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Conservative approach in '80s pays off ROUSE REBOUNDS

THE BALTIMORE SUN

In the late 1980s, Anthony W. Deering was wondering if he and his mates at the Rouse Co. had lost their minds. They were hitting the brakes on new development, just finishing what they already had under way, while other big retail developers were buying department store chains.

"In 1987 and 1988, things were being done that we just couldn't figure out," said Mr. Deering, the new president of Rouse and heir apparent to Chairman Mathias J. DeVito. "We thought we had lost it. Wall Street thought so, too."

Yet Rouse hung on after the real estate and retail blood baths came, wiping out developers like Robert Campeau and hamstringing competitors like Melvin Simon and Alfred Taubman, and shoving Rouse's stock as low as $11 a share.

Now earnings are coming around; first-quarter cash flow rose 40 percent this year. The short position is falling, and the stock is up, closing Friday at $17.625. Three investment firms have made Rouse a "strong buy" since March. And Mr. Deering, the company's executive vice president until his elevation in March, is beginning to look to a future that actually might include development again.

"We're not bullish on the economy, but there will be opportunities because our competitors are somewhat impaired," said Mr. Deering, a 48-year-old with a passing resemblance to former President George Bush.

"If we were to get four or five new projects under way [for completion in the late 1990s], I'd be happy as a clam."

"The problems last year had nothing to do with the Rouse Co.," said David L. Beeghly, an analyst at Scott & Stringfellow in Richmond, Va. "It had everything to do with what was going on in the industry. In 1991, the earnings came in as I expected every quarter."

Mr. Deering comes to the top job after 20 years at Rouse, a company he discovered through a consulting job at a firm where he was working to put himself through graduate school at the University of Pennsylvania.

"I was working with them as a client," he says over breakfast at the Cross Keys Inn in North Baltimore. "They were trying to figure out what was going on in Columbia, and a classmate of mine was working for the Rouse Co."

One thing led to another, and Mr. Deering ended up in Columbia in time for the 1974-1975 recession.

"It was a brutal period," he said. "They [had been] growing very fast and some of it was uncontrolled. . . . Unfortunately, the business was headed for a lot of trouble."

But struggling wasn't especially new to Mr. Deering, who went to college at night after his father died. Rouse cut its employee count by half between 1974 and 1977, and struggled again during the 1981-1983 recession, but then rebounded. And while Rouse, like other developers, was out on some limbs when the most recent turndown came, the memories of 1974 kept it from being a lot worse, he said.

"It leaves scars on your soul," he said.

When Mr. Deering was picked to lead Rouse, he still wasn't well-known to analysts who follow Rouse. "I don't know him very well at all," Mr. Beeghly said. "I've probably talked to him two or three times."

But there are reasons why Rouse hasn't hit the financial shoals that have claimed homebuilders like NVR L.P., which was forced to seek a bankruptcy court-protected reorganization, or office-building developers who have had to liquidate many or all of their holdings.

Mostly, Rouse is concentrated in retail malls, which saved the company's bacon in two ways.

First, retail real estate didn't get hurt as badly as the office market by the recession because it wasn't as overbuilt. Secondly, the politics of rounding up department stores, specialty stores and local support for a new mall takes so long that some bad ideas didn't get built. By then, the recession stopped both good and bad projects, Mr. Deering said.

But give Rouse credit, Mr. Beeghly said.

"They didn't go big time in the office area," Mr. Beeghly said. "They stuck to their knitting in the retail segment. The second fTC thing is they stopped the development. . . . They didn't end the '80s and start the '90s with a huge backlog of developments to get through."

Instead, Rouse went for lower-risk ways to expand around the mid-to-late-1980s.

Instead of building new centers, they expanded the ones they had or bought other people's centers. They brought in partners on individual deals to share the risk and even issued new types of securities backed by specific malls rather than the full faith and credit of Rouse.

When Rouse did build, it built low-risk projects like the Ryland Group Inc.'s new headquarters in Columbia, which was fully leased before any dirt moved.

"I wasn't sure why they were stopping it," said Mr. Beeghly, who used to work for Ferris Baker Watts Inc. in Baltimore. "I wasn't sure if it was luck or being smart. I thought they were slowing down, and there was concern about cash flow going forward. They ended up being on the right side."

For all the sound and fury of the past two years and the loss of "every banking relationship the company had" in the real estate financing squeeze, Rouse never had to give a building back to its lenders, Mr. Deering said. But there were still plenty of problems to solve.

The company's biggest shareholder, the Canadian developer Trizec Corp. Ltd., had to get out of most of its 25 percent stake in Rouse as part of its own restructuring. Rouse had to find new banks after the New York money centers pulled back on real estate lending, and ended up moving the biggest chunk of its banking business out of the country, to the Canadian Imperial Bank of Commerce in Toronto.

But all the financial business has been accomplished. Trizec's -- sold most of its Rouse stake to institutions last fall, the new banks are in place and Rouse made an offering of senior debt early this year.

"They're not looking for me to pull financial rabbits out of the hat," Mr. Deering said, even though his most recent experience is in finance. "I don't think I'll be very involved in the financial affairs of the company. I think the emphasis will be on running existing operations."

Mr. Beeghly said the watchwords for Rouse's growth will probably be expanding its malls, buying existing malls, with building new projects likely to be last and least on the priority list.

Mr. Deering says that whatever new projects are done won't be office buildings. "I wouldn't think we'll build an office building for the foreseeable future," he said.

But that doesn't trouble him much. The malls are doing fairly well, he said, and Rouse is getting an extra boost from 1980s partnership deals in some of its malls.

The partnership deals gave Rouse a smaller share of profits in early years, while its backers got their investment out, and a bigger share beginning in the early 1990s. That's one reason for the big first-quarter gains, he said.

"I think we're going to have a good year in 1993," he said. "Ingredients are coming together."

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