BUSINESS

SHOPPING THE MALL

THE GHERMEZIAN BROTHERS WANT TO BUILD MORE MALLS ABROAD BUT, SO FAR, DEALS HAVE BEEN ELUSIVE

JOHN DeMONT December 26 1988
BUSINESS

SHOPPING THE MALL

THE GHERMEZIAN BROTHERS WANT TO BUILD MORE MALLS ABROAD BUT, SO FAR, DEALS HAVE BEEN ELUSIVE

JOHN DeMONT December 26 1988

SHOPPING THE MALL

BUSINESS

THE GHERMEZIAN BROTHERS WANT TO BUILD MORE MALLS ABROAD BUT, SO FAR, DEALS HAVE BEEN ELUSIVE

From all evidence, Edmonton’s four Ghermezian brothers have never dreamt small dreams. Since they completed the mammoth West Edmonton shopping mall—dubbed the “eighth wonder of the world” by Nader Ghermezian— they have been trying to expand their $2-billion real estate empire by building variations of their crown jewel outside Western Canada. But their efforts have met with little success. Last year, the brothers decided to shelve plans to build a similar mall in upstate New York— despite $556 million in incentives from the New York government. And, when the gigantic Fashion Mall of America shopping and entertainment complex opens in Bloomington, Minn., an event scheduled for 1992, the Gher-

mezians will hold just 25 per cent in a project that they once sought to run on their own. Now, apparently undeterred, the Ghermezians have announced plans to install new shopping and entertainment complexes in California, Britain, West Germany, Russia and even China.

But questions linger over their ability to accomplish their grandiose plans. In the fall of 1986, Triple Five Corp. Ltd., their real estate development company, tried to raise $400 million from the public to convert a short-term construction financing on the Edmonton mall into long-term bonds. But investor interest appeared to be weak and, on the advice of underwriter Bums Fry Ltd., the company withdrew the bond issue. Since then, Triple Five has sold off an undisclosed amount of real estate assets, and company officials say that the firm has been trying to convince its bankers to convert $480 million in short-term debt into longer-term debt with lower interest costs. The usually ebullient Nader Ghermezian declined to talk to Maclean ’s last week. But Saul Katz, Triple Five’s director of corporate affairs in Edmonton, said that West German banks have agreed to back its most advanced proposal—an entertainment and shopping mecca in Oberhausen, a town of 220,000 located on the banks of the Rhine River in the economically depressed Ruhr Valley. And Citibank Canada also indicated that it will back the Ghermezians’ plans to build another mall in Burbank, Calif. Even so, Triple Five will still need major incentives from foreign governments before it will proceed with its proposals outside Canada. Said Katz: “These governments have indicated that jobs and increased tax dollars are well

worth the incentives they would have to pay.”

The Ghermezian brothers—Nader, Eskander, Raphael and Bahman—can be persuasive. Born in Iran, their family built a thriving handwoven-rug business in Iran before moving to Montreal in the early 1950s. By 1964, the family owned 16 rug store outlets across North America, and Eskander and Raphael had started buying land around Edmonton in anticipation of the oil boom. Most Edmonton residents had never heard of the Ghermezians until their plan to build the world’s biggest mall in the Alberta capital surfaced in 1974. Led by Nader, the brothers successfully lobbied aldermen for approval to build the $700-million, five-millionsquare-foot mall, which was completed in 1985.

The West Germany proposal is vintage Ghermezian. Triple Five plans to spend $1.8 billion to build a nine-million-square-foot shopping and entertainment centre, roughly the size of 200 football fields. Triple Five officials say that the project could help pull the drab town of 220,000 out of its economic nose dive, caused by the collapse of Germany’s coal and steel industries in the late 1970s. The project would include a marina, water park, casino, underground canals, amphitheatres, a convention centre and a hotel with rooms modelled after different European countries and cities. But the company wants the state of North Rhine-Westphalia to pay for the construction of a rail line from Oberhausen to the centre of the project. The company has also asked Oberhausen’s city government to rent half of the convention centre.

Triple Five officials say that the unique nature and central location of the project will bring in 15 million visitors a year—or three

times the number of people living within easy driving distance of Oberhausen. But Oberhausen officials suggested that they are unsure of whether to take the Ghermezians seriously. “It sounds like a miracle,” Oberhausen Mayor Friedhelm van den Mond told Maclean’s, “and I would like to believe it.” Still, state officials have established a working group to assess both the plan and the financing.

The Ghermezians are also making moves on the Soviet market. They hope to cash in on Mikhail Gorbachev’s opening to the West by building a tourist centre in Moscow. Triple Five has drawn up plans for a $ 1.8-billion project, including a 2,000-room hotel and dozens of top-ranking department stores from Europe and North America. But that project is trailing behind another proposal backed by Cleveland industrialist and financier Cyrus Eaton Jr. Eaton, 70, says that he has signed an agreement to build a $6-billion hotel, shopping and amusement centre outside Leningrad.

But the Ghermezians are not pinning all their hopes on Germany and glasnost. A joint venture involving Triple Five and a British construction company is vying to develop 96 acres near Birmingham, England, for an $840-million shopping mall complex. And the company is among the four finalists proposing to develop a 41-acre site next to a freeway in downtown Burbank, a project also worth $840 million, which Citibank Canada says that it will finance. Both cities will make their choices next month.

Triple Five has put together initial plans for a joint venture with the city of Beijing to build a huge complex containing retail and office space, as well as hotels and residential apartments. That project would not be ready until 1993, while the number of offices and apartments for expatriates in Beijing is expected to increase fivefold by 1990, when a number of construction projects already under way are scheduled for completion.

Meanwhile, visitors continue to beat a path to the Ghermezians’ mall in Edmonton. According to Katz, the giant mall had more than nine million customers during 1987, compared with six million in 1986 (there were 10 million visits in 1987 to California’s Disneyland), making it Alberta’s top tourist attraction. Now, the Ghermezians must convince bankers and government officials that their unique blend of shops and amusement-park attractions can sell as well abroad.

JOHN DeMONT

JOHN DALY

KERRY DIOTTE

PETER LEWIS

PETER STEIN