Home Consumer Goods Simon Property Group agrees to narrow Woodbury Common’s exclusive territory

Simon Property Group agrees to narrow Woodbury Common’s exclusive territory

If you live in and around New York City and want to shop at an outlet mall, Woodbury Common Premium Outlets in Orange County is the place to go, in fact, about the only place you can go to.

woodbury common simon property groupThe Simon Property Group mall had imposed a 60-mile radius on retailers that blocks them from opening at other locations, regulators say, hinders competitors from opening outlet malls in the region and drives up consumer costs.

But on Monday, Simon officials signed an agreement with the state Office of Attorney General Eric T. Schneiderman to narrow its exclusive territory and to pay $945,000 to close a two-year investigation.

“No business should be allowed to stifle an entire industry at the expense of consumers,”  Schneiderman said in a news release.

Simon, though, depicted the settlement as the cost of eliminating an unnecessary distraction.

“It was always hard to understand the reason the New York attorney general would undertake a meritless investigation into the property,” the Indianapolis company said in a news release. “Simon has never sought to limit competition.”

Chelsea Property Group, a real estate investment trust in Roseland, New Jersey, that was the nation’s leading developer and operator of retail outlet centers, built Woodbury Common in 1985. Simon acquired the lower Hudson Valley mall in 2004 as part of its approximately $3.5 billion acquisition of Chelsea Property Group

Woodbury is a gem in Simon’s portfolio of 91 outlet malls around the world, generating $1.3 billion in sales annually. It features 240 stores, many of which are high-end fashion and designer brands, and it has become an international tourist destination.

Simon also owns The Mills at Jersey Gardens, a smaller outlet center in Elizabeth, New Jersey, 12 miles from Midtown Manhattan. Essentially, the attorney general says, Simon has monopoly power for outlet centers in the New York City area.

Woodbury is in Central Valley, about 40 miles north of Midtown Manhattan. The 60-mile radius creates an 11,000-square mile exclusive zone encompassing Stroudsburg, Pennsylvania to the west and New Haven, Connecticut to the east, and beyond Staten Island to the south and Saugerties in Ulster County to the north. All of New York City, large swaths of Long Island, northern New Jersey and parts of Pennsylvania were off-limits to Woodbury retailers.

The retailers typically sign leases for 10 years, the settlement states, and most of the Woodbury leases impose the 60-mile restriction.

The attorney general’s antitrust investigators analyzed market data and interviewed real estate developers, retailers, industry experts and economists. They confirmed that many Woodbury retailers want to open more stores in the region but the radius rule prevented them from doing so, the attorney general said. Several mall operators tried to develop outlet centers but were thwarted when they could not line up the retailers they need to compete effectively.

The radius is “broader than necessary,” the agreements says, “to achieve any legitimate pro-competitive benefits.”

Simon said it does not agree with the state’s findings. The radius rule was in effect when it bought Woodbury Common, courts have upheld such restrictions and the company has regularly granted exceptions. Simon “understands the importance of competition and consumer choice,” the company said.

The agreement allows Simon to set a 39-mile radius. Now Woodbury retailers may open stores in Staten Island, Brooklyn, Queens, Nassau County and Suffolk County. Current leases must be amended within 45 days.

But the 10-year settlement carves out some exceptions: all of Manhattan and the west side of the Bronx are still excluded. And the agreement only covers New York, so northern New Jersey, southwestern Connecticut and the western edge of Pennsylvania can still be blocked.

The company may bargain for a wider radius in certain cases, for instance, where Simon has invested at least $1 million on behalf of a retailer.

Retailers that open stores elsewhere may not be penalized with additional rent or fees, suspended leases or different terms. Simon also has to hire a monitor and grant access to its staff, books, records and facilities, to ensure compliance.

Shortly after the settlement was announced on Monday, Simon’s share price closed at $154.58 on the New York Stock Exchange, $1 or 0.65 percent higher than the opening. As of 11:38 a.m. today, the price was down $1.35 or 0.87 percent.

The company is structured as a real estate investment trust. Last year it recorded net income of $2.1 billion on nearly $4.5 billion in revenue.

“The settlement has favorable terms,” Simon said in a news release, “and will permit Woodbury Common to focus on providing tenants and shoppers the type of premium experience they seek.”

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