Foreclosure at the Mall: General Growth Files for Chapter 11

April 16, 2009 — -- Forget those 50 percent off signs. A trip to your local mall these days might reveal a new sign in the window of your favorite retailer: "Going Out of Business."

That means big trouble for mall owners already struggling to survive.

As individual store owners struggle to stay afloat, mall operators facing ever-mounting debt are fighting a similar battle.

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General Growth Properties Inc., the nation's second-largest mall operator, filed for Chapter 11 bankruptcy protection today, the latest sign of the challenges facing malls of all sizes.

The nation's shopping center owners are facing a recessionary double-whammy: Consumers who are spending less and real estate investors who are holding back money used to finance their operations.

Those forces are now colliding, causing major problems for some mall owners into bankruptcy. Don't expect your local mall to necessarily close its doors -- although some of the 3,500 malls across the country, mostly smaller malls, might -- but it could very likely be owned by somebody else shortly.

"They have significant problems by and large," said George Whalin, president and CEO of Retail Management Consultants.

Retailers may close 73,000 stores in the first half of 2009, according to the shopping center council, robbing malls of the vital rental fees that allow them to pay off their debts and stay in business.

"General Growth bankruptcy is the beginning of the commercial real estate crisis. It's one of the two big ticking time bombs that has not been reported well in the financial circles yet," said Burt Flickinger, a consumer industry analyst for SRG Insights. "We in the beginning of a record number of retail bankruptcies and a record number of shopping center and shopping mall bankruptcies."

Big chains, including Linens 'N Things, Circuit City, Whitehall Jewelers, Mervyn's and Steve and Barry's have already filed for bankruptcy. Other big retailers, including Talbots, Fashion Bug, Ann Taylor, J. Crew and Liz Claiborne have either announced store closings or scaled back or delayed expansion plans.

Whalin said, "There are going to be a significant number of retailers that will go bankrupt. There's no doubt about that. … We've just never seen anything as bad as this."