Simon Could Corner South Florida Mall Market

MIAMI-Simon Property Group's $10-billion bid for General Growth Properties could be a game-changer for South Florida more than other major retail markets statewide. Simon owns 41 malls, outlets and shopping centers throughout Florida, while General Growth has just 15.

Merging the portfolios of the two companies would give Simon an unparalleled position in South Florida's retail sector, experts say. "Simon would be the most dominant player in the region,” says Thomas Godart, managing director of Fort Lauderdale real estate firm Godart Florida Real Estate Investments.

The acquisition would also give Simon the upper hand in a South Florida retail market where tenants are getting rent relief and other concessions from cash-strapped landlords. By eliminating a major competitor in General Growth, Simon would exert even more influence on national tenants who are trying to expand into South Florida.

Simon would gain leverage over multi-center tenants, observes Jim Soble, an attorney and partner at Ruden McClosky who represents retail developers and heads the firm's real estate department. "If a tenant is in one of Simon's centers but not in one of the General Growth centers, it might have to be in both to stay" in the preferred retail space, Soble says.

Simon's largest malls in South Florida include Sawgrass Mills in Sunrise and The Galleria at Fort Lauderdale, along with a minority stake in Aventura Mall. General Growth's presence in the region includes Kendall Town Center, Mizner Park in Boca Raton and Pembroke Lakes Mall in Pembroke Pines.

Elsewhere in Florida, both companies have a somewhat fragmented presence. In Orlando, for example, Simon has the Florida Mall and Orlando Premium Outlets, while General Growth has Altamonte Mall and Festival Bay Mall at International Drive.

Simon's biggest malls around the state include Edison Mall in Fort Myers, Tyrone Square Mall in St. Petersburg and Pier Park in Panama City. General Growth dominates middle markets with malls such as Lakeland Square, Governor's Square in Tallahassee and Regency Square Mall in Jacksonville.

Beyond the strategic benefits of purchasing one of its major competitors, Simon would also gain substantial leverage over its tenant base in a South Florida market where landlords are struggling to maintain occupancy and fill vacancies, Godart says.

"Simon has certain assets that national tenants want to be a part of," he says. "They can use [the General Growth acquisition] as leverage to put those tenants in secondary locations as a condition for leasing space in a class A, strong location. This would also allow them to go aggressively after a bunch of different tenants."

The acquisition could also help Simon strengthen its position in a tenant-driven marketplace. The deal would force tenants to evaluate South Florida malls they occupy space in and where they want to be long-term, more than potential short-term issues like rent relief and sales performance, Soble says.

"Tenants will look again at the future of a particular mall and whether they want to stay in it," he says. "A lot of that depends on the strength of the recovery of Florida, which has always been known as a retail state."

Requiring prospective tenants to occupy space in less-desirable shopping malls in order to lease space at higher-quality centers is a commonly used tactic by major retail landlords like Simon, says Edgar Jones, vice president of Rockefeller Group Development Corp. RockGroup is currently building the Miramar Town Center, a mixed-use project, in partnership with retail REIT Kimco Realty, which specializes in shopping centers.

By gaining the leverage to apply the conditional leasing strategy, Simon would be able to significantly boost the value of its entire portfolio, Jones says. That, along with the presumed discount Simon would get on a per-property basis, could put Simon in a position to make some of its properties more competitive with reduced asking rents.

"This lets Simon reset the rents and be more attractive to tenants," Jones says. "This is a big win for Simon that raises the values of all of its properties."

(Carl Cronan of GlobeSt.com contributed to this story.)

Source: http://www.globest.com/news/1601_1601/florida/183599-1.html