San Diego Daily Transcript News Story Page 1 of 2
Thursday, April 16, 2009 editor@sddt.com http://www.sddt.com Source Code: 20090416tdd
General Growth files for bankruptcy
By THOR KAMBAN BIBERMAN, The Daily Transcript
Thursday, April 16, 2009
General Growth Properties (NYSE: GGP), the second-largest shopping mall owner in the United States, with
more than 200 properties, including the 880,000-square-foot Chula Vista Center and the 800,000-square-foot
Otay Ranch Town Center in San Diego County, filed for Chapter 11 bankruptcy protection Thursday.
With $27 billion in debt, it is being called the largest real estate bankruptcy in U.S. history.
When the company filed for the protection citing its inability to restructure the debt, it divided its assets held in
limited liability companies into two groups of LLCs.
One group was placed into bankruptcy protection, the other wasn't. The Chula Vista Center was included in the
bankruptcy group.
The Otay Ranch Town Center will remain outside the bankruptcies, at least for now. That center, which may be
put up for sale, was completed in the fall of 2006.
The Chula Vista Center has been hurt by the slowdown, plus the loss of a Mervyn's at the end of last year.
Other businesses with disconnected phone numbers include Uno's Chicago Bar & Grill restaurant and
Suncoast Motion Picture Co., a pre-recorded video store.
Although the Chula Vista Shopping Center has had its problems of late, Steve Avoyer, president of Flocke &
Avoyer Commercial Real Estate, said the Otay Ranch property is a much bigger problem because of the huge
debt service.
"It may not be reorganizable," Avoyer said. "General Growth has two or three new underperforming centers and
it only takes a few of these to bring a company down."
Avoyer said while the center is beautiful, the crash in the housing market stopped it dead in its tracks.
What's more, with little traffic, Avoyer said the landlord must to significantly discount rents to keep tenants in
place.
Avoyer has a much more positive outlook on the Chula Vista Center.
"That's on the corner of Main and Main," he quipped. "And it has one of the few non K-Mart Sears that you'll see.
There's a lot of value there."
Chicago-based GGP (NYSE: GGP), which also owns Boston's famed Faneuil Hall and South Street Seaport in
Manhattan, intends to keep is malls operating bankruptcies or not.
Faneuil Hall and South Street Seaport properties are among those having been placed in bankruptcy protection.
"GGP's retail centers, office properties and master-planned communities will be open for business as usual as
the company restructures our debt. Our properties will continue to operate, our employees will continue to come
to work and get paid, and shoppers will continue to shop," the company said in a statement.
Today shoppers aren't shopping and General Growth's lenders are unwilling to refinance the huge debt despite
the fact the troubled mall owner was profitable in 2008.
General Growth's net income dropped precipitously from 2007 to 2008, but was still profitable last year with
$26.26 million in net income on $3.36 billion in revenues.
That was compared to $287.95 million in net income on $3.26 billion in revenues in 2007.
The Chicago-based company -- second only to Indianapolis-based Simon Property Group Inc., a majority
owner of Fashion Valley Center in San Diego) -- listed assets of $29.6 billion and debt of $27.3 billion.
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San Diego Daily Transcript News Story Page 2 of 2
The company's undoing may have been sealed when it spent $11.3 billion to buy commercial-property developer
Rouse Co. in 2004 only to get caught in the credit crunch and a U.S. recession that has cut spending and
property values.
Banks have reduced lending amid mortgage-related writedowns. Commercial real estate prices in the U.S.
dropped 15 percent last year, according to Moody's Investors Service (NYSE: MCO).
Retail sales in the U.S. unexpectedly fell in March as soaring job losses forced consumers to pull back.
General Growth has seen its stock plummet in the past 12 months having ranged from a high of $44.23 down to
23 cents at one point. The stock last traded at $1.05.
Reuters reported Eurohypo AG, a German lender, was listed as the largest creditor. It is owed about $2.59
billion in U.S. dollars. Wilmington Trust comes next with $2.55 billion, followed by Bank of New York Mellon
Corp. (NYSE: BK), which is reportedly owed about $1.44 billion.
"While we have worked tirelessly in the past several months to address our maturing debts, the collapse of the
credit markets has made it impossible for us to refinance maturing debt outside of Chapter 11," said Adam Metz,
General Growth CEO in a statement.
General Growth could be the tip of a very large iceberg.
Foresight Analytics reported more than $800 billion in commercial mortgage debt is scheduled to mature within
the next two years alone -- a factor that could undermine the economic recovery.
General Growth's executives insist they remain upbeat.
"We intend to emerge as a leaner company," General Growth President Thomas Nolan said in an interview
Thursday. "We want to come out as a less leveraged company. Our business model remains strong."
As for who might buy the properties, Simon Property Group (NYSE: SPG) is considered a prime candidate for
some of the sellable assets.
The bankruptcy may remake the nation's mall business and allow General Growth competitors including Simon
Property to buy properties and strengthen its position as the No. 1 mall owner, said Dan Fasulo, managing
director at real estate research firm Real Capital Analytics.
"I think Simon's going to be able to pick up some of these assets on the cheap," Fasulo said in an interview.
General Growth's biggest market is Atlanta, with 6.05 million total square feet of space; followed by Dallas, with
5.67 million square feet; Las Vegas, with 5.62 million; Chicago, with 5.22 million; and Houston, with 5.17 million,
according to report Thursday by New York-based research company Real Estate Economics LLC.
Fasulo wasn't exactly upbeat about the future.
"This is kind of the beginning of the end," Fasulo said. "This bankruptcy will drive down the values of mall assets
in the United States. It's going to put, I believe, more supply on the market than can be absorbed by investors."
With Associated Press and Bloomberg News.
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