Michael Gregoire remembers the day well even though it was eight years ago.
“Doesn’t Homart make plumbing fixtures?” asked a longtime acquaintance, uncertain about the job that Gregoire (pronounced Gregory) had taken at Homart after several years as executive vice president of a national commercial real estate company.
Such was the respect shown Homart Development Co., which then was virtually unknown. It was mistaken for Homart Plumbing Supply Co.
Today, Homart is only slightly better known, even though its real estate holdings are measured in the billions of dollars.
Since 1990 it has built more than 15 million square feet of regional malls and community shopping centers, more than any other company in the nation. It owns 37 regional shopping malls, 15 community shopping centers, dozens of office buildings and hundreds of acres of land awaiting development.
Since its founding in 1959 it has built about 75 million square feet of retail space, of which it still manages 25 million.
Homart’s relative anonymity is a result of its being the development arm of Chicago-based Sears, Roebuck and Co., the nation’s seventh-largest company.
“Outside of the industry we’re not well known,” Gregoire admitted. “As a part of Sears’ enterprises we get lost. A lot of people confuse Homart with Hallmark.”
But it’s the kind of confusion some of the nation’s shopping-center developers wish they could have had when construction financing began to dry up in 1990.
Forced to cut back were Edward J. DeBartolo Corp. of Youngstown, Ohio; Melvin Simon & Associates Inc. of Indianapolis; Taubman Co. of Bloomfield Hills, Mich.; General Growth Cos. of Des Moines; and Chicago-based JMB Development Inc.
“Shopping-center developers were accustomed to building with other people’s money,” said Deborah Hazel, real estate editor of the trade magazine Chain Store Age. “When financing dried up and they couldn’t do 100 percent outside financing, they had heart attacks.
“But Homart always had put 25 to 30 percent of its own equity into its construction. The new reality for other developers was always Homart’s reality,” she said.
While other developers were stopped virtually cold in their efforts to build or refurbish shopping centers, Homart kept quietly building.
This year alone, Homart will open the 1 million-square-foot Woodlands Mall in Woodland, Texas, and reopen the virtually rebuilt 1.1 million-square-foot Natick Mall in Natick, Mass. And it is opening 1.7 million square feet of community shopping centers, including Woodfield Village Green in Schaumburg.
The firm is developing another 8.2 million square feet of regional malls and 3 million square feet of community shopping centers scheduled to open in the next three years.
“Our view is we are a developer and operator of shopping centers,” Gregoire said. “We have two distinct retail formats that serve the consumer differently: the malls marketing fashions and the large community shopping centers that market commodities and hard goods.”
Until now, the two categories have been relatively distinct. But Gregoire says Homart and other developers are beginning to see a shift.
“The trend we see is more integration of power retailers, such as Target; Best Buy; Bed, Bath and Beyond, locating in malls,” he said. “We’re now putting non-traditional category retailers and discount tenants into malls.”
But Gregoire concedes there are many malls and community shopping centers experiencing financial trouble.
“Neighborhoods and demographics have changed. We will see more malls going dark,” he predicted.
Unlike its competitors, Homart doesn’t just build a mall and walk away. It’s the only shopping-mall management company that’s developed a daily sales tracking program it uses to spot soft positions that it then targets.
“Our philosophy is different from other shopping-center operators,” Gregoire said. “We see ourselves in the retail business.”
The regional-mall industry gets a monthly sales figure 25 days after the end of the month from each of its retailers. It’s too late and doesn’t have enough detail to measure mall promotions, according to Gregoire.
In 1990, using Springhill Mall in Dundee, Homart developed a daily sales reporting system linking each of the mall’s stores with the mall’s management office. Stores are provided with a report showing how each day’s sales compare with other stores in their same category and with the mall’s gross sales, while the management office use the sales report to launch programs designed to market the mall better.
“It’s one of the reasons we have led the industry in sales performance,” Gregoire said. “We believe that through the first half of 1994 that we’re performing about 2 percent above the industry.
“That’s because we look at the retailers in the malls as a distribution channel to the consumer. Our customer is the consumer. Other shopping centers see retailers as their customers.”
But Homart also has struggled financially like its competitors.
In 1992, Homart took a $200 milion charge as it wrote down the value of its real estate portfolio. Even today it continues to struggle. The company reported two weeks ago a second-quarter loss of $9.9 million. For the first six months, it said it lost $4.7 million.
But that’s significantly better than a year earlier, when it lost $25.6 million in the first six months and $11 million for the entire year.
It struggled in part because a significant number of office complexes it developed over the years lost tenants and value, because it couldn’t sell some of its vacant land and because of a sales slump in the retail industry.
Jeffrey Feiner, retail analyst with Salomon Brothers in New York, estimates that Homart this year will lose about $5 million, break even next year and resume profitability in 1996.
But unlike its competitors, it’s had the deep pockets of its parent to turn to for help.
“That certainly is one of the main reasons they’ve continued building and one they will admit,” said Hazel, the real estate editor. “They’ve always said it doesn’t hurt to be a division of Sears.”
A decade ago there were about 14 square feet of retail space for every person in the country. Now there are more than 18 square feet.
Gregoire, however, doesn’t see any letup in the construction of more space, but he does see fewer malls being constructed.
Hazel says that’s understandable. “There’s virtually no cornfields left big enough where you’d want to put a mall.”
