No. 2 mall operator files largest U.S. real estate bankruptcy
— -- But repercussions could soon ripple to other mall operators and to the distressed commercial real estate market in general.
General Growth Chief Operating Officer Thomas Nolan said Thursday that it would emerge as a leaner company. But once debt-free, it could be in position to slash lease rates and draw tenants away from other malls, just as airlines have emerged from bankruptcy reorganization in the past to slash airfares and cause distress to healthy competitors.
"This bankruptcy will drive down the values of mall assets in the United States," Dan Fasulo, of real estate research firm Real Capital Analytics, told Bloomberg News. "It's going to put, I believe, more supply on the market than can be absorbed."
It was the largest real estate bankruptcy in U.S. history, according to BankruptcyData.com, although less than one-twentieth the size of last year's $639 billion filing by Lehman Bros.
General Growth, a real estate investment trust, accumulated $27 billion in debt from a mall buying spurt that built it into a mall operator second in size only to Simon Property. General Growth operates more than 200 properties in 44 states. It owns Ala Moana Center in Honolulu, the world's largest open-air mall.
Nolan said company malls had a 92.5% occupancy rate at the end of 2008, one of the highest in 15 years, and that the company had no difficulty making its debt payments until the credit crunch hit in October. It remains able to make payments, Nolan said, but could not refinance loans that came to maturity.
Nolan said that the company's "head count" is always under evaluation, but that there would be no layoffs associated with the bankruptcy reorganization.
The company has secured $375 million in funding from Pershing Square Capital Management to get it through reorganization. Nolan said the goal was to keep the company intact, but it would consider selling some malls. Simon Property is in good position to pick up some malls "on the cheap," Fasulo says.
