Simon said that since Simon Property Group went public 20 years ago, he has been most surprised by the growth in the size of his company and the REIT industry in general.
“I would never have predicted the size of the company when we went public. Not just us, but Vornado and a host of other companies,” he said. “In the late 1990s we were just trying to make smart deals. It’s really surprising that the whole industry has gotten to the size it is.”
Roth said the “dire” state of the real estate industry in the mid-'90s proved to be a formative period for his company.
“We changed in the past 15 or 20 years to constantly seek assets that are out of favor,” Roth said. “We started to go into New York City office in a very large way.”
Both CEOs agreed that the advent of the Internet has both challenged retail REITs and provided opportunities for the sector. Simon said online sales will ultimately accelerate the obsolescence of bad retailers. On the other hand, stronger properties with successful retailers will get stronger, according to Simon, who said mall owners should embrace what technology can offer consumers.
“Hopefully, over time, the mall owner will be able to introduce technology to make the shopping experience a better environment for them,” he said.
However, Simon predicted a change in the way consumers choose to interact with one another. He said the millennial generation prefers physical interaction, as opposed to social networking.
“That’s what we have the potential to deliver in a number of our shopping centers,” he said. “I actually think there will be a movement toward going back to the basics. There will be a social movement to looking up, as opposed to looking down at your PDA.”
On a related note, Simon and Roth agreed that the adoption of the Main Street Fairness Act, federal legislation that would allow states to require online retailers to collect and remit sales and use taxes on purchases by residents of those states, is needed to level the playing the field for bricks-and-mortar retailers.
The REIT CEOs also agreed that Federal Reserve Chairman Ben Bernanke deserves more credit than he has received for his stewardship of the national economy.
“In my personal opinion, what the Fed has done has been remarkable,” Simon said. “The fact that our economy is reasonably stable, given all of the atmospherics that are going to and have occurred in Washington, is a direct result of Ben Bernanke.”
“The single most important thing going on in the capital markets is 0 percent interest rates,” Roth said.
Roth also discussed the struggling J.C. Penny’s chain and Vornado’s decision to invest in the retailer.
“J.C. Penny’s was a mistake," he said. "We have a history of investing in retailers and have had an enormous amount of success. We lost some money, and thank God our company can withstand the loss. We admit the loss and we moved on."
Roth added that the retailer has made management changes and moves to bolster its capital position. “We have a high degree of confidence and optimism that JC Penny's will move its operations and flourish again,” he said.