David Simon, the 38-year-old chief executive of giant Simon Property Group, plays pickup basketball games on Sunday with some former college basketball players and trades elbows aggressively enough that he sometimes complains about his chiropractor bills.

He brings the same gritty competitiveness to the business, which is the biggest operator of malls in the country, with 182 million square feet of space.

During the past eight years, Simon has done the hard work necessary to bring operational and financial discipline to the family business—which had a splendid history under his father, Mel, and his uncle Herb—but which found itself caught in a harsh market in the late 1980s and early 1990s. Now, Simon has assigned himself an even more complex challenge, in pursuit of what could be far greater rewards. The man who is more rooted in physical space than anyone else in the country has decided to make a daring move on-line through a venture called Clixnmortar.com.

If his experiment succeeds, he will have created a hybrid of on-line and physical malls that will offer interesting new services to customers. In fact, he’ll have reached a whole new class of customers—although Simon Group has always seen its store tenants as its customers, Clixnmortar will be dealing directly with the ultimate buyers of products.

Many mall operators are running in fear of e-commerce. They think it will pull people from stores. One mall, the Saint Louis Galleria in Missouri, recently forbade tenants to promote their Internet operations in its mall. So, why is Simon attempting what others won’t or can’t? The answer, of course, stems mainly from hard-headed calculations about business prospects. But the boldness also involves a complex amalgam of his background as dutiful son, his early career as a financial dealmaker, and his restless spirit.

Simon actually had no intention of being the force behind the Simon Group malls. Initially, after graduating from Indiana University, he steered clear of the family business. Instead, after receiving an MBA from Columbia University in 1985, he went to work for Joseph Perella at First Boston, an investment bank. Perella, the well-known Wall Street whiz, says, “I didn’t know who he was, or who his father was. All I knew was that in a room with 20 other MBAs from Harvard and Wharton and Columbia, David stuck out. You couldn’t believe he was just out of school. It was like talking to a 35-year-old who had been in the business for 10 years.”

Perella took Simon along with him when he co-founded Wasserstein Perella. There, Simon soon became a vice president. It was the height of the go-go days in the ’80s, and Wasserstein Perella quickly became a major player in the wave of mergers and acquisitions that swept through American business.

“It was a terrific experience,” Simon says. “I got a tremendous amount of exposure to the top leaders of companies and industries. If you work seven years in M&A on Wall Street”—which is what he did—“it’s like working 20 years anywhere else.”

Yet, while Simon clearly looks back on the ’80s as a golden age, and says the decision to leave was one of the most difficult of his life, he has trouble naming a single individual he admires from that period. “Wall Street is a unique place,” he says. “There are a lot of people there I really respect from an intellectual point of view, but I don’t know that I can say they’re my heroes.” The reason, probably, is that Simon’s mores remain rooted in the Midwest, where he grew up surrounded by people with strong values. “The people I look up to,” he says, “are the ones like my father who have worked hard, worked with integrity, and created not only wealth but a good business that employs lots of people and is good for the community.”

In October 1987, Simon got caught up in a different sort of values issue. Stock-market values crashed, with the Dow Jones Industrial Average plunging almost 23% in a single day. Real-estate values followed. The ripples from Wall Street created, first, a recession in real estate, then a depression. It was the beginning of David Simon’s return home.

Real estate in those days was a very different world. Many of the major firms were owned or dominated by their buccaneering founders, men such as Trammel Crow and Edward DeBartolo, as well as Mel and Herb Simon. All of these men were empire builders in the classic sense—visionary dealmakers who tended to focus on the big picture. The Simon brothers, for instance, created such flashy shopping “destinations” as the Forum Shops in Las Vegas (complete with flame-spouting fountains and moving statues) and the 4.3 million-square-foot Mall of America in Minneapolis (the largest mall in the country). But most of the mall impresarios were unprepared for the grim financial circumstances of the early ’90s.

“Anyone who was in the real-estate business from 1989 to 1991 had problems,” says Martin Cicco, managing director of investment banking at Merrill Lynch in New York. “It was a totally illiquid marketplace. The regulators were putting immense pressure on lenders to rationalize every loan. Many famous real-estate names—the Reichmann and the Crow families, for instance—lost most of their holdings.”

Simon Group—then known as Melvin Simon & Associates—wasn’t immune to the turmoil. By 1990, Mel and Herb realized they needed help on the financial end. They approached Simon, who had assumed he would have a long career on Wall Street but who, after long thought, returned to the family business as chief financial officer in 1991.

What followed is another kind of classic business story. Mel and Herb—the first generation—built the business one mall at a time, one deal at a time. Simon, the MBA-toting son and nephew with years of M&A experience, had different ideas. “He has a young man’s energy and initiative,” says Stephen Sterrett, the company’s senior vice president and treasurer, as well as head of the acquisitions group. “He’s not afraid to make some waves.”

Perella says, “He has a very good strategic sense. He understands the details but also has the ability to stand back and analyze what is really going on in a deal and whether ultimately the ship will float.”

Simon’s first step was putting the company’s financial house in order. “It was a very difficult time,” he says tersely. “This was a company that had been around for more than 30 years but needed a lot of structure, both organizationally and financially.”

Cicco, at Merrill Lynch, says Simon spent the first year “rationalizing and pulling together what the family owned, and negotiating with probably every lender in America.” He also made almost a clean sweep of top managers. Simon says, “We had to eliminate a lot of the people who didn’t share the vision of turning the place around. The surprise was finding out how many good people were underneath that top layer. We haven’t—other than very selectively—had to go out and seek a lot of new talent.”

When he was finished, Simon had something relatively rare in the real-estate industry—an operating company. “The business used to be a collection of individually financed asset deals,” Cicco says. “Now it’s a company with a solid management team. David brought an element of financial discipline to what had been a very entrepreneurial firm.”

In focusing on operations, Simon scored impressive gains in productivity. Simon Group’s malls yield average sales of $370 a square foot, compared with an industry average of considerably less than $300 a square foot. But Simon knew that for the company to regain its momentum, it needed new sources of capital. In 1993, he took the company public with a $1 billion initial public offering that, at the time, was the largest real-estate IPO in history.

Since then, he has managed a series of canny acquisitions that has nearly quadrupled the size of the business, so that it now owns real estate valued at about $16 billion. The company’s focus has broadened and moved upscale. “We went from being a company that had middle-market malls to being the dominant player in our industry,” Simon says. When the company went public, it had only 12 malls in the top 20 markets in the country. Today it has 75 in those 20 markets and is the largest mall-based landlord in cities such as New York, Boston, Atlanta, Miami, Pittsburgh, and Orlando, Fla.

It is in his acquisitions that Simon’s Wall Street training is most evident. Real estate is an industry used to cozy inside deals between friends and partners. The David Simon who mixes it up under the backboards, however, isn’t shy about muscling around in this arena. Nothing demonstrates this better than the $5.1 billion acquisition of Corporate Property Investors.

CPI, the largest privately owned retail mall company in the country, didn’t take Simon Group all that seriously, according to Simon Group’s Sterrett. “The board at CPI thought Simon Group was the same middle-market company it had been in 1994,” Sterrett says. “They didn’t think we were a good fit with their assets. And they had two other serious bidders.”

Right up until the close of business on the last day of bidding, Simon Group was an also-ran. Late that night, however, Simon called his team together and succeeded in reopening negotiations. “It was down to the wire,” Sterrett says. Finally, around 3 a.m., Simon Group received word that CPI had accepted the offer.

What carried the day, Sterrett says, was Simon’s ability to “articulate the vision” of what the combined company would be—not only the largest but the best. The result? Not only did Simon succeed in wresting the company from the other bidders, he did it without offering the highest price. Another vote of confidence was that CPI’s board agreed to accept more than $2 billion in Simon Group stock as part of the payment.

As Simon expanded his business, he knew the U.S. was famously “over-retailed”—the latest figures show 20 square feet of retail space for every man, woman, and child. So, even before Clixnmortar, he began a series of efforts to set Simon Group’s malls apart. He launched a $22 million national ad campaign to brand them, even though mall operators generally stay in the background and have their stores take center stage. He started an affinity program for frequent Simon Group mall shoppers and set up marketing alliances with companies such as Visa, Pepsi, and the National Football League. He began distributing a monthly magazine—called “S”—in Simon Group malls.

Simon says he began thinking about the Internet as he watched “what Amazon.com has been able to do—and Wall Street’s reaction to it. That gave me the feeling something was happening that we needed to be in on.” Unlike many mall owners, who have a visceral aversion to the Internet, Simon takes a different view. “I certainly don’t look on the Web as any kind of threat,” he says. “To the extent that we can incorporate technology into the shopping experience, and find new ways to connect with the millions of people who visit our malls every year, we’re creating value for the company.”

Simon figured out how to move on-line through a detailed process that involved generating a host of ideas, testing some, protoyping them, generating more ideas, and so on—the intent being to learn as much as possible while spending as little as possible. Simon says with a smile that he even looks to his four kids for ideas. “I watch my sixth-grade son to see how comfortable he is with shopping on-line and bringing to my attention what he wants for his birthday, or Hanukkah, or whatever,” Simon says. By rolling out two Clixnmortar ideas in test markets, Simon is simply raising the ante, trying to get to the point where he’ll have a slew of ways to improve shopping by linking the physical and on-line malls.

“I’ve been here going on 10 years,” Simon says, “and the business has weathered oversupply, lack of liquidity in the financial markets, and an unbelievable number of retail bankruptcies and restructurings. I think it will weather whatever is going to happen with e-commerce. The question is, can we take the business another step and ensure that it will survive for another generation?”

FASTFROG: THE GREAT LEAP FORWARD

Clixnmortar.com is initially testing two programs, FastFrog.com and YourSherpa.com, according to Melanie Alshab, who was Simon Property Group’s chief information officer and now runs the new division.

FastFrog, Alshab says, is a teen registry service. Teens pick up a hand-held scanning device—called a zapstick—when they enter a mall. They use it to scan the bar codes of merchandise in various stores and compile a wish list. At a site in the mall, they upload the list to their personal FastFrog home page. Later, teens can e-mail the list to parents, grandparents, or friends, who can buy items with a few mouse clicks and either pick them up or have them delivered. “It’s perfect for the way teens shop,” Alshab says. “They typically don’t have a lot of money in their pocket, but they do have a lot of influence on the family wallet.” [Disclosure: Diamond Technology Partners, which publishes Context, has a small equity stake in Clixnmortar.]

YourSherpa is for time-starved “upscale professionals,” who “tend to be very targeted when they shop,” Alshab says. “They spend a lot of money, and they spend it fast.” Participants scan bar codes in different stores, then go on-line at home to arrange payment and delivery.

Both programs are being tested in Atlanta-area malls—FastFrog at Simon Group’s new 1.5 million-square-foot Mall of Georgia and YourSherpa at the Lenox Square mall. At press time, it was too early to tell just how the programs were doing, but, if results are positive, Alshab will quickly roll the programs out at Simon Group’s 234 other malls.

Alshab also has plans in development for numerous other services. She sees Clixnmortar as a platform of information technology and logistics that could support a host of services that enhance Simon Group’s physical malls by linking them with the Internet.

Robert Higgins, chief executive of Trans World Entertainment, a music chain that is a large Simon Group tenant, says: “We’re in a lot of different malls around the country, and Simon is the only one doing something on this scale with the Internet.”

The goal, David Simon says, is to “take what historically has been a very dumb box”—meaning the mall itself—“and make it a smart box.”

Sharoff is a free-lance writer based in Chicago. He can be reached at rsharoff@realtors.org.