Rouse's acquisition plan Next step: Columbia-based real estate giant must grow to thrive.

January 22, 1998

COLUMBIA'S ROUSE CO. is doing what is necessary to remain competitive in the dog-eat-dog world of commercial real estate. This month, it became a real estate investment trust, or REIT (pronounced "reet"), sort of a mutual fund corporation for real estate investors.

Rouse became a REIT on Jan. 1 to gain a number of advantages. One is to avoid federal corporate and most state income taxes. The company's stock rose substantially when it announced plans to become a REIT. Another advantage: Only a REIT can purchase a REIT. The new designation allows Rouse to pursue one of the most prized of these companies, Corporate Property Investors Inc. (CPI).

The $4 billion transaction, if completed, would be Rouse's biggest, by far. The Columbia firm's 1996 acquisition of Howard Hughes Corp.'s properties cost a mere $520 million.

CPI owns 27 properties, including the 50-story General Motors Building in New York, upscale shopping malls and retail projects that are among the country's most profitable. It is a "paired-share" REIT, which can own property and operating companies and still maintain its tax-exempt status.

Rouse, founded by the late visionary James W. Rouse, has developed some of the most inspiring U.S. projects since the 1960s. They include Baltimore's Inner Harbor and New York's South Street Seaport, the renovation of Boston's Fanueil Hall and the planned city of Columbia. Rouse already was one of the largest and most prestigious real estate companies in the United States. But the CPI deal would elevate it into the stratosphere.

As the company mushrooms, some of Rouse's older business associates might wonder whether they will be forgotten. The company last month announced plans to sell its two Columbia hotels, and residents of some of Columbia's older villages have expressed concern that the company's attention is elsewhere.

Rouse was built on its reputation of community good will. It doesn't want to squander that, especially while developing a planned city in Summerlin, Nev., that is larger than Columbia. To thrive in the commercial real estate industry while retaining its reputation for community development, Rouse must grow without outgrowing its old partners.

Pub Date: 1/22/98

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