The REIT Stuff

A quick turnaround last year by the new team at Mills Corp. led to its sale, and also to the need for nearly everyone to find a new job.
Laura DeMarsMay 10, 2007

The management team brought in to clean up The Mills Corp. last year didn’t take long to decide that selling the company was its best option. In fact, it took less than a year to turn the whole dysfunctional operation completely around.

The real estate investment trust’s $7.9-billion sale to Simon Property Group and Farallon Capital Management in February became the final part of “a four-part process,” explains Richard Nadeau, the Mills CFO at the time. The first three parts were securing a $1.6 billion loan with Goldman Sachs; selling foreign assets in Madrid, Scotland, and Canada; and divesting projects in the U.S. “It was the right thing to do for the shareholders,” he says.

Nadeau recently became one of the 320 employees to leave the REIT after the purchase by Simon Property and Farallon Capital. That’s all but 20 Mills employees, he says. Those 20 are with a leasing office that is all that remains of the original REIT operation in Arlington, Va. Everything else is being moved to Simon Property’s Indianapolis headquarters. (The winning Simon-Farallon bid for Mills, at $25.25, had topped a $21 bid from Brookfield Asset Management.)

The first 2006 job for the management team, on which Nadeau served with CEO Mark Ordan and chief accounting officer David Schneeman — also gone from Mills now — had been to help prepare the restatements that the company had said would be necessary going back at least to 2001, and through three quarters of 2005.

“A lot of personnel had left the company due to the upheaval,” says Nadeau, who joined Mills in June. “We had some real human-resource challenges and many impairment and accounting issues to fix.”

In 2005, an internal investigation into the finances of Mills had uncovered a variety of accounting issues, including failure to recognize foreign currency gains, errors in the accrual of compensation expenses for long-term incentives, and problems with one of the company’s largest development projects.

But the new management team managed the job &#8212 from the restatements to a sale of the company — in less than one year. Early changes that Nadeau helped engineer included shedding the projects that were weighing down the company. In an 8-K, Mills wrote off $635 million for a project in New Jersey and $50 million for another in Ohio.

“It was very challenging,” says Nadeau. “We had to maintain current operations and record keeping; restate financials, some of which dated back to the company’s IPO in 1994; and figure out what the strategic alternatives were in the interest of what was best for shareholders.” That’s when the idea of a sale of the company came to the fore.

The need to find a new job so quickly doesn’t phase Nadeau, a former CFO of Colt Defense, who says he already has had several calls from interested parties. “I am going to try to pick something interesting that will allow me to focus on being a CFO for a Fortune 500 company that returns outstanding value to its shareholders,” he says.

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