Rouse Risked Design, Not Money

April 17, 2009|By JAY HANCOCK

James Rouse took risks with malls and marketplaces, not finances. General Growth Properties did the opposite.

That explains as much as anything why the company that absorbed the Columbia-based Rouse Co. landed in bankruptcy proceedings on Thursday.

A city-planing seer and religious humanitarian, Rouse was also a canny business operator. He understood companies evolve and sometimes crater.

"He was constantly reinventing what the Rouse Co. was up to, what he was up to," says Nicholas D. Bloom, associate history professor at the New York Institute of Technology and author of Merchant of Illusion, a Rouse biography.

But it's hard to imagine Rouse's properties in their present plight if he were still in charge. He never borrowed too much or risked the franchise to get a couple percentage points less on the mortgage.

General Growth did. The company, which bought the Rouse Co. for $11.3 billion five years ago, took on huge short-term debt that couldn't be refinanced after credit markets collapsed last fall.

General Growth's fabulous Shoppes at the Palazzo in Las Vegas, opened only two years ago, were financed with a $900 million loan that expired in November. The company played the same game as so many homeowners who bought with adjustable mortgages and too little down.

Contrast that with Rouse's approach to Columbia, an audacious project begun in the early 1960s that involved buying huge farm parcels on the sly and planning a town from scratch.

Rouse talked Connecticut General Life Insurance into putting up long-term financing that ensured success despite short-term setbacks, said Joshua Olsen, an executive at Monumental Realty in Washington and author of Better Places, Better Lives, another book on Rouse. (The insurance company was an equity partner.)

"Rouse was not averse to financial engineering, but the financial engineering had not really gotten as aggressive when he was in business as it has since," Olsen said.

By contrast, Rouse's business operations were downright radical. There had been planned communities before (Levittown), but Rouse conceived Columbia as a self-contained city, complete with downtown.

Harundale Mall, opened in 1958 in Glen Burnie, was one of the country's first enclosed shopping centers. New Jersey's Cherry Hill Shopping Center, opened in 1961, was the first regional mall, drawing people from Philadelphia. A couple decades later, putting Harborplace and other "festival marketplaces" in decaying downtowns must have seemed nuts.

"This idea of experimentation was what he was about," said Bloom.

Yet the projects often succeeded. It's tempting to wonder how the mammoth General Growth would have fared with a dollop of Rouse's adventurousness. Operationally, its malls are faring OK, given the recession. Indeed, the bankruptcy might have shocked Rouse "because the quality of General Growth's properties is so high," and he believed good projects trump challenges, Olsen said.

But General Growth in some sense is yesterday's company. It's too big. It has a huge stake in regional malls that are under challenge from Web shopping, Wal-Mart and volatile gas prices.

Rouse helped invent those malls a half-century ago. Were he still living, he would have moved to the next big thing. And it wouldn't be backed by a $900 million, short-term mortgage.

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