The Edward J. DeBartolo Corporation History

Address:

7620 Market St.
Youngstown, Ohio 44513
U.S.A.

Telephone: (216) 758-7292
Fax: (216) 758-3598

Private Company
Founded: 1944
Employees: 15,000
Sales: $700 million
SICs: 6552 Subdividers & Developers Nec; 6531 Real Estate Agents & Managers; 1542 General Contractors--Nonresidential Buildings, Other Than Industrial Buildings and Warehouses; 1522 General Contractors--Residential Buildings, Other Than Single Family; 6512 Operators of Nonresidential Buildings

Company History:

The Edward J. DeBartolo Corporation has been a leader in American retail development for almost half a century. The company owned and/or operated over 78 million square feet of retail space by the early 1990s, and its commercial assets surpassed 95 million square feet. Headquartered in Youngstown, Ohio, the company holdings included over 100 retail malls and community shopping centers, nine office projects in operation or under development, and three hotels. Aside from its real estate and commercial holdings, the company has also dabbled in horse racing facilities and owned professional sports teams.

The company was founded by Edward J. DeBartolo, regarded as a pioneer of the suburban shopping center. DeBartolo was born in a small suburb of Youngstown. His stepfather, Michael DeBartolo, was an Italian immigrant and master stone mason. Edward entered the world of work after graduating from Notre Dame University with a degree in civil engineering in 1934. He helped his step father with the family paving and general contracting company and operated a strip mine in East Palestine, near Youngstown. During World War II, DeBartolo served in the Pacific theater with the Army Corps of Engineers, saving his pay in hopes of beginning his own business.

After his service during the war DeBartolo founded his own company in 1944 constructing gas stations, supermarkets, and other single-purpose buildings. In 1948, he started building subsidized housing for World War II veterans in Boardman, Ohio, just south of Youngstown. Witnessing the wave of people moving out of Youngstown into less urban communities, DeBartolo had a hunch that the new residents of his housing development would appreciate local shopping facilities. He had also discerned one of the primary events that led to the birth of the modern shopping center: postwar suburbanization.

The many factors that contributed to the development of regional shopping centers came together after World War II. First came the "baby boom," which generated more consumers than most existing retail facilities could handle. Then, the country's mass transit system, on which many consumers relied to transport them into town for shopping, failed to accommodate the growing populous. An increased disposable income allowed many of these shoppers to purchase automobiles, which permitted consumers to travel farther on the newly-improved roads of the postwar era. More stringent labor laws shortened the work week to five days, which facilitated more leisure time than ever before. All of these factors combined in the late 1940s and early 1950s to create an environment that encouraged the development of the shopping mall.

In 1948 DeBartolo built Belmont Plaza, his first "strip style" shopping center (so named because the stores were arranged side by side in a long strip) as an alternative to shopping in downtown Youngstown. As a developer, DeBartolo made money by renting out space in the shopping center for a percentage of retailer's proceeds. Shopping centers in general offered a large selection of products and services in an attractive atmosphere that provided a feeling of security as well as free, abundant parking. Developers soon found that the variety of retailers encouraged consumers to shop longer and, usually, spend more money.

DeBartolo incurred heavy debt to construct his first major shopping center, Boardman Plaza, in 1951. Many local businessmen speculated that the plaza would fail. But the endeavor was a huge success, prompting the young developer to purchase an airplane and begin selecting Midwestern corn fields near the intersection of major highways for his shopping centers. He built an average of five strip malls (or community centers, as they are known in the industry) per year over the next fifteen years, earning the nickname "Plaza King" by the late 1950s.

In those early years, the DeBartolo Corp. instituted its "concept to completion" method of development. Everything from land acquisition to leasing, construction, marketing, and renovation was accomplished internally, employing market analysts, site planners, financiers, architects, designers, construction supervisors, leasing professionals, lawyers, mall managers, and marketing specialists.

The company purchased its first horse racing track, Thistledown Racing Club, in 1960 for $5.1 million. The suburban Cleveland site featured a large, $4.2 million parcel of real estate on which DeBartolo hoped to eventually build a large-scale mall. Although the developer expected racing to be nothing more than an interesting sideline, by 1976 he owned a total of four racetracks, including Balmoral Trot Park, outside Chicago, for which he paid $10 million, and Louisiana Downs, outside Shreveport, which cost $27 million.

DeBartolo had built more than 100 strip malls by 1965. Noting a population surge in Florida, DeBartolo banked on the success of Walt Disney Co.'s planned Disney World theme park near Orlando. He sold most of the strip malls and parlayed the proceeds into enormous investments in Florida real estate during the 1960s.

In 1966 DeBartolo opened Summit Mall in Akron. The project put the development company at the forefront of large-scale retail trends; at the time, Summit was the only fully enclosed regional mall in Ohio. Over the next ten years, DeBartolo built 31 regional shopping malls, leading an industry trend toward larger shopping centers with a wider array of merchandising approaches. He also operated four Holiday Inns, held a controlling interest in three Florida banks, and operated Ohio's only duty-free storage zone, at the Port of Toledo.

However, like many American entrepreneurs, DeBartolo hit hard times during the deep recession of the early 1970s. The 1973 oil crisis precipitated increased consumer outlays for housing and energy related expenses, which depleted disposable income and paralyzed retail sales volume. Faced with a substantial debt load, the corporation's cash flow was scarcely sufficient to service debt, and some locations even had trouble meeting payroll. The crisis proved serious enough that DeBartolo was forced to close Louisiana Downs, a race track near Shreveport, Louisiana, just 50 days after its opening in 1975.

The crisis passed with the economic rebound of the late 1970s, and DeBartolo was positioned to take advantage of the improved economy. In 1976, he opened what was then the world's largest regional shopping center, Randall Park Mall. He had waited 16 years to utilize the site adjacent to the Thistledown racetrack. At 2.2 million square feet, the "superregional center" featured a ten-story Holiday Inn and cost $180 million to develop. DeBartolo expected the mall alone to attract 80,000 to 85,000 customers daily. The completion of Randall Park Mall helped the Edward J. DeBartolo Corp. achieve assets estimated at nearly $1 billion at the end of 1976. Other investments during this time included DeBartolo's purchase of the San Francisco 49ers football team for his then 30-year-old son, Edward Jr., as well as the Pittsburgh Penguins hockey team for daughter Denise York DeBartolo.

DeBartolo's Florida land investments of the 1960s paid off in the 1980s, when even the state's most depressed areas began to rebound. By the end of the decade, DeBartolo operated 26 malls in Florida. According to one jealous rival quoted in a June, 1989 Barron's article, DeBartolo "owned" Florida; over one third of his property was concentrated in that state.

The developer expanded his sporting properties with the 1981 purchase of the Pittsburgh Civic Arena. The following year, the corporation purchased a New Orleans race track, and in 1985, DeBartolo built another, Remington Park, in Oklahoma City. DeBartolo later sold the Balmoral Track to former Clevelander and New York Yankees owner George Steinbrenner III. Over the years, DeBartolo had tried to purchase several other professional sports franchises, including baseball's Cleveland Indians and Chicago White Sox, but was prevented from doing so, presumably because ownership of sports teams and racecourses would represent a conflict of interests.

In the 1980s, DeBartolo and many others in the development industry became interested in the retail side of the shopping center business. These larger developers reasoned that ownership of a major retail chain would provide ready-made anchors for future developments, which would ease some of the stress of opening new malls.

DeBartolo made one of his first bids for a retail chain in 1986. He became closely associated with Canadian businessman Robert Campeau when the two became competitors in a takeover war for Allied Stores Corp. that year. One of America's major retailers, Allied operated 684 stores, including Brooks Bros. and Bonwit Teller. While DeBartolo eventually let Campeau purchase Allied, he acquired a 50 percent interest in the corporation's five regional shopping malls in the bargain. His association with Campeau also facilitated a joint venture for the development of between 50 and 100 retail malls. The two moguls agreed that future DeBartolo malls would be anchored by Campeau's top-of-the-line stores, which included Federated's Bloomingdale's, Burdines, and Abraham & Straus, and Allied's Jordan Marsh, Stern's, and The Bon.

Just after the Allied deal, DeBartolo joined clothing store company The Limited in an effort to purchase Carter Hawley Hale Stores (CHH). The Carter Hawley Hale group then owned such stores as The Broadway, Neiman-Marcus, Bergdorf Goodman, and Contempo Casuals. CHH repulsed the hostile takeover with the help of General Cinema, but that didn't halt DeBartolo's quest for an influential retail partner. In 1988 he teamed up once again with Campeau in the latter's $6.6 billion takeover of Federated Department Stores. DeBartolo's $480 million equity loan earned him a seat on the Campeau Corp. board as well as 7.5 percent of Federated. Later that year DeBartolo became a partner with Dillard Department Stores in their purchase of Cleveland's Higbee Company. The partnership, Ho Holding Associates, acquired Higbee's department stores for $165 million.

In 1987, DeBartolo's wife of 44 years died, driving the already hard-working billionaire to work even more zealously. It has been estimated that he works from 5:30 or 6:00 a.m. until 7:00 p.m. each day, including weekends and holidays, and rarely, if ever, takes vacations. In addition to his long days, DeBartolo is known for his keen attention to detail; he has been so closely involved with the company's projects that he chose the color scheme for the seats at one racing facility.

The retail development industry of the 1980s was characterized by diversity. With many traditional markets saturated, developers no longer followed traditional formulas. As large suburban regional markets were built out, leading developers began to shift their focus to the middle-markets that had been passed over by the first wave of development. Although these generally small town areas offered fewer consumers, developers hoped that their newer, more comprehensive shopping centers would provide the most attractive retail opportunity in the area. DeBartolo's Crystal River Mall, opened in 1989, was an example of the format.

DeBartolo opened two malls and seven community centers in 1988. The community centers put the corporation at the forefront of a new trend that saw developers building strip malls alongside previously built regional malls. These adjacent developments had several advantages. They enabled the company to glean profit from land that was previously sold to others, and also made the property as a whole more attractive and cohesive. Tax benefits also influenced DeBartolo's actions: if the land was sold, the company would be required to pay taxes on the proceeds.

Another development category that emerged in the 1980s was that of in-fill or "twilight-zone" development. These shopping centers were constructed in urban in-lying, or "trolley-car," suburbs that had previously been inadequately serviced by major shopping facilities. Rivercenter, in San Antonio, and New Orleans Centre were examples of this trend. DeBartolo's urban mall experiment was short-lived, however, because of the many obstacles to downtown building. The projects required cooperation with local and federal government for subsidies, and extra planning for deck parking and high-rise buildings. These barriers prevented DeBartolo from building additional urban shopping centers.

Many developers focused on simply remodeling older shopping centers, which had taken on a "cookie-cutter" appearance in the 1970s. The refurbishing trend combined with a change in the basic function of shopping centers, from strictly merchandising outlets to sources of entertainment that featured cinemas, hobby shows, live entertainment, and food.

The corporation's existing properties grew by almost 300,000 square feet in 1988, and DeBartolo had plans to augment or renovate five locations in 1989. That year, a DeBartolo executive told Chain Store Age Executive magazine that the company's portfolio of shopping centers was so large that it could begin a "never-ending cycle of rehabs."

By the end of the decade, the DeBartolo Corp. was the exclusive or joint owner of 59 regional shopping malls around the United States, reportedly owning or managing ten percent of the country's total mall retail space. Company representatives estimated that 40 million customers visited DeBartolo's malls and shopping centers weekly.

However, saturation and diversification of the shopping center industry and a late 1980s and early 1990s recession caused DeBartolo to move more cautiously in the early 1990s. Whereas in the past, the company might have gone ahead on a mall project that would have only one or two anchor stores, by the 1990s, DeBartolo required commitments from four or five anchors before proceeding. Although many developers, including DeBartolo, continued to open millions of square feet in retail space, much of the expansion was accomplished using previously purchased parcels. In May 1991, Richard S. Sokolov, senior vice president-development, told Chain Store Age Executive magazine that the DeBartolo Corp. had not initiated new projects for 1991, and that the company was building projects with financing commitments made before the end of the 1980s. He also noted that several projects were postponed due to a lack of traditional financing.

The early years of the decade also saw DeBartolo entering joint ventures with former competitors to build major shopping centers. In 1990, the company joined Chattanooga-based CBL and Associates to develop the Mall of the Avenues, Jacksonville, Florida's first "galleria," a glass-enclosed mall with several promenades or tiers. That same year, DeBartolo teamed up with Faison Associates of Charlotte, North Carolina, to build the Virginia Center Commons in the growing Richmond, Virginia, market. The Brandon Town Center, a 1.1 million square foot cooperative venture of DeBartolo and JMB Retail Properties of Chicago, was planned for a 1994 opening in Florida. A limited partnership arranged with Homart Development put DeBartolo in charge of some of the financing, while Homart was responsible for development, management, and leasing for a Fort Lauderdale project. These creative arrangements will undoubtedly continue, considering the overall development climate.

In 1991 the corporation came out on top of Chain Store Age Executive's list of "Fastest Growing Developers" with 3.89 million square feet opening. However, financial problems began to surface as the recession lingered on. The problems started the year before when Campeau Corp. defaulted on DeBartolo's $480 million loan. When Campeau's Federated Department Stores Inc. filed for bankruptcy court protection in January, it became the largest Chapter 11 case ever filed by a retailer, and DeBartolo became just another creditor hoping to collect.

In 1991, the real estate downturn forced layoffs of about ten percent of DeBartolo's workforce, and in 1992, company executives bandied about asset sales. By the end of the year, the corporation had divested the Pittsburgh Penguins hockey team, one corporate jet, one Florida mall, and two office buildings.

It appeared that the company's fortunes were changing when DeBartolo joined Dillard Department Stores in the purchase of four Higbee Co. stores, but by mid-year DeBartolo sold a second mall in Florida and its Higbee's interest to Dillard. DeBartolo's financial difficulties came to a head in the fall of 1992, when the corporation agreed to refinance over $4 billion in debt. The financing agreement with four banks deferred principal payments on the debt for five years and advanced $300 million in new loans.

As patriarch DeBartolo entered his 80s, the question of corporate succession has also cropped up. Whether the company is to be run by son Edward J. DeBartolo, Jr. or will be taken public remained to be seen in the early 1990s. The DeBartolo Corporation has endured the vagaries of the development and retail businesses for over 40 years. In the early 1990s, industry analysts speculated that retail development was in the midst of a dramatic, fundamental change from past decades of rapid growth. As one of the top retail development firms, the DeBartolo Corp. continued to anticipate and adjust to the changing times.

The Edward J. DeBartolo Corporation History

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