GGP’s Bankrupt. Now What?

General Growth Properties issued a press release announcing it is filing for bankruptcy this morning just before 3 a.m. Eastern time.

This development isn’t much of a surprise to anyone following the story. The mall owner has $27 billion in debt, much of it from huge acquisitions, like its purchase of the Rouse Co. for $12 billion in 2004.

One thing we found interesting about the filing (read the full court document here) is that a large chunk of its portfolio is not included in the bankruptcy. The list of non-impacted properties includes Water Tower Place and Glendale Galleria, two of its best-know holdings, among others. Of course, the list of included assets has many trophies of its own.

So how will this filing change the fate of the malls? Are we more likely to see buyers step in and purchase some chunks of this portfolio during General Growth’s reorganization, or will things continue has they have so far, with no one willing to make any big purchases in the recession?

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26 Responses to “GGP’s Bankrupt. Now What?”


  1. 1 P April 16, 2009 at 8:39 am

    I would like to understand how bankruptcy will help GGP.

    Forgive my ignorance here – but are the courts allowed to cram-down the principal balances on the banks? I assume these loans are secured entirely by the real estate and when we have taken on debt in recent years the loan docs forbade our entity from declaring bankruptcy and made it a default event. If it is a default event – why would this help GGP – the lenders will still foreclose?.

    What is it about GGP’s structure that makes bankruptcy a viable strategy as opposed to Mom and Pops Real Estate company trying the same approach?

  2. 2 Steve Boss April 16, 2009 at 9:05 am

    great question – would like to hear an answer as well.

    Only thing I can think of is if the lenders don’t want the properties but rather can write down the loan but still have that debt obligation be more than they would get if they took back the asset and had to sell it into a tough market. Of course that only works if GGP makes good on the restructured debt.

  3. 3 kin powell April 16, 2009 at 9:05 am

    in an attempt to broadbrush this event, i think the court will look at the entity seeking protection in toto & first determine if it has any equity. If it does then the court will reorganize the debts of that entity so it can go forward. It is my hope that the retail assets & services will emerge separate from the other assets & continue under GGP umbrella. There are issues beyond debt maturity that the court will resolve, the net result will be a GGP that on a going concern basis will be a healthy competitor in the mall space.

  4. 4 Phil K April 16, 2009 at 9:15 am

    It is unclear how debt will emerge – either lenders will take
    back properties or force sales if they can – but General Growth
    should continue reasonably intact as the most logical Management Company for all the affected properties.

  5. 5 tn4th April 16, 2009 at 9:32 am

    My understanding is that the main reason this bankruptcy occurred is maturing debt that GGP could not replace, due to the credit market freeze and to higher equity requirements and tighter underwriting standards. Absent problems in the credit markets, GGP would be fine. Is that true? If so, anyone with money to step in is going to make a heck of a profit at the expense of GGPs shareholders.

  6. 6 Dealmaker April 16, 2009 at 9:41 am

    Given the lack of capital to buy assets of the average size in the list…. It seems likely that the lenders will reduce their principal and renegotiate terms in exchange for equity positions. If this is the case it’s unlikely any of these properties will see much capital of any type (including leasing) in the next few years as long as the banks own them …giving the competing properties an edge for capital and tenancy.

  7. 7 Peter D. Morris SCSM, SCMD, CLS April 16, 2009 at 9:56 am

    Reread Phil’s post above. One potential reason for the filing is to change the structure of the company from owner to manager moving the assets to the lenders.

  8. 8 Dave Kaiser April 16, 2009 at 10:16 am

    I am curious to see how this shakes out. I worked there prior to starting my own business. Great company, but they overreached and got into hock. We’ll see where it goes from here.

  9. 9 Burk Collins April 16, 2009 at 10:35 am

    It blows my mind that banks are not willing to extend loan when the borrower is current
    and a good borrower but, is unable to get new
    financing because there is no financing available to anyone.The goverment can throw all the money they wan’t at the banks and the auto. companies but the economy will never return until borrowing is available to the small businessman.

  10. 10 michael April 16, 2009 at 10:43 am

    matthew must be quite proud of little Johnny! Martin must be spinning in his grave!

  11. 11 mrsrecon April 16, 2009 at 11:38 am

    The BK court may side w/ GGP if it deems GGP to have made sufficient and reasonable efforts to reschedule the debt with existing lenders and they were uncooperative. It may force those lenders to accept such terms in lieu of foreclosure.

  12. 12 chabay April 16, 2009 at 1:44 pm

    If one of the individual seperate entity Malls files, has no debt attached to the property but has a Multi Million dollar Tenant Group 4 year old lawsuit against just this entity winding its way through court, what happens to the suit? There has been no trial on damages yet.

    Also, if the Mall has no debt attached and has no mortgage but is free and clear, why would the court allow a banruptcy petition?

    chabay

  13. 13 chabay April 16, 2009 at 1:51 pm

    What happens to the 3 Festival Marketplaces, Faneuil Hall, South Street Seaport and Harborplace where the city holds the lease under the redevelopments that were done with public monies?

  14. 14 TRH-Baltimore April 16, 2009 at 5:08 pm

    It is our impression that the bankruptcy is being driven due to the inability of the unsecured, and the secured lenders, to come to an agreement as to how their individual interests will be protected. The unsecured group does NOT want any of these assets sold in the “buyer’s market” unless some of the money is allocated to them. the secured lenders don’t care about the unssecured;if an individual asset gets sold, they want to get all of the way out first. This bankruptcy process is not going to help the unsecured, that debt is going into the tank. The secured lenders are being patient, and they will continue to do so, unless their asset needs more capital then GGP can now allocate to relet/renovate. When that happens, expect the secured lender to push for a sale, before the NOI deteriorates. They would probably prefer that Simon/Westfields/JLL be the operator at this point;the Bucksbaum legacy will not be adding value to this company, or its tenants, in the 2008-2012 real estate cycle.

  15. 15 WRandolphHearst April 17, 2009 at 2:40 am

    Simon, Westfield, and the others will come in as purchasers, but not until they continue to play “hard to get” to obtain the best price on some good real estate. It is inevitable.

  16. 16 Broker April 17, 2009 at 9:11 am

    It was my impression their problem was the CMBS debt. The holders of the various pieces of this debt were fighting with each other as well as GGP. With nobody to take them out bankruptcy was the only alternative.

  17. 17 MKW April 17, 2009 at 12:14 pm

    GGP more than likely filed for BK as a last ditch effort to have the lenders come to the table and agree to work out their debt obligations in some form or fashion (the most logical solution is for GGP to give up equity/ ownership units from the portfolio of properties). Of course this depends on how the ownership pieces are structured?? Phil & Peter touched on the key component here, which is the management. Pulling this portfolio into admnistration would be disastrous! GGP can give up a large majority of ownership to their lenders & investors and still negotiate and then retain a huge management machine that will drive in millions of dollars in fees. (for a similar lender work out example see articles on Centro Properties Group from the last six months)

  18. 18 Michelle April 17, 2009 at 12:14 pm

    So, what happens to small individual stockholders like me? I bought 100 shares of GGP in my Scott Trade account last year. Is that investment worthless now? Or can it come back? I know yesterday the GGP trading was “suspended” but how does that affect me? Should I be taking any action at this point? If it is worthless, do I get to take it off my taxes next year as a loss against other gains? I’m new to all this, and just curious.

  19. 19 heath April 18, 2009 at 2:06 am

    This is the problem.G.G.P. has no idea how to run any malls in the L.A.area.They took the oppertunity to buy the property, get financed through them, then take the cash and run.They have no concept of how to run a mall.The communities they they are in shun them and only use them to drop off thier to be the big babysitter or places for low income families to shop.They are the malls noone goes to and they don’t seem to care. The servise is filled with people that do not work in the communities and do not seem to care.

  20. 20 Johnny April 19, 2009 at 6:28 pm

    the moral of the story is, buy SRS now. 2 times shorting real estate. It basically trails the symbol, IYR, which should not have run up 55% over the past month. There is major upside to SRS.

    Have a good day.

  21. 21 Alan Barocas April 20, 2009 at 8:37 am

    It will be interesting to see how the remaining REIT’s pick and choose the properties that are of interest to them. will it be random or will it be an approach similar to what was done with the Urban properties back in the 90’s – based on geography. At that time, REIT’s like SPG,Westfield,Macerich and yes even GGP divided the country georgraphically which allowed them to improve the quality of their portfolios and increase their leverage at the negotiating table. Simon, increased their presence in the Northeast and General Growth increased their leverage in the greater Chicago area. If you were looking to grow in those areas you had to deal with them. if you were looking at what may have been percieved as a competing opportunity in those markets, you had to include the impact of that decision had on your existing portfolio.

    Repeating this strategy will further entrench the position of the REITs and impact the leverage or lack of leverage the retailer has at the negotiating table. it will also impact the independent “lifestyle developer ” (hate to use that term but for want of another)as retailers get leveraged away or are discouraged from participating in competing centers.

    Stay tuned

  22. 22 Ladislao April 20, 2009 at 10:11 am

    Let’s cut through the sophisticated and detailed explanations of all these responses and get to the bottom line:

    – NO MONEY being spent to buy things = NO MONEY being made for retailers = “Ghost Malls…” – for a very long time.

    This is a harsh painful reality even I have to realize…

    On a side note, to answer Michelle’s question about what she can do about her 100 shares GGP Stock – PLEASE WATCH AND READ THESE VIDEOS AND BOOKS:

    – “Money, Banking and the Federal Reserve”
    (http://video.google.com/videoplay?docid=-466210540567002553)

    – “Fiat Empire”
    (http://video.google.com/videoplay?docid=5232639329002339531&hl=en)

    1) Rich Dad’s Prophecy – By: Robert Kiyosaki
    2) The America We Deserve – By: Donald Trump

    Lastly, you can read this online book here:

    http://www.conspiracyoftherich.com/

    For now I think this is enough information to help further your education and hopefully help in your own decision about what to do.

  23. 23 FeedingFrenzy April 22, 2009 at 2:40 pm

    Prepare for more bankruptcies of landlords in retail real estate, the leviathan is one of the first to go.

  24. 24 gary April 23, 2009 at 9:31 am

    Why is everybody crying and moaning about GGP? They’ve been overleveraging their assets and distributing the excess finance proceeds to shareholders for a decade. Whatever the Bucksbaums lost in their share value, they’d already bled out of the company in their reckless borrowing strategy that ultimately bit them is the ass. Making undisclosed loans to officers was the last straw in their cridibility. Its all about transparency. I hope Simon and Westfield pluck that chicken. Couldn’t have happened to a nicer bunch.

  25. 25 Darrell April 23, 2009 at 12:22 pm

    To WRandolphHearst: You are right, don’t think that David Simon doesn’t have a Special Committee to analyze which malls at GGP match up to their portfolio needs when the time is right to purchase.

  26. 26 Derookishaw April 23, 2009 at 1:47 pm

    I own 1,000 shares of GGP. What happens to that? Will I be able to recoup any of my investment?


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