Taubman's Steve Kieras

LAS VEGAS-One developer with a slew of projects to highlight at the International Council of Shopping Centers’ Spring Convention here last week was Bloomfield Hills, MI-based Taubman Centers. The company had projects on display from the Detroit area to South Korea. But one, Project CityCenter, was just a short drive from the Las Vegas Convention Center, to the Strip. Set to open in 2009 CityCenter is a multi-use project being developed by MGM Mirage for which Taubman will perform retail leasing duties. CityCenter will have 470,000 sf of retail, and though no leases have been signed yet, Steve Kieras, Taubman’s senior vice president of development, has high expectations for the center. Kiers spoke with GSR last week at during the ICSC convention.

GSR: How has the convention gone for you compared to past years?

Kieras: My personal assessment is that it’s very good and upbeat. There is a lot of product out there and a lot of people looking to grow. I would say that overall, I think the industry, based on my feel at this convention, is very strong. REITs are continuing their growth. Even though interest rates are rising, REITs are still a favored investment, which is somewhat counterintuitive. People said that once interest rates go up, investors would bail out of REITs. What’s happening is that there’s been a secular change. Now people say that these are strong assets. People are going to buy. We’re in good areas that are hard to duplicate, and we have long leases, so if there’s a short-term downturn, that doesn’t mean our income goes down. These people still pay us rent; we have credit-worthy tenants. I think people are realizing that this is a very strong, fundamental business that has a tremendous base and great growth prospects. I think the industry in general, and me in particular, is very bullish.

GSR: </b?There is quite a bit of retail on the Strip now. Will that make lasting CityCenter more difficult?

Kieras: When we first got involved, we were concerned. There is a lot going on here. What we’re finding is if you’re the best, it doesn’t matter what else is going on. Everybody says: “I’ve got to be there.” We’re amazed at the response so far. It’s beyond our expectations. We thought we would have a challenge getting people already in Las Vegas, at several locations. But they’re saying is that they need to find a way to be there. “I’ll put my best, biggest store there,” is what a lot of them are saying. For international tenants, we’re finding this is opening doors, and they’re coming over. The pull of this project is amazing. It’s ambitious, unique and over the top. If you can be over the top in an over-the-top town like Vegas, you really stand out. The sheer audacity of it is causing people to want to be there. We have just under 500,000 sf of retail, and we were a little concerned about that at first because we thought it might be a little heavy. Now we think it might be a little light. We’re very happy so far with the way the preliminary leasing discussions have gone so far.

GSR: How have the announced closings of Federated Department Stores impacted your portfolio?

Kieras: It really hasn’t impacted us much at all, especially relative to other developers. We only have a handful of centers where there are Federated duel boxes. Stamford (CT) Town Center was one, and we’re taking care of that by buying the Filene’s and building a lifestyle center. Fair Oaks [Fairfax, VA] is another, where there’s a Macy’s, a Hecht’s and a Lord & Taylor. However, that’s an opportunity because we agreed to get one of the Hecht’s or Macy’s boxes back. We definitely have people who can fill that right away because it’s such a strong center. The Lord & Taylor box there we would buy in a second, but right now it’s not for sale. It’s included in the package that Lord & Taylor is trying to market, as is the Lord & Taylor in Westfarms [Farmington, CT] as is the Lord & Taylor at Twelve Oaks. Many of those we would buy because we could fill those because they’re strong centers. We’re fine. The only other center we have with two boxes is Fairlane Town Center in Detroit where there’s a Lord & Taylor box and a Macy’s. They’ve announced they’re going to close that Lord & Taylor. We may do a lifestyle component like we’re doing at Stamford or another retailer, but that’s really it. Compared to others, we don’t really have much of an issue with the May-Federated merger.

GSR: In most cases will you try to replace them with other department stores or are you looking at alternatives?

Kieras: It varies by center. In our strong centers, I think we have great opportunities to replace them with department stores. We’ll look at it case by case. If it’s a strong department store that will really add to the center, add to the cache and increase our rents overall, versus not buying it, knocking it down, building it new, bringing in new tenants…you’ve got to look at that. Since these are very strong centers, and we think there’s opportunities for stores that aren’t in the markets of those centers, we would certainly look at other department stores. We wouldn’t look at a store just to fill the box. We would choose a store that we would like to have in the center and now that we have an opportunity to put them in, we will go that way.

GSR: What is the company’s attraction to Asia?

Kieras: If you look at the world population, there’s over a billion people in China, there’s over a billion people in India, and there is a Westernization going on in those countries. The governments open up, the markets open up, as global media Westernizes everybody. People see lifestyles and capital goods, and they want them. That means there’s opportunity. It’s kind of a gold rush. It’s like when California opened up, and people found gold, everybody headed out there. You have to sift through, and we’re not looking just to get little nuggets. We want to get a big one. So we’re very careful, just like we are here. You look at our projects here, and we think every one of them is a home run. We will go through many different paths than other people might go through, which is great for them, but doesn’t meet our criteria. But we don’t need to do a lot. We’re doing the same thing in Asia. We think there are opportunities there that you have go very carefully through. If you can find one or two, like Singapore with Harrah’s or New Songdo City, dominant centers, that’s what we’d like to do. It’s a new frontier, and we would be remiss if we didn’t look. We’re doing it methodically, with a plan, a set budget and a timeline. We’re trying to take the expertise that we have here, designing, leasing and planning. If we can take those strengths and translate them to Asia in the right location, we will have a competitive advantage.

GSR: A lot of developers are adding mixed-use components to their malls. Is that something you’re doing?

Kieras: It’s in vogue. We’re looking at it of course. It is something that everybody’s looking at doing. We don’t have as many opportunities as others because we only have 22 shopping centers. You can count on one hand the centers that may have a market, space and entitlements to do it. Given the cost of that, is it going to incrementally add to our centers? Ultimately, you have two ways of making money doing that. One is to sell off the land to someone who comes in and builds the residential. Two is the presence of the residential somehow augments your retail offering and increases your sales. It sounds logical, but it’s really a case-by-case analysis as to if it ever makes sense. But we’re talking to dozens of residential developers and builders. We want to find residential developers and builders who share our common goal of how to do things. We want people who only do the best, quality builders not quantity builders. People who are in it for the long term and look at how we can get the best quality, not just squeeze the last penny. We’re going through that process now, and I don’t know where we’ll end up. It’s a bit of a fad, but I think there’s some substance to it.

GSR: What is your acquisition strategy right now?

Kieras: I think pricing is kind of crazy right now. It doesn’t make a lot of sense when we can develop, even though developing is a lot tougher. Prices for land and construction are going up. Development is still something we do well. It’s a core competency and a strength of our company. I think it’s a way to add value. Not to say we wouldn’t look at any acquisition. It’s just that in general, with cap rates the way they are right now, it’s better to be a seller than a buyer. There are so many people chasing fine properties anyway, that you almost get into an auction. If a top-50 mall came up for sale, there would be so many people bidding on it. Our general feeling is that we’re laying low on acquisitions and focusing more on strategic alliances, ground-up development, redevelopments, maybe doing some residential and Asia.