Chapter 9 – Collusion

Simon Property Group is a REIT, Real Estate Investment Trust. They are landlords to some of the most valuable retail real estate in the world, and protect that investment through strategic decisions that garner appreciation instead of depreciation. Despite what people may think, there really is not a whole lot of collusion that could occur in real estate. Yes, the days of paying off Senators to block rezoning or deny certain licenses did exist and was huge, especially in real estate. But when you are operating retail real estate it is a different animal. You are solely reliant on your tenants to pay their annual rent and CAM (common area maintenance) charges in order to remain profitable. In order for that to occur you need your tenants to make money, otherwise they will go broke and a bankrupt tenant does not pay rent.

In order to collude on investments SPG would need to disrupt any other investors chances from entering the discount mall industry. There are many discount malls but what makes SPG a solid investment (for both investors and tenants) is their focus on technology, site location, and access to capital. The area where collusion could exist (although we would never know since it would be illegal) is in the site location. SPG owns prime real estate, which is very expensive. I suppose during the bid process for a site if there were multiple locations of a potential outlet mall, SPG could collude with its tenants to offer incentives on why they should sign LOI’s (letter of intents) with them and deny signing an LOI with a competitor. After all, wouldn’t any retailer love a discount on rent at multiple sites (an offer SPG can easily offer) vs one? In addition, SPG could work with local politicians to deny the competitor from being able to acquire or get the necessary approvals to develop the mall. These types of things I’m sure do occur, however they are not in the lime light as it would be a huge negative to Simon.

What did make news recently was Simon’s collusion with discount retailer Walmart in an initiative to bring to light things about Amazon in an attempt to block Amazon’s growth and steer the benefit towards themselves. This was the subject of a September 2019 Wall Street Journal article that said:

“Free and Fair Markets accused Amazon of stifling competition and innovation, inhibiting consumer choice, gorging on government subsidies, endangering its warehouse workers and exposing consumer data to privacy breaches. It claimed to have grass-roots support from average citizens across the U.S, citing a labor union, a Boston management professor and a California businessman.

What the group did not say is that it received backing from some of Amazon’s chief corporate rivals. They include shopping mall owner Simon Property Group Inc., SPG 0.73% retailer Walmart Inc. WMT -0.05% and software giant Oracle Corp. ORCL -0.17% , according to people involved with and briefed on the project. Simon Property is fighting to keep shoppers who now prefer to buy what they need on Amazon; Walmart is competing with Amazon over retail sales; and Oracle is battling Amazon over a $10 billion Pentagon cloud-computing contract.”

Collusion comes in many ways and the old ways for real estate may have died, but that doesn’t mean survival doesn’t find a way to compete.