Chapter 10 – Vertical Integration

Simon Property Group is a major real estate investor, but unlike many real estate investors this company is vertically integrated into different facets of the real estate industry.

Most investors buy and sell real estate assets. They typically hire outside property management firms to run the day-to-day operations and do their financial reports. This allows the investor to focus on what they are good at, and that is identifying troubled assets and turning them into performers. This is how you get the most bang for your buck in real estate, it is called “value-add investing.”

Simon does their own property management. They have in-house leasing and do not outsource. Of course this doesn’t mean they shun brokers who are representing potential tenants, but their end is managed by in-house leasing staff, which gives them full control of the process and cuts out any commissions.

Another line of business Simon entered into was advertising. There is so much opportunity for advertising when you are a mall owner, however it’s amazing how many other major investors do not handle or do their own advertising. Simon has an entire department that’s dedicated towards not only advertising their own malls, but selling advertising space within the mall to anyone who wants to get information out to their customers. This is a huge revenue potential for the company and they have done well in capitalizing on it.

Last, Simon is not venturing into new alternative developments within their mall space to attract and bring customers into the centers. At the Sawgrass Mills mall in Sunrise Florida they built an AC Hotel by Marriott. This is great for out of town visitors and hotel guests are sure to utilize not only the retail stores but the restaurants and bars within the mall as well.

Being vertically integrated is risky for a business and cost you money if not done strategically. Luckily Simon has been very strategic with what they do and stay within the market they are accustomed to and familiar with and this is a big reason why they are successful despite the economic downtown for regional shopping malls.