This year’s top developer, Developers Diversified Realty, is also the third-fastest-growing acquirer (see page 74). But even as it continues its role in consolidation, the Beachwood, Ohio-based company’s 6.1 million sq. ft. of new space shows it is pursuing a building path.

“Development is critical to our corporate growth,” said Scott Wolstein, CEO.

In a low cap-rate environment, development has become more profitable, he explained.

“We used to build to a 12% return and sell at 9.5%,” Wolstein said. “Now we build at 11% and sell at 5%. That’s almost a 100% return.”

Developers Diversified Realty
New and Expanded Properties Completed in 2006

But the projects themselves have gotten more complicated. Building larger complexes such as The Shops at Midtown Miami, in Miami, and Beaver Creek Crossings, in Apex, N.C., both of which opened last year, requires more time and resources than when the company focused on community and neighborhood centers.

“It’s more like the mall business,” Wolstein said. “The approvals are far more involved than they used to be. You’re now dealing with the Environmental Protection Agency, with wet-lands.”

Development also is taking place outside the United States, as Developers Diversified has bought a 50% interest in Brazilian developer Sonae Sierra Brazil, which will acquire and build in that country. “What we’ve discovered in South America and Europe is a cross between the U.S. mall and the U.S. community center,” Wolstein observed. “They are typically enclosed, but anchored by hyper-markets, and the equivalent of Best Buy.”

Simon Property Group
New and Expanded Properties Completed in 2006

But these centers are influencing U.S. developments, including the mixed-use projects, which are more vertical in nature.

“The pipeline is bigger now than it’s ever been,” Wolstein said. “The question is when it gets started.”

Building a combination of property types helped Simon Property Group place second among developers. Last year, Simon opened a mixed-use complex, outlets and a community center around the United States.

“It was a bit by happenstance. We’ve only owned Chelsea Property Group [its outlet-center subsidiary] for about three years,” said Stephen E. Sterrett, executive VP and CFO. “But one of the things that is unique about us is our different formats, giving us the ability to look at a piece of dirt and develop whatever is appropriate on it.”

Its pending acquisition of The Mills Corp. also will add new redevelopment opportunities.

Westfield Group
New and Expanded Properties Completed in 2006

“With any portfolio, you look at it with a fresh pair of eyes. And Mills has been distracted as a company for the last two or three years,” Sterrett said. “We’ll see some opportunities. The timing is something we’ll figure out over the next six-to-12 months.”

The pipeline shows no signs of slowing down, with Simon working on some $5 billion in projects to open in the next three to five years. The company has six projects under construction in China; its first in South Korea is to open this year, and it is looking seriously at Russia and India.

“We want to bring the sophistication of a world-class retail development and pair with a good local partner,” Sterrett said. “We’ve already done it in a few different countries.”

Having spent much of the 1990s as a major acquirer of centers in the United States and United Kingdom, Westfield Group is becoming a major developer. But the two roles are linked—Westfield is now redeveloping some of the many projects it acquired over the years.

Kimco Realty Corp.
New and Expanded Properties Completed in 2006

The result: Last year, Sydney, Australia-based Westfield (its U.S. headquarters is in Los Angeles) opened more than 3.7 million sq. ft. of space, including expansions of San Francisco Centre, Topanga and Century City, placing it third among developers. And that’s just the beginning of a multibillion-dollar development platform in the United States, United Kingdom, Australia and New Zealand.

“We have a philosophy of reinvesting in our assets all over the world,” said Peter Lowy, a group managing director of Westfield. “You get a much better return out of redeveloping— returns are far in excess of acquisitions.”

Westfield is investing more than $1 billion annually in redevelopment over the next three years, Lowy said. The company is in the midst of more than $1 billion in U.S. work alone, including expansions of Westfield Garden State Plaza in Paramus, N.J.; Westfield Annapolis (Md.), opening this year; and Westfield Southcenter in Seattle, slated for a 2009 completion. The £1.6 billion Westfield London, with 1.6 million sq. ft. of retail and entertainment facilities, is expected to open in late 2008.

“You invest to suit the marketplace you’re in,” Lowy said. “We put the portfolio together for that reason.”

Observers shouldn’t think of Kimco Realty Corp. as a neighborhood-center developer any longer. Its projects are consistently getting larger, often approaching 500,000 sq. ft.

That was enough to place it fourth this year among developers.

“It takes the same number of people to build 500,000 sq. ft. as 100,000 sq. ft.,” said David Henry, chief investment officer of New Hyde Park, N.Y.-based Kimco.

Future building will continue, as will Kimco’s policy of working with local partners to find development opportunities in the United States.

General Growth Properties
New and Expanded Properties Completed in 2006

“We have a heavy development pipeline. In California, we partner with Vestar; in Texas, we partner with Trademark,” Henry said.

Future construction also will focus more heavily on rebuilding Kimco’s older properties.

“We haven’t been particularly good at that,” Henry admitted. “We haven’t focused as much on our own portfolio. As we’re beginning to do that, we’re finding lots of opportunities. It’s like finding change under the car seat.”

Mexico will provide significant development opportunities, too. In 2006, Kimco began construction on six new centers.

“Mexico is a development game,” Henry said. “There are not a lot of existing properties.”

With more than 2.6 million sq. ft. in new retail space opened last year, General Growth Properties continues as a perennial on the Fastest-Growing Developers list, this year placing fifth.

And though the company opened two new major projects, Otay Ranch Town Center in Chula Vista, Calif., and Pinnacle Hills Promenade in Rogers, Ark., General Growth is in something of a transition.

“The real story is that of expansions,” said Thomas J. D’Alesandro IV, a senior VP of Chicago-based General Growth Properties (GGP). “We have over 100 properties in various stages of expansion.”

A major expansion of Natick (Mass.) Mall that will add both retail and luxury condominium space will open this year. The other story, he noted, is the type of expansion taking place. More often than not, the company is adding an open-air component to an enclosed center.

“As the mall evolves to something slightly different, the hybrid is the best solution,” D’Alesandro said. “It’s kind of a return to the Main Street.”

Another story is international expansion. GGP formed partnerships with Brazilian developer Nacional Iguatemi Group to invest in centers in Brazil, and with ECE Projektmanagement to invest and develop centers in Turkey. It also formed a joint venture with Grupo Sambil of Venezuela and Genesis Fund of Costa Rica to develop the 500,000-sq.-ft. Sambil Costa Rica in San Jose.

“A lot of U.S. merchants have been more aggressive about expanding, and we want to move across markets,” D’Alesandro said.