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Changing With The Times

Pennsylvania Real Estate Trust (PREIT) was looking for management, leasing and development expertise to help grow its business. The Rubin Organization was looking for access to the public capital markets for the same reason.

The two organizations found what they were looking for in each other. They became one in a deal consummated September 1997, when Fort Washington, Pa.-based PREIT purchased The Rubin Organization, Philadelphia, for a reported $268 million.

"There are always challenges in integrating companies, particularly when their respective cultures are somewhat different," notes PREIT president and COO Jonathan B. Weller.

Even so, says PREIT CEO Ronald Rubin, "The integration of the two companies has proceeded very well."

That was then By the early 1990s, PREIT was one of the nation's oldest publicly held real estate investment trusts, with its portfolio diversified among retail, apartment and office product.

When PREIT was created in 1960, REITs could not self-manage properties within their portfolios, explains George F. Rubin, president of PREIT-Rubin, the management arm of PREIT. "So, all PREIT's retail properties were managed by joint-venture partners," he says.

Times and REIT regulations changed. With self-management not only permissible but also key to REIT success in the 1990s, PREIT began looking for a way to become a fully integrated real estate operating company with the ability to acquire, develop, manage and lease retail and multifamily properties.

Enter The Rubin Organization. Founded in 1946 as the Richard I. Rubin & Co. retail leasing firm, the company expanded during the next three decades into commercial and multifamily development and management.

In the 1970s, Ronald Rubin, Richard I. Rubin's son, directed the firm toward larger projects, particularly enclosed malls. The focus on retail projects increased in 1992 when Rubin & Co. merged with Strouse Greenberg & Co., a Philadelphia-based developer and manager, thereby creating The Rubin Organization.

As an active developer of shopping centers, primarily in Pennsylvania's Delaware Valley, and a favored developer for retail giants such as Home Depot, The Rubin Organization needed strong banking relationships to obtain funding for its various projects.

But in the 1990s, recounts Ronald Rubin, "As banks merged and consolidated, we found that our relationships with them were constantly changing. We were continually building relationships with new banks and new people. We seemed to always be going through due diligence and all sorts of other time-consuming processes with financial institutions."

The Rubin Organization management decided that getting direct access to the public capital markets by becoming a REIT was the best way to ensure the flow of dollars necessary to grow its business.

"We attempted to do an IPO in 1993, when a number of larger retail companies also went public - and we were one of the smaller ones that were unable to complete our offering," says Ronald Rubin.

Stymied in its efforts to go public, The Rubin Organization then set out to merge with an existing REIT.

"Wall Street was telling PREIT that it needed to get in the management business - and we were looking for a way to access the capital markets," recalls George Rubin.

Another connection between the two companies was Ronald Rubin's longtime acquaintance with PREIT founder and CEO Sylvan Cohen, principally through their work in the philanthropic community.

"Both companies were seeking the best characteristics of each other," says Weller, who joined PREIT in 1994 after a 23-year career at New York-based Eastdil Realty real estate investment banking firm. "PREIT was seeking the entrepreneurial energy and operating skills that The Rubin Organization had in leasing and development, especially in the shopping center end of the business. The Rubin Organization was looking for more regular and organized access to capital in the public forum, as opposed to having to finance projects on a one-off basis."

Discussions held over the next three years between them culminated in the merger.

Portfolio profile Operating in 21 states located primarily east of the Mississippi, PREIT (as of the end of 1997) owns interests in 17 retail properties containing an aggregate of approximately 6 million sq. ft.; 19 multifamily properties totaling 7,236 units; six industrial properties totaling 700,000 sq. ft.; and interests in five shopping centers under development that are expected to total 2.2 million sq. ft. upon completion.

Additionally, PREIT provides management, leasing and/or development services to both affiliated and third-party property owners for 49 retail properties containing 19.2 million sq. ft., along with 4 million sq. ft. of office space.

On the retail front, two recent acquisitions typify the kind of product PREIT is now seeking to buy. At the time of the merger, it acquired 570,000 sq. ft. Magnolia Mall in Florence, S.C., and 620,000 sq. ft. North Dartmouth Mall in Massachusetts. "Both were part of a 12 million sq. ft. equity portfolio, basically controlled by Sam Zell, that we took over management of," says Ronald Rubin.

"We want properties that dominate their markets," he continues, "primarily malls in secondary markets where there is not a lot of competition." Within this group, targeted properties include malls with expansion possibilities, along with centers in need of a turnaround.

Marketplace perspectives George Rubin, a civil engineer by training, began his career in real estate with The Rubin Organization in 1970 and has been involved in all aspects of the shopping center business ever since. The PREIT-Rubin chief says these are heady times for the shopping center industry.

"This is a good time to be an owner of retail properties - and a good time to be a seller as well, because a lot of REITs are actively buying," says George Rubin, who adds that competition among buyers for good retail product is fierce and cuts across all property types, from malls to strips.

A marked upturn in the leasing environment has led to the resurgence in popularity of retail product among investors, according to George Rubin.

"The shopping center industry has gone through some pretty radical changes in the past 10 years," he says. "It started when all the department stores went into bankruptcy, which helped the mall shops, particularly women's ready-to-wear. [As department stores made a comeback,] we wound up with a rash of bankruptcies in the small-tenant area."

The market as a whole rebounded, recalls George Rubin, but the leasing environment in secondary markets continued to lag. "For a long time, major retailers focused only on major metro areas," he notes. "But they are now figuring out how to operate and be successful in smaller markets."

And retailers are now actively pursuing opportunities in secondary markets. "We are doing a lot of big-box development in these markets. That end of our business is extremely strong," George Rubin reports, citing facilities for Home Depot, Target and Kohl's.

Bullish in his market outlook for the next 12 months, George Rubin points to the dearth of malls being built.

"The times are right to take advantage of the strengths of existing properties," he says, particularly those "that have been under-managed and are under-leased, where the owners/ managers have gotten tired and basically walked away - leaving a lot of room for us to move in and create value."

Next move On the acquisitions front, PREIT plans considerable activity in the coming months. "You can expect that we will announce some substantial acquisitions this year, some of which we are very close to completing at this time," says Ronald Rubin. The company is looking for shopping centers and multifamily product and will maintain its geographic focus in the eastern half of the United States.

"We have carved out a good niche for ourselves in the power center development business, particularly in the Delaware Valley surrounding Philadelphia," says Weller. "We've done a number of tenant-driven, carefully targeted centers with anchors like Home Depot, Target and Kohl's."

Weller reports that a number of these retailers have not fully penetrated the mid-Atlantic. "We are looking to follow them into new markets," he says, "as well as help them roll out multiple stores in this market."

On the development side, a large number of projects are in the pipeline, says Ronald Rubin. "We are opportunists here at PREIT," he says. "We have a lot of experience and a lot of young, aggressive people. We are all truly focused on finding ways to improve company earnings."

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