General Growth hand in hand with largest rival

CEO of General Growth Properties has shown his personal strength by putting together a shopping mall portfolio for a divided economy in the US.

Since he took over leadership of the second-largest mall owner in the country, he has not only pulled it out of bankruptcy during 2011, but also amassed a portfolio of high-end shopping centers, which caters to affluent consumers.  This has resulted in the streamlining of General Growth around the market that is most lucrative.

He has made the decision to go beyond the suburban malls, as he has agreed to purchase a share in the Crown Building on Fifth Avenue, New York.

This astute deal-striking has boosted the holdings of shareholders.  The company’s share has increased by 127% since it came out of bankruptcy.  On a personal level, Mathrani has also benefited as he has collected around $27m in pay during the past two years and recently signed a five-year contract with an incentive package worth $25m.

His latest move is to aid the company’s archrival Simon Property Group in obtaining Macerich, number three on the list of real estate investment companies.  According to Simon, General Growth has agreed to purchase some of the Macerich malls if the deal is successful.  

The deal is a distinct move away from the CEO’s recent actions of targeted acquisitions.  

The benefits of the deal are clear from Simon’s perspective.  Passing the Macerich malls onto General Growth prevents them from competing in the bid which could have boosted the price way above the $20bn-plus Simon is currently offering.  It also eliminates some of the antitrust concerns related to the deal.  

The deal makes sense for General Growth if they are obtaining excellent centers at a good price, which they may do.  Macerich has some top properties in its portfolio, such as the Shops at North Bridge.  It is not clear however if Simon would pass this mall onto General Growth as it will not comment on the malls that will be available to General Growth.  

It should be noted that the arrangement with General Growth has only been agreed to in principle.

One disadvantage to General Growth is the leverage to be gained by Simon with national retail chains if they add Macerich malls to its already extensive portfolio.  However, General Growth is not a small outfit and Mathrani may believe that the deal will not boost Simon sufficiently to affect the overall competitive balance.

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