General Growth Properties: A Really Big Bankruptcy

In one of the largest real estate bankruptcies of all time, General Growth Properties (GGP) announced early this morning that the company will file Chapter 11. After months of negotiations, bondholders finally lost patience. Unable to refinance maturing debt amidst the credit squeeze, the company was forced to file for protection from creditors.

GGP got drunk on debt during the boom times by making pricey, ill-timed acquisitions over the past several years. The company has about $27 billion in debt, with $3.5 billion maturing this year and about $7 billion next year.

GGP is filing chapter 11, not 7, so the company will try to reorganize and come out intact as an operating company. Most of the company’s 200+ malls are part of the filing, although about 70 are not.

Complicating the process is a myriad of unsecured creditors and a rapidly declining retail landscape. We expect many assets to be sold as the proceedings progress, although the market for high-end malls is uncertain (there have been few if any sales lately), and prices continue to drop.

GGP will emerge from bankruptcy intact; the company has some valuable assets that still make money, although it will be a much smaller company down the road.

In any event, GGP also announced that it has received a commitment for a debtor-in-possession financing facility of $375 million from Pershing Square Capital Management, a hedge fund, which, if approved, will give the company the liquidity to keep malls open during the bankruptcy proceedings.

Comments

[len811:]

RE: "Most of the company’s 200+ malls are part of the filing, although about 70 are not."

Is there a list somewhere?

Apr 16 02:00 PM

[Mad Hedge F...:]

Expect more to come. George Soros says that it is “inevitable” that commercial real estate falls another 30%. Rents are falling, tenant bankruptcies are rising, there is tons of debt to be refinanced for which there is no market, so cap rates are rocketing and “ghost mall” has joined the recessionary lexicon. This all adds up to lower prices. Some credit default swaps are trading at levels suggesting that a major REIT bankruptcy is imminent. I know George is sometimes prone to extreme statements, but this time he may be on to something. If you want a short play, or if you have an existing long position in commercial real estate which you can’t get out of and want to hedge, try a short position in the (IYR), although it has already dropped from $85 to $21. You can also play one of the sicker REIT names like Brookfield Properties (BPO).

Apr 16 03:38 PM

[Brian McMorris:]

Nice work on this post. Bill Ackberg and Pershing seem to be playing this deal like a fiddle. This is exactly what he said he was going to do two weeks ago in an interview. Check out my website and today's post on GGP (which I own as a speculation), as well as the April 4 post.

Apr 16 03:53 PM

[Brian McMorris:]

wealth-ed.com for a quick link to my site

Apr 16 04:19 PM

[Brian McMorris:]

Len811. The malls are in the most recent 10-K filing starting on page 19:

www.sec.gov/Archives/e...

Or linked at my website and on Scribd.com


On Apr 16 02:00 PM len811 wrote:

> RE: "Most of the company’s 200+ malls are part of the filing, although
> about 70 are not."
>
> Is there a list somewhere?

Apr 16 04:27 PM

[billp37:]

"Lawyers say CDS holdings were also a factor in the default and filing for Chapter 11 protection of General Growth Properties this week. Restructuring advisers expect many more such cases involving so-called fallen angels, or firms originally investment grade, since CDS was widely sold on such names."

www.nytimes.com/2008/1...

"Prudential pays Sandia labs retirement benefits.

Life insurance companies, hobbled by real estate investments and committed to paying some costly retirement contracts, face more cuts in their credit ratings before the year is up and have little choice but to seek capital in unforgiving markets. ...

Hartford Financial’s stock fell to $9.67 a share on Wednesday, a stunning 61 percent decline since last Wednesday. MetLife’s shares, which closed at $28, are down 22 percent in that period. Stock in Prudential Financial, which ended the day at $26.54, is down 32 percent. ...

www.nytimes.com/2008/1...

We wonder if PRU holds positions in General Growth Properties?"

Apr 17 09:50 AM

[Amouna:]

Check the article "GGP's Bankruptcy Filing: Thoughts and Info" by Todd Sullivan and the 8-K Filling. It gives a list of the consolidated partnerships filed in the bankruptcy court of the Southern District of New York, with the name of the malls..


On Apr 16 02:00 PM len811 wrote:

> RE: "Most of the company’s 200+ malls are part of the filing, although
> about 70 are not."
>
> Is there a list somewhere?

Apr 17 03:32 PM

[User 412734:]

It's available on GGP's Web site. They have a section devoted to the restructuring including properties that are and aren't part of the filing.

May 12 04:59 PM