1120 Avenue of the Americas
New York, New York 10036
Telephone: (212) 869-3000
Fax: (212) 302-4776
Incorporated: 1961 as New Plan Realty Corporation
Sales: $76.3 million
Stock Exchanges: New York Chicago
SICs: 6798 Real Estate Investment Trusts
The largest equity real estate investment trust in the United States, New Plan Realty Trust owns income-producing properties in 17 states. With a portfolio valued at more than $1 billion and comprised of shopping centers, garden apartments, and factory outlet centers, the trust company represents a model of success in the nation's real state investment community and is one of the strongest investment vehicles for small investors. New Plan Realty began its existence as a trust in 1972, then evolved into the largest company of its kind through the development and acquisition of regional shopping centers. In the early 1990s, it began investing in factory outlet centers, a strategic maneuver that positioned the company in one of the dynamic growth areas open to real estate investment trusts and renewed optimism for prodigious growth beyond the 1990s.
The roots of New Plan Realty stretch back to 1926, when Morris B. Newman opened an office in New York City as a certified public accountant and real estate broker. Morris Newman would be the first of two Newmans to launch the family name toward success in real estate investment. Morris Newman imparted his knowledge of the real estate business to his son, William, and thereby laid the foundation for New Plan Realty's future success. The elder Newman's business realized modest success during the first 15 years of its existence, but bore little resemblance to the type of company that would later achieve much more than modest success. That defining transformation came shortly after 1942, when Morris Newman developed an investment arrangement that enabled investors with limited resources to pool their money with other small investors and invest in large real estate properties. It was a signal decision that pointed the Newman family in a new direction and led to the formation of New Plan Realty Corporation, which was the link connecting Morris Newman's real estate brokerage office and New Plan Realty Trust, the company that ranked in the 1990s as the largest real estate investment trust in the United States.
The investment arrangement Newman had devised, others had as well. In fact, since the turn of the century, debate had centered on the classification of such organizations and whether or not they were obligated to pay corporate tax. This debate, argued before the U.S. Supreme Court on numerous occasions and the subject of various legislative efforts and federal tax reforms, was not definitively settled until the promulgation of federal legislation nearly two decades after Newman began pooling investors together to invest in large-scale real estate properties. The investment organizations that Newman and others had created were the forerunners of what would be later called real estate investment trusts (REITs).
Historically, many of these early versions of REITs were located in Massachusetts, but a few, such as Newman's company, were located elsewhere. Although these "Massachusetts trusts," as they were called, differed in many respects to the REITs that emerged later, the essence of the organizations were identical: each provided an investment vehicle for the pooling of ownership in real estate. Part of the initial impetus for the formation of these business trusts was to circumvent early state laws that often prohibited corporate ownership of real estate. However, by the 1950s, the federal government, prodded by the lobbying efforts of business trusts, was looking for a way to encourage public investment in real estate.
Congress passed a REIT bill in 1956, but President Eisenhower vetoed the bill, hobbling efforts to fully legitimize and define syndicated real estate ownership. Several years later, however, the U.S. Treasury Department, initially opposed to REIT legislation, reversed its position and Congress passed a second REIT bill, which was signed by President Eisenhower in 1960 and put into effect on the last day of that year. With the promulgation of the Real Estate Investment Act of 1961, a new niche in the investment industry was formally created, enabling real estate trusts to avoid corporate tax provided they were structured and operated according to criteria established by federal legislators.
Although Morris Newman entered into this type of real estate syndication 20 years before REITs were defined through legislation, his company did not become organized as a trust until a decade after the passage of the Real Estate Investment Act of 1961. In the interim, Morris Newman expanded his real estate accounting and syndication firm through the acquisition of several New York City commercial properties.
In 1961, the same year federal legislation spawned the REIT industry, Newman's company was incorporated as New Plan Realty Corporation, and its leadership was devolved to William Newman, one of three of Morris Newman's sons who would join the company. William Newman, who began working for his father's company at age 15, was 35 years old when he assumed control of New Plan Realty, which became a public company the following year, in 1962. Under the stewardship of William Newman, who would lead New Plan Realty into the 1990s, lasting and defining changes occurred that dramatically altered the company's line of business and engendered its reorganization as a REIT. Prompted by external economic forces, the younger Newman redirected the company's focus; compelled by the capricious New York City real estate market in the early 1970s, he divested the company's real estate properties. Twelve Manhattan office buildings were sold, and then Newman began making acquisitions in smaller towns, accumulating a handful of shopping centers by the end of 1971.
The following year, the company was reorganized as a REIT, becoming New Plan Realty Trust, one of the smallest REITs at the time, but involved in a burgeoning area of investment that promised to enrich those with the foresight or luck to invest in its growth. In the ten years since the REIT industry had been formally launched, it had grown into a $6 billion business, a fraction of the dollar amount the industry would hold in assets during the early 1990s, when its asset total hovered around $50 billion. But at the onset of the 1970s, many such investment organizations were sinking their shareholders' dollars into the development or acquisition of shopping centers, a retail concept that would fuel much of the REIT industry's growth over the next two decades. For investment purposes, the country's 13,000 shopping centers, which accounted for half of total retail sales in the United States, afforded several attractive advantages to REITs. Typically containing food and drug stores as their major tenants, shopping centers were, if not recession-proof, then at least recession resistant, a desirable attribute for trusts accustomed to the otherwise cyclical nature of real estate. Moreover, small shopping centers in rural areas generally occupied relatively inexpensive property and faced a dearth of commensurate competition, further heightening their appeal to REITs, particularly small REITs such as New Plan Realty.
This was the direction Newman opted to take New Plan Realty as it forged its new future in the REIT industry. New Plan Realty acquired failing or near-failing regional shopping centers and strip malls, remodeled them, and then leased the retail space to financially stable tenants. The company thus amassed a collection of shopping centers and several apartment complexes over the next two decades to become the largest REIT in the country, its growth predicated on the prudent selection of real estate properties and its ability to carve a stable presence in the mid-Atlantic states.
By the early 1990s, however, New Plan Realty's record growth began to falter as a national recession loomed on the horizon, and the company's once robust portfolio showed signs of deterioration. Occupancy at New Plan Realty's 62 shopping centers dropped from 91 percent in July 1990 to 78 percent the following year, while 26 percent of the company's retail properties recorded occupancies below 80 percent, sending distress signal throughout the REIT's management.
Until this time, New Plan Realty had achieved remarkable, industry-leading success. Since 1976, the company had recorded earnings growth every year, and in every year since its reorganization as a REIT, the company's trustees had distributed dividends, at first monthly until 1976 and then on a quarterly basis for every fiscal period afterwards. So, while the early signs of trouble in the early 1990s were not overly significant by themselves, when juxtaposed with the enviable results that preceded them, the declining occupancy rates and the diminishing popularity of shopping centers were sufficient cause for alarm.
To stave off the portended losses, William Newman, by this point New Plan Realty's chair and chief executive officer, approved a plan developed by Arnold Laubich, the company's president and chief operating officer, to invest in factory outlet centers, which were proliferating as shopping centers struggled. The company invested in its first factory outlet center in January 1992, funneling more than $17 million into Sembler Company's outlet project in St. Augustine, Florida. The move into factory outlet centers represented a turning point for New Plan Realty, which historically had limited its investments to regional strip centers and apartment complexes, and it was a move reflective of the changing face of retailing in the United States, mirroring the shifting emphasis away from strip centers toward suburban centers, the so-called outlet malls. Other investments in factory outlet centers followed New Plan Realty's involvement in the St. Augustine project, one in Ossage Beach, Missouri, in January 1993, then three Factory Merchant Malls later that year in November. By mid-1994, the company had invested roughly $150 million in its five large factory outlet centers, which represented only eight percent of the New Plan Realty portfolio's assets but contributed between 15 to 20 percent of its net operating income.
By this point, the early signs of financial trouble in 1991 had become manifest. In 1992, New Plan Realty recorded its first decline in earnings growth since 1984. However, the decline did not stem from the dangerously low occupancy rates of its properties, but rather from the slide in earnings resulted from, of all things, an excess of cash. During the early 1990s, New Plan Realty had accumulated $400 million to effect a contemplated merger, and when the merger did not occur, the company was left with the cash just as interest rates began to plunge. Interest rates dropped from nine percent to three percent, and the company absorbed the loss, which led to 1993's financial stagnation and the end of the company's prestigious record of earnings growth.
Another hallmark of New Plan Realty's success, and a more genuine measure of a REIT's vitality, did, however, remain intact, assuaging some of the disappointment engendered by 1993's results. By 1994, the company had increased its cash distribution to shareholders for 14 consecutive years, an achievement that earned industry-wide recognition and elevated optimism for the future. As the trustees of New Plan Realty explored further investments in factory outlet centers and discussed plans to extend the company's presence in the West, its record of consistent growth and position as industry leader buoyed hopes for the future.
Principal Subsidiaries: New Plan Securities Corporation; New Plan Realty of Alabama, Inc.; Factory Merchants Malls, Inc.
Hackney, Holt, "Cash 'N Carry," FW, July 24, 1990, p. 70.
Lazo, Shirley A., "Speaking of Dividends," Barron's, December 9, 1991, p. 50.
Leibowitz, David S., "Fiscal Attraction," FW, August 6, 1991, p. 80; "Two Misunderstood Opportunities," FW, January 4, 1994, p. 80; "When Cash Burns a Hole in Your Pocket," FW, September 15, 1992, p. 80.
McGough, Robert, "The REIT Stuff," FW, November 12, 1991, p. 38.
Oliver, Suzanne L., "Eat Your Heart Out, Donald," Forbes, October 29, 1990, p. 164.
Vinocur, Barry, "Have New Plan's Shares Finally Peaked," Barron's, March 2, 1992, p. 54; "These REITs Are Sound, but No Bargains," Barron's, December 14, 1992, p. 58; "New Plan Realty's New Look Fails to Fan Interest from Institutions," Barron's, July 25, 1994, p. 40.
Source: International Directory of Company Histories, Vol. 11. St. James Press, 1995.