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Lessons from the List

Our annual list of the Top Owners and Managers of retail real estate is a labor of love. It's far from a perfect process (as those of you who filled out the survey well know). But every year I think we get a little bit better at putting it together and crunching the numbers. More companies take part each year, which makes the list a more meaningful benchmark for the industry. We also complement the information firms provide by reviewing SEC filings (for public companies) and studying company Web sites (for private ones) to round out the list.

As a result of that work, this year we compiled data covering nearly 140 firms. That's more than we can list in the print magazine. So we will take the firms that didn't make the cut and post their data on our Web site, There, we will also list details of companies, breaking down their portfolios by property type and region.

In crunching the numbers this year, a few fun facts jumped out that got me thinking. Simon Property Group — the perennial top company on the list — now controls nearly a quarter of a billion square feet of space, as much as companies ranked 43 through 100 combined. It's no secret that they are the industry's giant. But what's really interesting is that Simon has had to do a lot of work to stay at the top. Since 1998, when it owned 136 million square feet, the REIT's portfolio has grown by more than 100 million square feet to 242 million square feet today. To put that in perspective, just four other firms have portfolios that crack nine digits. Simon's has that much space twice over.

Further, the top 10 owners as a group continue to increase market share. Those firms together own more space than the bottom 90 firms on the list combined.

Those figures illustrate an important fact: concentration at the top is a surefire sign that the industry has matured. The retail real estate universe, then, has come to look more like the rest of corporate America where a few giant firms dominate the industry. There is still plenty of room for local and regional operators — as evidenced by the other firms that populate the list. But overall, the trend through the years has been one of consolidation. The amount of space the top 10 owners (and managers for that matter) has only grown from year to year. Never has our survey registered a drop. Firms on a one-off basis have culled properties from portfolios. But no one in the industry has ever come to a point where they've concluded that economies of scale aren't working and decided to break up the firm into a series of smaller companies.

Still, the pace of accumulation has slowed a bit. Between 2003 and 2004, the combined portfolio of the top 10 firms jumped by 200 million square feet. In the three years since, it's grown by less than 100 million square feet combined.

The question, then, is have the biggest firms gotten as big as they can be? Or did they just take a break to digest previous deals?

I think the next 12 to 24 months could be extremely telling in answering that question. For the most part, the big firms — mostly publicly traded REITs — are well capitalized, aren't sitting on pools of debt and have mandates to increase shareholder returns. In an environment where the majority of buyers have been sidelined and where development looks more risky, perhaps acquisitions may be the answer.

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