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General Growth Cuts Cord on Network Services

CHICAGO-The retail REIT's response to the Internet threat to bricks-and-mortar retail ends up in a write-off of up to $65 million. Retailers are under less pressure now to jump on the high-tech bandwagon, GGP officials say.

By Mark Ruda | Updated on July 13, 2001

CHICAGO-When General Growth Properties embarked on its network services initiative in early 2000, it seemed like an astute defensive move for a retail REIT in the bricks-versus-clicks battle. Less than two years later, not only did the Internet fail to eliminate the need for bricks-and-mortar retail real estate, it has forced General Growth Properties to discontinue development of network services and take a write-off of up to $65 million.

General Growth Properties once thought their 16,000 retail tenants might pay $100 a month or more for access to a high-speed communications network that not only would support mall operations, but on-line sales. That would have earned the REIT $19 million, or a 15% return on its technology investment, which soared beyond the company’s original budget. However, retailers ultimately were reluctant to dive into the deeper end of the e-commerce pool. For instance, clothing retailer Gap discovered its interactive kiosks in their stores weren’t generating the sales as expected.

“They like all this; it’s just that when the tech world came to a halt, there was far less pressure on the retailer to adopt this immediately,” says General Growth Properties CEO John Bucksbaum. “I don’t regret what we did. However, there’s no doubt we’ve incurred a significant writeoff.”

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