Tuesday, April 28, 2009

General Growth Properties: Still alive and kicking

In last week’s Omaha World Herald, as in many newspapers nationwide, I suspect, a page two story speculated about what the General Growth Properties bankruptcy filing would mean for the shoppers and retailers who visit and inhabit, respectively, the two Omaha-area malls owned by the shopping center giant.

I knew the story’s ending before I reached it. Nothing. Because Westroads and Oak View malls weren’t among the 160 malls listed as part of the bankruptcy filing -- and even those that are likely won’t notice a blip; GGP’s legal insolvency will be virtually imperceptible at the mall level.

But that hasn’t stopped the rumblings. Ever since the Chicago-based developer filed for Chapter 11 in the U.S. Bankruptcy Court in the Southern District of New York on April 16, the media and the bloggers have been busy. Would GGP crumble? What of the mall in my hometown? Would mall and corporate employees be sent packing?

General Growth owns some of the premier malls in the country, and its occupancy rate is 92.5%. The Chapter 11 filing is a tactical move to allow the company to regroup and restructure which, when the company exits bankruptcy in about a year, can lead to a stronger entity.

The New York Times called the bankruptcy the “biggest real estate collapse in American history,” and analysts said it’s a harbinger of troubles to come. That may be true. But General Growth can’t worry about that. It’s got malls to lease and manage and tenants to deal with. And so far it’s done a pretty good job of both. Despite the downturn, General Growth’s properties appear to have held up better than many.

And to those who would say the bankruptcy is an indicator that more troubles are on the way and that the mall industry as a whole is on the brink of disaster, Stephen Sterrett, CFO of the nation’s largest mall owner Simon Property Group, was quoted as saying, “It’s important for people to understand that [General Growth’s bankruptcy] is totally distinct from the business of the mall business. This is all related to their balance sheet and their capital. The fundamentals of the mall business are pretty good.”

I don’t mean to minimize the filing, the reasons behind it, or the foretelling of struggles ahead. General Growth’s bankruptcy, say analysts, is likely to negatively impact mall values -- this at a time when real estate operators are already grappling to stay ahead of their debts and keep their centers leased. But, at the same time, the event certainly won’t go unnoticed -- and could even motivate measures that would help the industry as a whole.

Did it take a giant to fall to advance an industry’s cause? Let me know what you think.

And, yet, when General Growth emerges from bankruptcy -- albeit a little leaner but likely a lot healthier -- and if real estate will have benefited from additional government intervention, this story may have a happy ending after all.

-- Katherine Field

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