If Simon Property Gets Its Way, It Could Be Monopoly in the Malls

Should the biggest get bigger?

That's the question behind Simon Property Group's (SPG) $10-billion proposal to acquire General Growth Properties (OT: GGWPQ). If the deal goes through, it will greatly alter the retail real escape landscape.

Simon is already the country's largest mall and outlet-center owner, with 321 properties. General Growth is No. 2, with about 200 malls and large outdoor shopping centers.

Combined, the resulting entity would be bigger than several of its closest competitors combined, including CBL & Associates (CBL), The Macerich Co. (MAC), and the Australia-based Westfield Group. In this regard, Simon's position would look a lot like Wal-Mart's (WMT) dominance of retail, except with even less competition.
A recent Wall Street Journal article suggests that a possible deal could attract antitrust scrutiny and says that a combination of the firms would give Simon two-thirds of the nation's malls. "Any time you have the largest and second-largest companies combining, you are going to have antitrust issues," it quotes attorney Brian Weinberger of Buchalter Nerner.

Research firm CoStar Realty Information, however, puts the figure at one-third. It estimates that there are just under 1,400 malls in the country, which would give Simon a market share of roughly one-third. That makes the proposed acquisition a little less intimidating.
More importantly, Simon would own a lion's share of the most important malls in the country and dominate several of the country's markets. Consider the Las Vegas Strip, for example. Simon already owns the highly successful Forum Shops at Caesars. With General Growth's portfolio, the company would dominate, adding Fashion Show, The Grand Canal Shoppes at the Venetian, and The Shoppes at the Palazzo, all three big draws for consumers. It would also own 12 of the top 15 malls in Atlanta.

To retailers trying to get into these malls, the situation could certainly feel like a monopoly when negotiating rents. In another Journal article, Greg Maloney, head of retail brokerage for real estate services firm Jones Lang LaSalle, says: "It's going to make a lot of retailers uncomfortable to know they have this one, huge developer they'll have to go through to get deals done."

The acquisition process still has a long way to go. For one thing, it requires General Growth shareholder approval. Moreover, other firms, such as Brookfield Asset Management (BAM) could decide to bid for the company. If Simon wins, though, the Strip may never be the same.
Forum Shops at Caesars image by Flickr user Markyboy81.