N. American Owners Go Global
And Bring Home Foreign Retailers

By Joseph Dobrian

"What's happening in the U.S. is classic to American industrialism," says Steve Sterrett, CFO of Indianapolis-based Simon Property Group, America's largest retail REIT. "When a capitalintensive market matures, it consolidates. Right now, five or six owners control 70% to 80% of the malls in this country, and with fewer growth opportunities we have to look abroad to less competitive landscapes."

Ten years ago, Sterrett says Simon had no international assets. Today the firm holds assets in six countries, and expects that in 10 years at least 10% to 15% of its earnings before taxes, depreciation and amortization will come from overseas. Simon is already the largest landlord in Italy, owning 40 shopping centers there, as well as premium outlet centers in Japan, Korea and Mexico, and hypermarket-anchored malls under development in China.

René Tremblay, president and CEO of Montreal-based Ivanhoe Cambridge, a privately owned investment, management and development company, agrees that globalization is inevitable. He estimates that 50% of his company's assets will be located outside of Canada by 2010.

Look For Critical Mass

"Canada is a great market, but we had to diversify beyond our borders, and so do other firms from smaller countries," he says. "Today we're active in 13 countries, including India, China, Brazil and Russia. We have to be where there's population growth, an emerging middle class and growing awareness of the shopping center concept. But you have to be sure the return justifies the risk. There's one overarching criterion for our diversification: Any new venture has to bring a total return at least equal to what we could get on the local market."

"Wherever you go, you have to have a critical mass of retail space and a clear message of what you're trying to deliver," warns Robert S. Taubman, chairman, president and CEO of Taubman Centers (Bloomfield Hills, Mich.). "Retail planning and principles are universal. Despite many different cultures and many different ways of retailing, people react to retail space in similar ways.

"We're working on retail developments around the world, some of which have non-retail components such as schools, hotels and civic buildings," he says "In Macao, we're working on a highly densified mixed-use development on 34 acres, with retail surrounding a casino, a hotel and a Playboy Club."

What overseas markets are performing best today? According to a recent report by A.T. Kearney, India, Russia and China (in that order) offer the best opportunities in terms of risk, saturation, market attractiveness and time pressure. Vietnam, the Ukraine, Chile and Latvia also rank high. Tremblay notes that China, India and Brazil have all experienced dramatic cap rate compression, but investors are buying with growth in mind.

"Retail sales are increasing in double digits in China and India," he says, "so you can get very good returns on investment there. The U.K. has been negatively impacted recently, and cap rates there have risen 75 basis points even on good property.

Overall, though, there's still tremendous room for retail development in most markets. The shopping center concept is more popular than ever."