Taubman, Take Two

A. Alfred Taubman, best known for developing luxury shopping malls in metro Detroit and across the country and has owned and operated dozens of businesses since 1950, now turns his talents to creating an $80-million movie studio in Pontiac.
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A. Alfred Taubman had started out playing cards in 1950 rather than building the nation’s most successful collection of luxury shopping malls, the World Series of Poker would today be one of the most anticipated annual sporting events in the world. Casino resorts, many of them designed, developed, and built by Taubman, would send their best players to a revolving array of exotic destinations to compete for prestige, wealth, and instant celebrity.

“You have to be somewhat of a risk-taker in business, but if all you do is take risks, you won’t last,” Taubman says from his oceanfront estate in Palm Beach, Fla., where the 86-year-old serial entrepreneur is taking a much-needed break from co-developing a state-of-the-art movie studio at a former General Motors engineering campus in his hometown of Pontiac.

“You need discipline, you have to do your homework, and then you make measured decisions,” he adds. Whether it’s buying land, art, department stores, or a fast-food-and-root-beer franchise, Taubman says the pillar of his business methodology is rooted in fairness. If all parties in a prospective deal can’t attain something of value, or aren’t treated appropriately, he’s not interested.

Time and again, when faced with the prospect of earning financial gains at the expense of short-changing individuals or businesses, Taubman has taken a pass. His philosophy has served him well and has given him a net worth of $1.5 billion (Forbes, March 2010), but he could have easily made much, much more.

In 1986, flush with cash — the mall tycoon and his partners sold a sizeable stake in the Irvine Ranch real estate development in California, while the pension funds of General Motors and AT&T invested in the Taubman Co. (then valued at $2 billion) — the former retail sales clerk was asked by the financial house of Lazard Frères to purchase a stake in the Pulitzer Publishing Co. While the conglomerate of major newspapers, along with radio and television stations, was an attractive and well-run operation, Taubman passed on the deal.

The dilemma was that although four members of the Pulitzer family were looking to cash out, the family patriarch, Joseph Pulitzer Jr. (at least according to perception), wasn’t willing to provide fair value. Enter Taubman, who had the absolute right to purchase the available shares, yet nixed the transaction fearing a potentially troubling business partnership with Pulitzer. As it turned out, Taubman’s interest in the company served to attract others, which allowed the disenchanted family members to achieve their goals.

“In the case of Pulitzer, I didn’t want to be involved on a negative basis,” Taubman says. “When a deal doesn’t make sense, you shouldn’t be making it. The only thing it was going to do was cause trouble. Very likely, there would have been a lot of fighting behind the scenes, employees would be picking sides, and pretty soon you’d have a divided company focused on protecting the status quo rather than singularly focused on serving the customer.”

 

 

Cue the Lights

For years, thousands of GM workers toiled at the Centerpoint Business Campus in Pontiac, a 178-acre spread near Square Lake and Opdyke roads. Supporting light- to heavy-duty trucks, the engineering and research center — along with complementary manufacturing facilities nearby and around the country — delivered profits to General Motors year after year, even as the automaker struggled to hold its own in the light-vehicle segment.

Saddled with high legacy costs, stringent government regulations, and quality concerns that had been an albatross around the automaker’s neck for decades, GM began yet another series of consolidation moves in 2004. As a result, the business park — home to other thriving businesses — saw its largest tenant pack up and relocate to the automaker’s Milford Proving Grounds and Warren Technical Center. In 2009, GM entered and emerged from a high-profile bankruptcy, leaving little promise that it would ever return its design and engineering disciplines to Centerpoint.

Enter a collection of investors led by Taubman; John Rakolta Jr., CEO of Walbridge, a large construction firm in downtown Detroit; Linden Nelson, CEO of Michigan Motion Picture Studios; Raleigh Studios; and William Morris Endeavor Entertainment from greater Los Angeles, among others. In the summer of 2008, the group began the process of developing one of the world’s largest movie studios, an $80-million, 625,000-square-foot complex located within and next to one of GM’s former engineering buildings at Centerpoint.

Set to open this spring, the movie studio will include up to 10 sound stages, a mill shop for building sets, pre- and post-production facilities, animation space, and training rooms. Taubman says the tipping point for investing his time and money in the project was the ability of the business to provide jobs for up to 3,000 people.

“We were certainly attracted by the 42- percent tax credits (available for film and video productions made in Michigan), but it’s also the way it was designed,” Taubman says. “The (new) studio is almost 400,000 square feet, [and it’s] built with zero sound transmission, no vibrations, and 63-foot-high walls (about six stories). It’s perfect for shooting almost any scene.”

The complex, which will be called Michigan Motion Picture Studios, represents another keystone for the state’s fledgling movie industry, which today generates some $500 million in annual revenue.

While the film sector is subject to the whims of the Michigan Legislature, which approved more robust tax credits in May 2008, some have argued the state can’t afford to continue to support the industry on such a large scale. Taubman, however, remains confident the inherent trickle-down nature of moviemaking will prevent legislators from stripping the tax credits. “It’s a calculated risk,” he says.     

The movie project represents only a fraction of the litany of endeavors from Taubman that have served to stoke the fortunes of metro Detroit and Michigan. On the mall front, Taubman Centers Inc., based in Bloomfield Hills, owns and operates Fairlane Town Center in Dearborn, Great Lakes Crossing Outlets in Auburn Hills, The Mall at Partridge Creek in Clinton Township, and Twelve Oaks Mall in Novi. The shopping venues are part of a portfolio of 26 centers in 13 states. Several more mall projects, both inside and outside the United States, are under some form of development.

“I’m blessed to have two sons (Robert and William) running the company today,” Taubman says. “My family has supported me in everything I do, whether it turned out good or bad.”

 

 

The Early Years

A. Alfred Taubman wasn’t born into wealth, although today he maintains luxury residences in Bloomfield Hills, New York, London, and Palm Beach. His parents were German Jewish immigrants who moved their family to 300 Ottawa Dr. in Pontiac, after a brief time in Iowa, in pursuit of a better life enabled by the growing automotive industry. Even though Taubman’s father, Philip, had a relatively comfortable job at an auto supplier, he left in the 1920s to develop homes with a partner in northern Pontiac. He also operated several fruit farms in Rochester Hills and Orion Township.

The housing business thrived for a period, but when the stock market crashed in 1929, many of the homeowners defaulted on their mortgages. Due to banking laws at that time, the partners were responsible for paying off the notes (legislation was later passed that limited a builder’s fiduciary responsibility to the bank once a home was sold). The situation was made worse when Philip Taubman’s business partner left town.

It was a difficult period for the Taubman family, and they moved to a small cottage on Sylvan Lake. Several lean years ensued, and Taubman and his three older siblings attended public schools in Pontiac. But Taubman recalls that the experience drove home a hard lesson: Pay off your debts. His father paid every dime back to the bank.

“I’ve lost money in the past (he purchased the Woodward & Lothrop department store chain in the 1980s, for example, but sold it off at a loss to various competitors). I didn’t necessarily like it, but I’m proud of the fact that no store-level employee at Woodward & Lothrop lost their job.

“My dad gave me the perspective that you not only serve your employees, but also their families. He was a very honorable man. He paid for his mistakes. He wasn’t very successful when it came to big money, but he raised four kids and he did well by them. One of his proudest moments was when I asked him to come work for me (in 1950). We were a great team.”

But long before Taubman signed the company’s incorporation papers, he held a series of jobs that proved to be a fertile apprenticeship. In 1935, when Taubman was 11, he was hired as a clerk at a discount department store in downtown Pontiac. There he learned how to display, select, and fit clothing. He also was taught the basics of fashion and sales. From his memoir, Threshold Resistance, Taubman says the experience helped him understand the needs of future shopping mall tenants.

Following graduation from high school in 1942, Taubman enrolled at the University of Michigan in Ann Arbor to pursue an architectural degree. With the outbreak of World War II, however, his studies were put on hold as he enlisted in the Army Air Corps in the hopes of becoming a pilot.

A crash during flight training made him reconsider his aviation career. Instead, he learned to take aerial photographs, read maps from the air, and chart reconnaissance missions (skills he says contributed to the shopping mall business). His most harrowing experience occurred in August 1945, when he and his crew flew over Hiroshima, Japan, soon after the U.S. dropped the first atom bomb. “I pray that our planet will never see anything like that again,” he wrote in his book.

After the war, Taubman returned to his classes at U-M. To make ends meet, he sold shoes directly to sororities. During prom season, he solicited friends to take orders for corsages. When prom day arrived, he would drive to Eastern Market, fill the orders, and return to campus to direct the deliveries. Naturally, he undercut the local florist on price.

Eventually, Taubman left U-M intending to pursue his architectural degree closer to home at Lawrence Technological University in Southfield. But those plans fell through, and Taubman quit school, never completing his degree. Instead, he worked a string of jobs — draftsman, store planner, construction superintendent. In 1950, he struck out on his own, and went on to build ever-larger retail stores and shopping centers.

Dick Kughn, who joined the Taubman Co. in 1955, recalls a lean but well-run organization. “I left a job as a chief estimator for a construction company and joined Al and his dad,” says Kughn, who became a junior partner in 1958 and left as vice chairman in 1983. “You could tell Al was loaded with talent. He really believed in people, and he worked hard to develop relationships based on trust. Your word was everything in those days, and it still is.”

 

 

The Skinflint, Old Mr. Coldwell

In 1959, Taubman headed west to seek out retail projects in California. His company had tapped its growth opportunities in metro Detroit at the time, and California was experiencing a near-meteoric rise in population levels. At the urging of a mutual friend, Taubman called on “old Mr. Coldwell,” who owned Coldwell Banker in San Francisco, to assist in acquiring land. Fearing competition, Coldwell directed Taubman to go back to Michigan. Undeterred, Taubman walked down the street and hired a different brokerage firm, Milton Meyer Co.

“Coldwell was a skinflint, and he wanted nothing to do with me,” Taubman recalls. “He wanted me to get back on my plane and go away. In fact, a lot of people in those days wanted me to get back on my plane and go away. But I wasn’t going to take no for an answer. I knew there were great opportunities in California, and it turned out we did very well there. In fact, we still do today.”

Into the 1960s and 1970s, Taubman searched out other growing metropolises for his shopping malls. As he is quick to point out, he didn’t invent the shopping mall; rather, he made them bigger, with better circulation for pedestrians inside and vehicles outside. “People have been shopping in central bazaars for centuries, and when we came along, we responded to demand and gave the people what they wanted,” he says. “A lot of people have misunderstood the history of shopping malls.”

By the late 1970s, Taubman had accrued enough personal wealth to pursue any number of investment opportunities. The most ambitious at the time was the 77,000-acre Irvine Ranch, located in southern California’s Orange County. The rich soil created agricultural wealth for the Irvine family, but through a chain of events dating to 1864, controlling interest in the property was eventually placed in the James Irvine Foundation.

When the property came up for sale in 1977, Taubman assembled a group of investors that included Detroit industrialist Max Fisher, Ford Motor Chairman Henry Ford II, land experts, and numerous banks. As it turned out, a bidding war for the property ensued, pitting Taubman’s team against Mobil Oil. As the two parties upped their offers over the course of several days, Taubman was fairly confident he would win in the end.

“Knowledge is a great advantage in any situation, and we did our homework in assigning a fair value to the ranch,” Taubman says. “What was critical to us was that we understood the long-term value of the land as it related to future real estate potential, while Mobil looked at it as an investment that would contribute to their bottom line.

“If it had been a deal about oil rights, they would have succeeded. But it was a deal about future real estate value. I had studied Mobil’s history, and I was very confident they would only be willing to go so high (on price). So our group put up $100 million, and we borrowed another $250 million from nine different banks. It was the first time anyone had assembled a collection of banks like that.”

In the end, Taubman’s team, including some Irvine family members, acquired the property. The deal was so successful that the bankers were paid off in 51 weeks. Six years later, in 1983, the group decided to sell. The sales price was a cool $1 billion. The Taubman team recorded a tenfold profit in six years’ time.

“It was a very good deal for us,” Taubman recalls. “We knew what to do with the property, and Mobil didn’t. That was the difference.”

 

 

Minding the Store

Throughout the 1980s, Taubman went on a buying spree. Through a business relationship, he acquired A&W Restaurants in 1982 for $4 million (which he sold 12 years later for $20 million). In late 1983, Taubman and a group of partners (Fisher and Ford II, among others) acquired the ailing Sotheby’s auction house for just under $140 million. Taking the company private, Taubman saw a huge upside in extending credit to buyers and sellers, improving customer service, boosting marketing efforts, and doing a better job of arranging the collections.

The changes proved to be a success — not only for buyers and sellers, but for the art world at large, as masterpieces from the likes of Vincent Van Gogh, Henri Matisse, and numerous other artists sold for record prices. Taubman himself, from his personal investment of $38.5 million, went on to make more than $500 million (and counting) through dividends and stock sales.

Those good times didn’t last. As Taubman’s business interests increased, he relied more and more on managers to run his various operations. In most cases, running his businesses in this way worked out well. But putting power into the hands of others, if not monitored properly, can be risky, he says now. Part of the selloff of the department store chain Woodward & Lothrop, Taubman admits, came about because some of his key managers lost interest in running the business. And one of the big reasons he says he was convicted on a single count of price-fixing in 2001 for allegedly directing Sotheby’s CEO Diana “Dede” Brooks to collude on the setting of commissions with rival Christie’s auction house was that Taubman wasn’t minding the business on a daily basis.

As it turned out, federal prosecutors offered Brooks a deal to implicate Taubman in the price-fixing scheme she had cooked up with Christie’s CEO Christopher Davidge. Numerous media accounts after the trial pointed out the unfairness of the proceedings, and the fact that at least one member of the jury felt “coerced” by other jury members to enter a guilty plea against Taubman.

Taubman took it all in stride. Since being released from prison, the titan has focused mostly on philanthropic activities. He has donated millions of dollars to numerous causes, including educational endeavors at the University of Michigan, Wayne State University, Harvard University, Lawrence Technological University, and the College for Creative Studies. In addition, he’s been a generous supporter of the Detroit Institute of Arts and other museums.

He’s also provided millions of dollars for medical research, primarily at U-M, in hopes that people like Dr. Eva Feldman and Dr. Yehoash Raphael will discover treatments for Lou Gehrig’s Disease and deafness (Taubman has suffered from hearing loss for years).

As for his home state and the city of Detroit, Taubman believes the public sector is finally in the right hands. “I’ve had long meetings with Gov. Rick Snyder, I supported him, and he’s the right person to turn Michigan around,” he says. “It’s the same with Mayor Dave Bing — a very good man with a lot on his plate. But he will do, and has done, wonders.”

If there is anything that has defined Taubman throughout his 60-year business career, it is the excitement and pleasure of acquiring and enhancing a company or endeavor.

“Are entrepreneurs born or created through circumstances?” Taubman muses over the final question. “I think it’s a combination of both. Don’t be afraid to fail. Take the plunge, but only when you’re ready and you have fully researched the correct course of action. And make sure everyone is taken care of. It doesn’t pay to leave people in the lurch — and, quite frankly, it’s bad manners.”

 

 

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