From a small but comfortable office overlooking St James’s Square in London’s West End, Hans Mautner runs Simon Global, the overseas operation of Simon Property Group. Europe Real Estate visited him to find out more about the company’s plans.
For the first time since Simon Global was established in 1998 Mautner also admits that it is time to consider expanding somewhat the London head office, which he currently runs alone. As befitted its experimental status, Mautner originally conceived Simon Global as a low overhead operation. Mautner joined Simon in 1998 when the group aquired Corporate Property Investors (CPI), a privately held shopping center REIT of which he was CEO. Although CPI was a substantial company, Mautner could see that in the future it would not have been large enough to face the issues that would confront shopping center businesses. Mautner had been at CPI for 20 years and had already begun to look at the international markets as a possible direction for expansion. “In my last year there I had done some traveling and I was asking myself if there was an international dimension to the business.”
“From Simon’s point of view the acquisition was transformational,” says Mautner. “While Simon was already large and influential it was focused on the middle market and suddenly had assets of a size and quality level that were quite different and on which it has since placed a great deal of emphasis,” says Mautner. After the merger Mautner’s future was assured. “They asked me to stay around, and they asked me what I wanted to do.” Mautner chose to pursue the international possibilities that he had identified. At first he was based in New York
but realized within six months that it was impractical to run an international organization from New York, and subsequently Simon Global was created in London.
Part of the impetus behind the group’s overseas expansion was a perception of the US market at the time. Growth opportunities in the US were thought to be limited in terms of future development opportunities. Corporate consolidation, another avenue of growth in a mature economy, had already been extensive and further opportunities seemed somewhat limited in scope there too. US retailers seemed to be going through the same process and it looked as if they too would start to spill over into Europe. “It all suggested that going international made sense,” says Mautner.
Europe, a very different market
Things turned out differently in the US. Retailers, realizing perhaps that Europe was a very different market and also concerned about logistics problems among other things, did not cross the Atlantic in the numbers expected. And development opportunities in the US were identified, so much so that Simon’s development pipeline in the US is currently at an all-time high. But even with the imperative diminished, Mautner does not feel any less motivated. “What it means is that we are not being driven to be international because there is nothing else to do,” he says.
“When we made the investment in the French company we did it in conjunction with a US-
based opportunity fund. From the outset our partner had a shorterterm view than we had. For an opportunity fund to make a go of it in the development business they need to have a short time horizon, so it was clear that we were going to
have to buy them out at some point. 18 months ago they said they wanted to sell and we found a buyer for their shares in the form of Ivanhoe Cambridge, a subsidiary of a huge Canadian pension fund, Caisse des Depots de Quebec. We then restructured the shareholding so we each own 50%.”
Simon Global is currently active in France and Poland, is in the very early stages of an experimental initiative in Russia – although that is at too early a stage to discuss – and manages a reasonably sized portfolio in Turkey. GCI’s activities are currently concentrated in Italy. Despite being headquartered in the UK Simon Global hasn’t yet “found the right point of entry” there. Basically he says that it is too expensive, a mature market and there’s a lot of competition. Simon Global still harbors a desire to be present there, however. “We want to make what we do in Europe larger and more meaningful,” he adds. And its horizons are wider than just Europe. “In the last year or so we have broadened our international appetite,” says Mautner. Two years Simon bought US-based premium outlet developer/owner Chelsea Property Group, which already had international business – notably through a joint venture with Mitsubishi to create premium outlet centers in Japan, as well as developments in Korea and Mexico.
A few months ago Simon Global also established a joint venture in China with Morgan Stanley and an agency of the Chinese government. “In China the original premise of that venture was to assist WalMart on its aggressive expansion by creating WalMartanchored centers,” says Mautner. He adds that Simon Global opted initially to participate for up to five centers rather than going for the 20 or so that were suggested. Three are currently under construction and the others are in various stages of development. But as the partnership is in the early stages, Mautner says he doesn’t yet know how it is going to work. “While WalMart is a powerful anchor, there is a price to pay in the low rent that is a feature of the WalMart lease,” he explains.
Working in developing economies can also offset the limitations of working in some of the more mature markets. “We have large pipelines in France and Italy, but getting something approved and ready to go in these countries is more difficult than in the US. However, if we prevail, then it is likely there will be a scarcity value attached to what we have created and it is unlikely someone will build something competitive across the street.” On the other hand the developing economies carry risks of all kinds, “which is the price you pay for the returns that you are hoping to get.”
Mautner also hopes to strike a deal somewhat similar to China in India in the future. “I believe what will really make India work is when they start allowing large international hypermarkets into the game,” says Mautner who envisages the company partnering the likes of Auchan, Carrefour or Tesco as it has WalMart. Scale is one of Mautner’s principal drivers. “Simon is a big
company, so for international activities to have any real consequence we need to think increasingly of countries where there is sufficient size to suggest that, if we get it right, our efforts will have some significance for the company and, if we have got the right model, there is scope to do it several times over.”