BUSINESS/ECONOMY

Cloning a giant mall

JOHN DALY June 13 1988
BUSINESS/ECONOMY

Cloning a giant mall

JOHN DALY June 13 1988

Cloning a giant mall

The Ghermezians swept Bloomington, Minn., officials off their feet in 1985 with their grand plan to duplicate what one of the brothers called “the eighth wonder of the world”—the gigantic West Edmonton Mall—in their city. With 800 stores and services, an amusement park and a fiveacre indoor water park, the Edmonton mall is spectacular. But despite several attempts, the indefatigable Ghermezian brothers, who own and operate the mall, have failed to repeat their eighth wonder anywhere else. Initially, the Ghermezians—Raphael, Bahman, Eskander and Nader—had difficulties raising money for the Bloomington project, and a proposal to build a similar megamail either in southern Ontario or upstate New York has been shelved. But, last week, the brothers scored a partial but significant victory when the Bloomington city council unanimously approved a revised development plan for their latest project—the Mall of America.

In contrast to the Ghermezians’ highprofile promotion efforts before the unveiling of their original plans for the Mall of America in 1985, only Nader Ghermezian was in Bloomington last week when the decisive vote was cast. According to the new plan, construction must begin on the first three-millionsquare-foot section of the mall by the end of next May. It is being supported by a $731-million loan from New York

City-based Citicorp Real Estate Inc. But the Ghermezians now share control of the project with a joint-venture partner, Indianapolis-based shopping mall developer Melvin Simon & Associates Inc.

When the first phase is complete in 1992, the Ghermezians’ Triple Five of Minnesota Inc. will own just 25 per cent of the mall that the brothers initially proposed to build and operate on their own. Still, Bloomington Mayor Kurt Laughinghouse praised the Ghermezians as the driving force behind the project. Said Laughinghouse: “The credit goes to the Ghermezians for promoting the idea and making it believable.”

Under the revised plan, Melvin Simon and Triple Five will each have a 50-percent interest in the project during construction of the mail’s first phase. But after that is complete, the interest of both partners will drop by half. At that point, a New York City-based pension organization, Teachers Insurance and Annuity Association of America, is scheduled to pay off the Citicorp loan and assume a 50-per-cent ownership interest. As well, Melvin Simon, one of the largest shopping mall developers in the United States, will have the final say in all decisions. Robert Hoffman, the Ghermezians’ lawyer in Bloomington, said that the brothers will supervise the assembly and management of the amusement and tourism facilities.

The construction process and financ-

ing arrangements in the new plan differ substantially from those in the original agreement between the Ghermezians and the city. At that time, the confident Ghermezians were proposing what Hoffman described as a “fast track” construction process, in which on-site work would proceed only two months after architectural drawings commenced. He said that potential lenders had reservations about that method and refused to support it. And he added that the Ghermezians underestimated the amount of time that it would take to obtain construction approvals from the state and the city. While the Ghermejp zians were running into I problems in Blooming3 ton, they were also being rebuffed at home. They said that they wanted to convert part of the West Edmonton Mali’s debt into a $480-million mortgage bond issue. If successful, the Ghermezians would have found it easier to borrow again to finance construction of a second huge mall. But they had to withdraw the bond issue when it failed to sell.

The Ghermezians then approached Melvin Simon, which joined the Bloomington project last December. According to some analysts, that was a critical step. Said Harry Rannala, an institutional real estate analyst in the Toronto office of Vancouver-based Pemberton Securities: “If you want to build major real estate projects, you need a sizable equity investment. If you do not happen to have a lot of equity, you have to turn to a joint-venture partner.”

Meanwhile, the Ghermezians have been selling real estate assets in Edmonton, but they have not said whether the sell-off has anything to do with financing the Bloomington project. In January, they sold a 50-per-cent interest in their $650-million Edmonton Eaton Centre project, and last month they sold their 40-store Northtown Mall. But in the months leading up to last week’s approval in Bloomington, the normally outspoken Nader Ghermezian was unusually quiet about the brothers’ Minnesota mall. And it remains to be seen whether the green light received in Bloomington will lend fresh impetus to the Ghermezians’ goal of erecting new wonders elsewhere in North America.

-JOHN DALY with KERRY DIOTTE in Edmonton