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CHICAGO-When General Growth Properties embarked on its network services initiative in early 2000, it seemed like an astute defensive move for a retail REIT in the bricks-versus-clicks battle. Less than two years later, not only did the Internet fail to eliminate the need for bricks-and-mortar retail real estate, it has forced General Growth Properties to discontinue development of network services and take a write-off of up to $65 million.

General Growth Properties once thought their 16,000 retail tenants might pay $100 a month or more for access to a high-speed communications network that not only would support mall operations, but on-line sales. That would have earned the REIT $19 million, or a 15% return on its technology investment, which soared beyond the company’s original budget. However, retailers ultimately were reluctant to dive into the deeper end of the e-commerce pool. For instance, clothing retailer Gap discovered its interactive kiosks in their stores weren’t generating the sales as expected.

“They like all this; it’s just that when the tech world came to a halt, there was far less pressure on the retailer to adopt this immediately,” says General Growth Properties CEO John Bucksbaum. “I don’t regret what we did. However, there’s no doubt we’ve incurred a significant writeoff.”

Although General Growth Properties is expected to report a net loss for the second quarter on July 31, the write-off is not expected to affect the REIT’s ability to pay its scheduled dividends or its funds from real estate operations. General Growth Properties stock was down 1.5% Friday to $37 per share.

Longer term, Bucksbaum says the initiative that proved to be ahead of its time has resulted in the REIT’s malls to be wired to meet retailers’ technology needs. While discontinuing development of retail software and applications, General Growth will likely build in access to its high-speed communications network into rents.

“Our malls are ready now,” says Bucksbaum, adding wiring malls only increases their value. “The Web is not going away.”

About 20 employees who worked on the network services initiative will be redeployed, Bucksbaum says.

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