General Growth a Good Fit for Simon, but Deal Could Face Scrutiny

Last Updated Nov 29, 2009 11:55 AM EST

News that Simon Property Group (SPG), the largest mall owner in the country, is looking at a bid to acquire assets from its bankrupt rival General Growth Properties (GGP) isn't entirely surprising. In past statements, David Simon, cheif executive of the former, alluded to interest in scooping up some of GGP's attractive assets.

But Simon is apparently getting more serious, after reportedly hiring Lazard and law firm Wachtell, Lipton, Rosen & Katz for advice on the purchase. The move is logical for Simon because GGP operates a lot of malls that would fit nicely into its portfolio. However, depending on the size of a potential deal, Simon could face government scrutiny because it might make the real estate investment trust overwhelmingly larger than any of its rivals.

There are several markets where GGP operates trophy properties that could interest Simon. The historic Faneuil Hall Marketplace and the suburban Natick Collection in the Boston area would be two nice additions to Simon's high-end Copley Place mall in that city. In Las Vegas, GGP owns several high-profile assets, including Fashion Show, The Grand Canal Shoppes at the Venetian, and The Shoppes at the Palazzo on the Strip, where Simon owns The Forum Shops at Caesars and two popular outlaying outlet centers. And there's GGP's headquarters city, Chicago, an area home to Michigan Avenue's Water Tower Place and the suburban Oakbrook Center and Northbrook Court. Simon owns several assets in the Chicagoland area, though none are as fashionable.

There are other markets where GGP boasts a strong foothold or operates a dominant asset that Simon could want. However, there is also speculation that Simon might just decide to make a play for the entire GGP portfolio of more than 200 shopping centers. That's when things could get interesting.

Simon operates about 385 assets in North America, as well as in a handful of international locales. If it swallowed all of GGP, it would control a whopping 463 million square feet of mall properties, dwarfing its closest competitors. The next-largest mall owner, CBL & Associates Properties, controls 83.6 million square feet. The Macerich Co. follows that with 76 million square feet. Large international player, Westfield Group, which is reportedly another possible GGP suitor, has 63 million square feet in the United States. After those firms, the list falls off considerably.

It's hard to tell how the Federal Trade Commission would react if Simon purchased all of GGP. In the retail arena, it certainly didn't cut Whole Foods any slack when it purchased competitor Wild Oats, making the grocer shed 31 Wild Oats units after two years of litigation. Then again, when Federated Department Stores purchased The May Co., making it the largest department-store owner in the country and Macy's a dominant national brand, the FTC considered the transaction no threat to consumer interests.

Either way, nothing is likely to happen any time soon. GGP recently restructured $9 billion of mortgage debt. And a Wall Street Journal article says the acquisition could cost Simon more than $10 billion, and amass it $20 billion in debt. So even if GGP fits nicely into Simon's portfolio, the deal may prove more than a headache than it's worth and individual assets might become the focus.

Oakwood Center image by Flickr user willowbrookhotels.