Malls are dead? Not so, Salomon says

RETAIL & ADVERTISING

April 20, 1994|By Timothy J. Mullaney | Timothy J. Mullaney,Sun Staff Writer

Only two years ago, Rouse Co. Chairman Mathias J. DeVito would go to stock analysts' meetings and listen to questions that were really lectures from people telling him malls were dead and Rouse, which owns all or part of more than 50 regional malls, was, if possible, deader than dead.

But Wall Street is ever fickle. The 2.5 million shares of Columbia-based Rouse that were sold short in early 1992 -- the third-biggest short position of any Nasdaq stock and a sign that bears believed Rouse's stock would fall even more than the 35 percent it slipped in late 1991 and early 1992 -- are history.

And now Salomon Brothers is out with a report about malls that "Wayne's World's" Wayne and Garth can, like, deal with. Title? "The Mall is Dead? Not!"

"We believe that during the second half of the 1990s -- and beyond -- regional malls will provide the most stable cash flow of any commercial property type," analysts Jonathan Litt, David J. Kostin and David Hensley write.

Dude!

The critique that malls will throw off cash even though the "malls are dinosaurs," while overstated, wasn't quite wrong, the Salomon team believes.

Other shopping centers will continue to eat into malls' market share, they write, but there's not as little room for everyone to prosper as there seemed to be when the economy was low and consumer confidence lower.

"Total retail sales is not a zero-sum game," the analysts declared.

Salomon began covering mall operators this month, and recommended Rouse as one of a half-dozen stocks of mall developers. Rouse has both pluses and minuses compared with the group: Its total return and sales are around the middle of the stocks Salomon recommends, but its debt is higher, leaving it more exposed to interest-rate swings.

However bullish, the Salomon report makes strange reading for anyone who learned the real estate business in the 1980s. The analysis is about dividends and total returns, not about sheer growth and appreciation of assets.

It would have taken a harder party than Wayne and Garth ever imagined in 1985 to foresee real estate investments being brokendown the same way as utility stocks. But there it is. Funny world.

Familiar buildings might come down

While people are trying to digest a future in which commercial real estate has been reinvented as an income investment, they might want to try to imagine a future of Baltimore without a lot of familiar Class B office buildings.

At least that's the way Peter Baldwin sees it. The Dallas-based president of the Society of Industrial and Office Realtors, a national group of top commercial brokers, passed through town last week and talked about the way the real estate world looks from a city that still has a 30 percent office vacancy rate downtown.

"We have a lot of old buildings that are inefficient . . . [and] in the wrong part of town, that are going to have to be destroyed" because even an economic recovery won't make them competitive again, Mr. Baldwin said.

Baltimore has about 80 Class B buildings, most built before 1930, and 18 percent of Class B space is vacant.

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