General Growth files for Chapter 11 - FT

By Alan Rappeport and Nicole Bullock in New York Published: April 16 2009 11:45 Last updated: April 16 2009 19:51 General Growth Properties, the second-biggest US shopping mall owner, filed for bankruptcy on Thursday due to the collapse in commercial property prices. The Chicago-based company owns more than 200 malls in the US, making it one of the largest real estate bankruptcies ever. With $27bn in net debt, late last month General Growth failed to renegotiate new terms with bondholders for $2.25bn of debt. EDITOR’S CHOICE US prices drop for first time since 1955 - Apr-15Data warn against grasping at green shoots - Apr-14Commercial property under pressure across US - Mar-06General Growth said on Thursday that approximately 158 regional shopping centres that it owns also filed for bankruptcy. “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,” Adam Metz, General Growth chief executive, said in a statement. General Growth has been able to secure $375m for a debtor-in-possession financing facility from Pershing Square Capital Management as it works through the bankruptcy process. It said on Thursday that daily operations would continue as usual at all of its shopping centres and properties. Among General Growth’s most famous properties are the Fanueil Hall Marketplace in Boston, South Street Seaport in Manhattan and The Grand Canal Shoppes at The Venetian in Las Vegas. As it attempts to regain its footing, General Growth said it would explore “strategic alternatives” and search the market for fresh sources of capital. It plans to extend mortgage maturities and reduce its corporate debt and overall leverage. “Any development that upsets the orderly disposition of GGP’s assets holds the potential to undermine the market,” said Sam Chandan, chief economist at Real Estate Economics in New York. Loans of General Growth-related properties were widely securitised and account for $15bn of the $800bn market for commercial mortgage-backed securities (CMBS), the most of any other real estate investment trust, according to Aaron Bryson, a CMBS strategist at Barclays Capital. The CMBS market was steady on Thursday since the news was widely anticipated. “The bankruptcy is not expected to result in a spike in defaults, but rather a lot of extensions as this lengthy process plays out,” Mr Bryson said. “No one is in any rush to foreclose and sell the [properties] into such a weak market.” According to Reis, a property research group, Reits that focus on regional malls have sustained a 37 per cent drop in value in the first quarter of this year. Copyright The Financial Times Limited 2009