Threshold Resistance (20 page)

Ironically, the takeover fight shone a bright light on the extraordinary quality of the Taubman Centers portfolio and its development pipeline, while highlighting the vulnerability (and prohibitive cost) of Simon's growth through acquisition strategy. Since the ceasefire through January 2007, Taubman Centers' shares, which have traded as high as $60, have outperformed those of Simon Property Group. The market has emphatically vindicated the board's rejection of the inadequate Simon offer.

Martin (Marty) Cohen, president of Cohen & Steers, Inc.—one of the most vocal of institutional investors described by Tom Walsh as “cross-owning” shareholders—summed up the battle most succinctly in the October 9, 2003
Wall Street Journal:

It was frustrating to be unable to participate in the defense of our company. But it also gave me a sense of perspective. In a few months, I knew I would be leaving the prison and that I would return to my life. The company I had built was still intact. I had homes, a loving family, and friends to return to. The same couldn't be said for the vast majority of my fellow inmates. Make no mistake: there were plenty of bad guys inside—murderers, rapists, molesters—who should never be free again. I'm delighted that they have been separated from society. But I met so many young men who had lost everything, including the most productive years of their lives, for a
single drug-related mistake. Sure, they deserved punishment, even jail time. But to lose your freedom for two decades? The punishment just doesn't fit the crime. While I try my best to block out the memories of my time in Rochester, I can't help but think about these abandoned young men every day.

Ben is one of those unfortunate young men. He was a great friend to me, and we got to know each other very well. We cooked together in the community recreation room. With a few key ingredients (you could buy fresh fruit once a week) and a microwave we created magnificent culinary delights. He had a terrific young family in suburban Cleveland before the police raided his home one night, roughed him up in front of his wife and children, and claimed they found drugs. Now everything is gone: his home, his wife, his family, his future. What a shame. I really believe Ben was set up. Even if he wasn't, to destroy this intelligent man's life in the name of punishment is disgusting. I'm hoping Ben can make it out and make a new start. If there is justice in this world, Ben will get the second chance he deserves.

There were many other interesting guys in the prison. Jim was a contractor, restaurant owner, and pilot from Jackson, Michigan. He ran afoul of the law when two gentlemen approached him and inquired about his pilot's license. They offered him the opportunity to fly commercially to Miami, where he would be provided with an airplane to fly to Jamaica. For up to $500,000 per run, he would pick up a shipment of marijuana, which would be loaded onto his plane by Jamaican police officers, to be delivered to another location in the Caribbean. Jim admitted to loving the rush he got every time he risked everything on these adventures.

Jim, a personable and talented guy, is out now and doing very well on the straight and narrow.

Another fellow inmate was formerly the chief of detectives in a major midwestern county. He had great stories and a wonderful
family. They came to visit a lot, as did many of his former detectives! Justin Volpe, the young New York police officer found guilty of assisting in the brutal treatment of Abner Louima, was serving time in Rochester. I met his very nice family during several visits (they're all paying for his terrible mistake).

The facility had several buildings. One held the inmates with serious psychiatric problems. For most of the day and evening hours, these challenged souls were isolated from the rest of the population. But at lunch, we all came together in the mess hall. On several occasions, a character known as Chainsaw made it a point to sit with me. He was very intelligent and loved to talk politics. He had a particular dislike for George W. Bush and expressed it with vigor. After a few of these political science sessions with Chainsaw, I asked around as to the origins of his colorful nickname. Apparently, he had been a successful restaurateur. Business took a turn for the worse, however, when he murdered two customers, chopped them up with a chainsaw, and served them as hamburger to his unsuspecting clientele. I made every effort to avoid him at lunch, and I was thankful he never learned that I had owned A&W.

Another guy—who actually was a talented commercial artist—made wine by fermenting orange juice in a hollowed-out portion of a wall hidden by a picture in his room. I put him to sleep drunk one night after hearing him staggering down the hall. (Eventually they caught him and threw him in the brig.) And then there was the very diminutive Jewish bank robber from Chicago. He stood just shy of five feet tall and had a mild humpback. After getting to know him, I suggested that he may have picked the wrong line of work. He was too short to see over the teller's counter.

The Jewish bank robber organized Friday night services for us. We didn't have the required ten to form minyan, but with the help of Larry, a Catholic dentist–drug dealer from Philadelphia (I think he
was married to a Jew), we did our best. Larry was also a great bridge player and single-handedly organized our book club.
Seabiscuit
was by far our favorite selection. Faith, along with friends and family, can get you through the most difficult of life's tests. I found great strength and comfort in our tiny community and improvised religious services.

Another favorite pastime in prison, as you might imagine, was watching television, especially Court TV. Each floor had a recreation room where fifty to sixty guys fought over the remote. One day a few months into my stay, Dominick Dunne aired a Court TV special on the Sotheby's-Christie's scandal. Like so many of these cable shows, it played over and over again. So much for my strategy to keep a low profile! Come to think of it, it was shortly after Dominick's exposé that my roommate came up with his adoption proposal!

On May 15, 2003, nine and a half months after walking into the guardhouse of the Federal Medical Center in Rochester, Minnesota, the warden escorted me out the back, through a loading dock (he didn't want to give the news photographers a good shot, either) to meet my wife and son Bobby. Before I knew it, it was wheels up on the Gulfstream IV. I had lost a chunk of my life, my good name, and around twenty-seven pounds.

I had served my time for others; people going about their lives in New York and London who had initiated, executed, and lied about a serious crime for which they would receive little or no punishment.

About a year after I left Rochester, I received a letter from Daniel P. Davidson, who had served as the U.S. chairman of Christie's during the years the two houses colluded, which confirmed my take on the matter. He had read Christopher Mason's
The Art of the Steal
and wanted me to know that while he had not been a “principal player” at Christie's, he had been aware of some of what was going on in his company. As an insider, he concluded that “the real villains
in the story were never punished—indeed some of them were rewarded.”

Surprisingly, I felt no bitterness as we winged our way toward Detroit. After all, I was headed home to my family, friends, and community.

I had never felt so blessed.

W
hen I returned to Detroit from Rochester, Judge Damon Keith and Max Fisher organized a welcome-home luncheon for me at the Detroit Athletic Club that I will never forget. Everyone was there, from Mayor Kwame Kilpatrick and University of Michigan president Mary Sue Coleman, to former Michigan governor Jim Blanchard, business leaders, friends, family, and colleagues. What a great feeling to know that so many people had stood by me through such horrific trials and tribulations.

Of course, my reentry into society was also accompanied by some not-so-pleasant encounters. In December 2003, I attended a holiday party in the Manhattan home of my friend Ben Lambert (who had assisted us with the Irvine Ranch). As I was sitting in the library of Ben's beautiful apartment, David Simon approached me with his hand extended. I didn't stand up or shake his hand. But I did offer this special holiday greeting:

“You're a stupid little asshole.”

To his credit, David turned and without a word disappeared into another room.

At my age, I don't buy green bananas. But I'm still taking the long view, looking at things and thinking how to make them both
different and better. In my apartment building in New York, I recently rode the elevator with my neighbor, the Broadway director Harold Prince. He said, “I'm so retired.” And I responded: “That's not the attitude. The attitude is that you're alive and you're better than you ever were. You're smarter, and you're better than you ever were. Don't think of yourself as old. You're experienced.”

You have to take the long view. And when I do, I still see great opportunity for my industry and for my hometown. People wonder if the country has too many shopping centers. Well, the demographers tell me that by 2025 we'll have 70 million more people living in America than we have today. That's pretty astounding when you think about it. They'll all need a place to shop. And, no, I don't think they'll be buying everything online. On a macro level, sales of department store–type merchandise in 2006 totaled more than $1.0 trillion. By most estimates, total online sales for everything—not just DSTM—in 2006 barely passed the $100 billion mark. As for fashion items, the numbers over the Internet are even weaker. Sales in Taubman Centers properties (centers open at least one year) increased more than 7 percent in 2006. So, despite the popular perception, cyber sales are not getting an edge on brick-and-mortar business.

The technical limitations of computer screens make it impossible to effectively communicate such important product characteristics as fit, color, and feel. There are no fitting rooms or tailors in cyberspace. And the more expensive an article of clothing, the more critical it is that it fit well. There are an infinite number of colors and shades, and each works differently for each individual, depending on hair color, complexion, and eye color—even with high-quality print catalogues, the four-color process cannot match the exact color of a garment. There are no tactile experiences in cyberspace; at least not yet.

It is also ironic that one of the Web's greatest strengths is also one of its most serious weaknesses when it comes to retailing. Internet
surfers can “drill down,” as they say, to learn anything and everything about a product or service from the comfort of their homes. You would think that would build confidence. But without the guidance and persuasiveness of a salesperson, the hunt for information online tends to be endless. It's pretty easy to talk yourself out of a purchase when you can sit for hours reading negative product reviews (some legitimate, some not) and chatting with other buyers who are just as confused and uncertain as you are. Never underestimate the value of a knowledgeable salesperson.

That's not to say that the Internet is not a powerful force in retailing. Just like every other major business, retailing has harnessed the Web for manufacturing, supply-chain, fulfillment, and record-keeping functions. And successful retailers are pursuing multichannel distribution strategies, developing what some have called 360-degree marketing strategies. Customers can research a product online, come to a mall to purchase the item, and receive regular updates from the manufacturer via the Internet. Manufacturers like Sony and Apple—whose products do very well online—are enjoying great success with offline showcase stores in Taubman malls.

Clearly, of all offerings, commodity products do best on the Web. If you've jogged every morning in the same size Nike running shoes, there is no reason why you can't reorder online (at least until Nike introduces a new model or your feet change). Purchases of books, CDs, and cell phones are strong (although the brick-and-mortar outlets of Borders and Barnes & Noble have never been stronger). With these products, the Web serves as a fulfillment vehicle, more than a promotional tool. And look who is doing best over the Internet: established brands. Consumers have confidence ordering from trusted merchants they have come to know in America's shopping centers.

The Internet retail revolution will occur when television viewers are able to order goods right off the screen during prime-time
programming. A blouse worn by one of the cast members of
Desperate Housewives
catches your eye. You click on the character and up comes a description of the item along with ordering information. Your computer knows your size and your credit card number. You click and the blouse is on its way. Technology experts call this “convergence.” I call it
impulse
buying!

The technology, which is very close to being perfected, will take a bigger bite out of on-premises retailing. No question. But for now, when it comes to women's sportswear, shoes, men's dress slacks, and fancy wastebaskets, the strongest fashion statements are still being made in the best department and specialty stores.

Malls aren't dinosaurs. And neither is another great twentieth century economic force that people have been writing off: Detroit.

Wherever I go in the world, I'm proud to tell people I'm from Detroit. Even the halfway house I was assigned to in Detroit for the first weeks after leaving Rochester looked good to me.

Like me, Detroit has seen its share of success and failure, ups and downs. It gave mobility to the masses and has given the world an extraordinary number of talented people in a broad range of fields, from manufacturing to entertainment.

In many ways, Detroit's patterns of industrialization, suburbanization, and social diversity reflect America's journey from frontier to industrial powerhouse to nation in economic transition. Detroit faces challenges in part because geographic and economic forces have been at work for centuries to discourage density of development.

It starts with the water. The Great Lakes hold 18 percent of the planet's fresh water. Detroit's strategic location along the “straits” connecting these enormous bodies of water brought the fur traders in the eighteenth century and helped deliver the raw materials for the automobile industry in the twentieth century. The Detroit River has also created a boundary and barrier, defining the course of the city's growth. Development from the earliest days of human
habitation has pushed out from the river over a 180-degree, not 360-degree, radius.

The land that stretches out from the river is very flat, with little variance in elevation. That made it easy to build roads, extend infrastructure, and get around fast, which in turn encouraged what we today call sprawl. In the early 1900s, Detroit was the automotive industry's equivalent to today's Silicon Valley. Young Detroit inventors and entrepreneurs like Henry Ford and Ransom Olds needed smooth roadways to sell their early models. In 1909, the one-mile stretch of Detroit's Woodward Avenue between Six Mile and Seven Mile Roads became the first road in the world to be paved with concrete. Concrete paving was cheaper and quicker to put down than cobblestone or brick, and much smoother. This breakthrough helped fuel the growth of the automobile industry and of the region. You could live in the suburbs and work in the city without having to depend on public transportation.

Then came the people. Thanks to Henry Ford, hundreds of thousands of workers and their families arrived from all over the world, seeking the extraordinary salary of $5 per day. When the board of directors of the Ford Motor Company announced this wildly generous pay policy—more than twice the amount of the average worker's compensation—on January 5, 1914, the
Wall Street Journal
accused Henry Ford of “economic blunders if not crimes.” It dubbed the $5 day “the most foolish thing ever attempted in the industrial world.”

Of course we know that the policy in many ways ushered in the age of the American middle class. Workers became
customers.
They were able to own their own cars, buy their own homes, and pay taxes to municipalities building public schools that could send generations on to college and success. Thousands of these Ford workers were African Americans who migrated from the South to start a new life with their families. Thanks to this migration and the competitive
wages, Detroit—while not always a perfect place to live for African Americans—developed a strong African American middle class.

By 1925, Detroit boasted the highest per capita income and the highest percentage of home ownership in the world. But this wage-driven revolution had unintended consequences. Traditional business institutions like banks and insurance companies, which were dependent upon large workforces, could not compete for labor against Ford Motor Company's wages. These essential white-collar institutions, along with the massive office buildings required to house their employees, did not flourish in Detroit. Cleveland, Chicago, Pittsburgh, and other midwestern cities, which were less dominated by the auto industry, developed more balanced economies and more dense downtown business districts with banks and insurance companies clustered within walking distance of one another.

The manufacturing plants of Detroit were not similarly clustered. The river and the rail lines brought iron ore from Lake Superior and the coal from Lake Erie to massive industrial campuses built along or within a short distance of the Detroit River. Workers had the income to afford their own homes near the plants, resulting in low-density housing patterns throughout the region. Ford's 2,000-acre River Rouge plant, designed by Albert Kahn and located three miles inland from the Detroit River, helped establish the character of Detroit land development.
Vanity Fair
in 1928 called it “the most significant public monument in America.” This self-contained industrial complex included a foundry, glass plant, tire plant, assembly building, cement plant, power house, pressed steel building, miles of roadway, and one hundred miles of railway track. At its peak of production, the Rouge plant employed 100,000 people.

With the innovation of the production line, Kahn's Rouge plant was the world's first single-level, horizontal manufacturing building. It replaced the vertical factory model—like Ford's Highland Park, Michigan, plant—that relied on gravity to ease and speed production.

Albert Kahn was commissioned to design the Fisher Building, which opened in 1928 across Grand Boulevard from General Motors headquarters. At that time, the GM structure was the largest office building in the world. But the Fisher and GM buildings were not built downtown. Detroit's planners envisioned and encouraged a three-mile corridor of growth along Woodward Avenue from the river to what became known as the New Center area. The theory was that development would spread along this corridor. And to be fair, neighborhoods of cultural, medical, and academic institutions did spring up.

With few banks and insurance companies demanding office space, it was unrealistic to expect the pattern of commercial development in Detroit to extend three miles up Woodward, but the planners never gave up on the idea. They kept encouraging growth in the outlying New Center area. Detroit's hoped-for extension of dense commercial development from the river to the New Center area never materialized. And it never will (at least not in my lifetime).

During the war years we were among the most prosperous and fastest-growing cities in the world. With peace, Detroit helped fuel the nation's prosperity and answered America's call for mobility. Along with the baby boom came an auto boom, and Detroit benefited economically as much as any city in the nation. Detroit and Detroiters were spreading out, and retail followed the flow of population. Remember those massive stores that Hudson's built in Detroit's suburbs? They destroyed the competitive opportunity within the region for the chain's historic flagship store downtown. Every line of merchandise was available in depth in the more convenient suburban stores. Another reason to “go downtown” was gone. Hudson's suburban strategy certainly hastened this landmark's demise and forever changed the retail landscape in Detroit.

In the 1970s, I made deals with JCPenney and Lord & Taylor to come to the Detroit metro area and anchor five projects—four
suburban centers (Fairlane Town Center, Twelve Oaks, Lakeside, and Briarwood) and the proposed Cadillac Square development downtown. The historic Hudson's store was to be the centerpiece of Cadillac Square, but a misguided young architect from the firm of Smith, Hinchman & Grylls scuttled the project with the help of some equally misguided preservationists in Washington, D.C. To save two insignificant structures on Griswald Street (both of which are still boarded up), Hudson's and the city's downtown retail vitality were cheated out of a second lease on life. The store was closed in the mid-1980s and torn down in the late 1990s.

People moved out of Detroit for all the reasons of geography, economics, and personal taste that we've been discussing. And they moved out because of the growing racial tension that exploded in 1967. The tragic Detroit riots of 1967, and the festering social problems they reflected, influenced the course of Detroit's development as much as any street patterns, business decisions, or geography. Detroit's population peaked in 1953 at around 2 million. By 1970, it had declined by a half million people. The 2000 United States census found only 950,000 people living in Detroit—a decline in just fifty years of 1 million people.