

Simon took the company public in 1993, which gave the firm some stability. But he remembers that there wasn’t much improvement in the retail real estate world until 1996. With his financial background, good instincts and M&A-oriented mindset, the company has had what Simon called a “pretty good run” since 1995. Simon has brokered a good number of M&A deals and grown the company. “I believe in scale. Real estate is capital intensive. The bigger and better relationship you have with retailers, the more you can accomplish together as partners,” he said. “Your overhead can be spread out over many properties. It gives you lots of opportunities globally with size. Since then, it’s been a pretty big run.”

Today, Simon Property Group boasts an equity market cap of $60 billion. Funds from operations total $4.2 billion, and the company’s asset base is between $95 and $100 billion. Simon operates 100 malls in the U.S. and 70 outlet centers, including Sawgrass Mills in South Florida and joint venture investments in Europe and Asia.

“Outlets have been a good industry for us,” Simon said. “It’s been a little touchier recently with outlets because a lot of outlets are tourism-oriented, and with the stronger dollar we see a little softness in that business—not just for us but for retailers.”

For some projects, Simon has partnered with other retail powerhouses, including Swire and Whitman Family Development (owners of Bal Harbour Shops) on the $1.2 billion Brickell City Centre project and the Soffer family on Aventura mall. Beyond Sawgrass Mills, Simon Property Group also owns several other South Florida malls, including Miami International Mall, Dadeland Mall and The Falls.

Simon sees a lot of headwinds and cross currents in the retail real estate market. In fact, he believes one of the issues is there is too much retail space in many cities in America. He cited a statistic of 24 square feet per capita in the U.S., compared to about three to 10 square feet per capita in London, France or Canada. Still, Simon is bullish. “We bought Sawgrass Mills in ’07 and had $55 million in revenues. Today we have $150 million in revenues,” he said. “If you can diversify the mix and bring in the right retailers, you can bring in tourism, and grow your business.”

The firm is also an advocate for mixed-income housing. “Almost every project in New York is mixed income. The most fascinating data that’s come out of this is the warehousing of the poor really drives crime rates,” Pasquarelli said. “What studies have found is [that] distributing income levels drives crime rates down. The Porter House, in the Meatpacking District, was a project with rough crime statistics, and now West Chelsea is one of the greatest art centers in the world. Crime rates have dropped. There’s a lot of social benefit to mixed-income projects.”


Spring 2017
links past

Is dealmaking important for good leadership?