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Chris Jones

The Future Of Shopping: Centers of Attention

25 May 2004

As a man with plans to soon build a large glass structure along Las Vegas' busiest thoroughfare, Aby Rosen knows better than to carelessly cast stones, verbal or otherwise.

Such prudence helps explain the German businessman's careful choice of words when asked how to overcome the many inherited obstacles associated with Desert Passage at Aladdin, a 475,000-square-foot shopping center Rosen and partners purchased in December for approximately $240.5 million.

"This is a top challenge, but not out of reach," Rosen said of the nearly 4-year-old mall that has borne a reputation as an underachiever despite a nearly $600 sales-per-square-foot average, approximately double the national average.

That paradox, Rosen said, is precisely what made Desert Passage such an attractive business opportunity. And over the next 18 months or so, he and his partners believe their investment -- coupled with a new name and some eye-catching structural changes -- will produce big dividends for the mall's owners and their approximately 140 tenants.

A hidden jewel

Chicago-based Trizec Properties spent nearly $300 million to build the Arabian bazaar-themed mall, which opened adjacent to the Aladdin in August 2000. Trizec initially hoped the center, with its size and Strip location, would someday rival its closest retailing neighbor, the highly successful Forum Shops at Caesars.

But the terror attacks of Sept. 11, 2001, compounded the Aladdin's myriad financial troubles, and Trizec's interest in its sole Las Vegas retail project soon soured.

After several markdowns and a mild bidding war, New York-based real estate firm RFR Holding, which Rosen heads with business partner Michael Fuchs, and East Coast developer David Edelstein's TriStar Capital (formerly Sutton East Corp.), emerged as the mall's new owners.

That group, collectively known as Boulevard Invest, came in fully aware of the problems that have plagued Desert Passage, most notably a poor design that offers little Strip-front visibility. But Rosen said those problems also convinced RFR to make its first major purchase outside the New York area.

"We go for the money," Rosen said. "We don't build monuments in order to put our name up ... but are very, very concerned about our return on capital.

"For us to go (to Las Vegas), we basically knew we had to do two things: fix a problem and make a lot of money, because that's the reward we're going to get for fixing it."

Rosen said the chance to buy such a large retail center on the Strip was "unbelievable" because it is difficult to build a major project in such a congested, expensive location.

"And the price that we bought it for ... offers us a great potential for return," Rosen said, citing past troubles that likely drove down Trizec's asking price.

Rosen's argument was underscored by General Growth Properties' recent $766 million purchase of The Venetian's Grand Canal Shoppes. That deal, which closed last week, brought that Chicago-based company a slightly larger Strip mall (500,000 square feet) at more than three times the price of Desert Passage.

And while Grand Canal's 2003 sales average of $1,000 per square foot topped Desert Passage's $600 figure, Rosen is confident improvements planned at his mall -- as well as the planned Planet Hollywood/Starwood Hotels & Resorts takeover of the Aladdin, scheduled for later this year -- will soon drive up sales.

George Conner, senior vice president of retail properties for Colliers International, said Desert Passage has "tremendous upside potential" thanks to its location "on the 50-yard line" of the Strip. But the mall was hurt by the Aladdin's problems, Trizec's stated interest in exiting the retail sector and an identity crisis among shoppers, he said.

"The Forum Shops has the word `shops'; Fashion Show's name includes `fashion' ," Conner said. "I'm not sure many people know what Desert Passage means."

The location remains solid, however, and Conner believes Starwood's extensive reservations network will bring more high-demographic guests to the property, a change that would also benefit the mall.

New name, new look

The Desert Passage name will be replaced within the next three to four months, though Rosen said a new moniker has not been determined. Its bazaar theme will remain largely intact, but with a modernized feel similar to the "old world meets new world" elements seen in cities such as Marrakech, Morocco, or Istanbul, Turkey.

RFR owns several high-profile buildings in New York, including the Seagram Building and the nearby Lever House on upscale Park Avenue. Despite its experience, Rosen said, RFR takes pride in hiring good advisers and will continue that strategy in Las Vegas.

Chicago-based Urban Retail Properties, which oversees more than 40 million square feet in more than 20 states, is now at work as the center's third-party management company. Rosen's group has also hired world-renowned New York architecture firm Skidmore, Owings and Merrill to craft the mall's new physical appearance.

SOM pioneered the use of glass facades and has ambitious plans for reshaping Desert Passage's northernmost Strip entrance.

"We want a light, bright open-styled entrance that will correct the problems with visibility," Rosen said. "We've got to do it very subtly, but very pretty."

The mall's entrances will also be accented with light-emitting diode screens that will change the center's look and feel at varying times of day or year, and also provide retailers with advertising opportunities.

Inside, SOM's team will break up the center's circular walkway, which Rosen compared to a doughnut with no beginning or end. To accomplish that goal, the mall will be divided into six to eight themed zones, each with its own mood and set of stores. Some areas could be opened to the outdoors, allowing patrons to gaze out upon Bellagio's fountains or the faux Eiffel Tower at Paris Las Vegas.

Those changes will take 12 to 14 months to complete, with the mall to remain open during the makeover. Rosen said the likely cost of the upgrades has not been determined.

Urban will also loosen how retailers design their storefronts, a marked change from Trizec, which set strict limits on window sizes and other exterior features to maintain the mall's theme.

"We'll give the retailers more of a way to express themselves," Rosen said.

He said the mall has already signed several new tenants that previously avoided the center because of Trizec's design limitations.

The new owners should also benefit from their association with Robert K. Futterman & Associates, a New York-based company that has served as the exclusive retail consultant for the $1.7 billion AOL Time Warner Center near New York's Central Park.

"He's a guru," Rosen said of Futterman, whose latest Southern Nevada deal will soon bring Spanish fashion designer Custo Barcelona to the Forum Shops at Caesars.

Also, San Francisco-based team from marketing firm Kirshenbaum Bond + Partners will join with Las Vegas-based public relations firm Kirvin Doak Communications to improve public and retail-sector awareness of the mall, Rosen said.