Galleria owner files Chapter 11
Saddled with billions in debt, shopping mall giant General Growth Properties Inc. sought protection from its creditors in Bankruptcy Court on Thursday, marking the largest Chapter 11 filing for a real estate company in U.S. history.
The bankruptcy filing by General Growth, owner of the Glendale Galleria, Northridge Fashion Center and other Southland malls, had been expected for months. In recent years, Chicago-based General Growth went on an ill-timed buying binge that left it with $27 billion in debt as shoppers and lenders turned stingy.
“They’ve been a problem waiting to happen, and the credit crisis brought the issue to the forefront,” said Rich Moore, a real estate analyst at RBC Capital Markets. “Very few companies have the kind of debt that General Growth has.”
General Growth is the nation’s second-largest mall owner, surpassed only by Simon Property Group Inc. of Indianapolis.
Most of General Growth’s malls were included in the bankruptcy, but dozens of properties -- such as the Glendale Galleria, Burbank Town Center and Galleria at Tyler in Riverside -- were not. The company said the excluded properties primarily were owned with others through joint ventures or were part of its third-party management business.
The 55-year-old company, which owns or manages more than 200 malls in 44 states as well as other properties, struggled for months to negotiate with its creditors and warned in November that it might default on billions of dollars’ worth of debt. Unable to reach a consensus, the real estate investment trust was left with little room to maneuver, Chief Executive Adam Metz said in a statement Thursday.
“While we have worked tirelessly in the past several months to address our maturing debts, the collapse of the credit markets has made it impossible for us to refinance maturing debt outside of Chapter 11,” Metz said.
General Growth’s bankruptcy comes amid one of the worst retail downturns in decades. Mall operators have been feeling the pinch since last year, when consumers began dramatically scaling back their discretionary spending, and have taken steps to stay afloat including reducing mall hours and renegotiating leases.
General Growth said it would continue operating all of its shopping centers during the bankruptcy process, including those that were part of the bankruptcy filing such as Northridge Fashion Center and Chula Vista Center. Gift cards issued by General Growth malls would continue to be honored, the company said.
“None of our malls are going to close as a result of today’s Chapter 11 filing,” said David Keating, a spokesman for General Growth. “To use an overused cliche, it’s going to be business as usual today, tomorrow and moving forward. Our malls are going to continue to open and we will continue to lease them.”
But analysts expressed doubts that the company would emerge from bankruptcy in one piece.
Jim Sullivan, managing director of Green Street Advisors, a real estate investment research company in Newport Beach, said although General Growth could remain largely intact and restructure its debt in court, it might be forced to consider more extreme options.
Among those are closing less desirable properties or selling scores of malls, which would allow its rivals to acquire trophy shopping centers -- such as Faneuil Hall Marketplace in Boston and the South Street Seaport in Manhattan -- on the cheap.
“While the retail environment didn’t help them, what did them in is they used way too much debt,” Sullivan said.
RBC Capital’s Moore said he expected the company to ultimately “end up in the hands of others.”
“It can be the end of the world or it may not be,” he said. “I think they will eventually be broken up and sold. The company will not be run the way it is -- it doesn’t have the infrastructure.”
General Growth shares plunged 45 cents to 60 cents a share. The stock traded at $40 a year ago.
General Growth’s bankruptcy petition, filed in U.S. Bankruptcy Court in New York, listed assets of $29.6 billion and debts of $27.3 billion as of the end of last year.
The company’s massive debt load stemmed from its costly purchase of developer Rouse Co. in 2004. Although the $11.3-billion acquisition was highly leveraged, General Growth executives said in a conference call with reporters Thursday that it would have been able to manage the debt under better economic circumstances.
“I think people have looked at that purchase since we made it,” Chief Operating Officer Thomas Nolan said. “And the company did undertake significant amounts of debt in order to finance that.
“But up until this last October, refinancing that debt as it came due was not an issue,” Nolan said. “It wasn’t so much the Rouse acquisition as it was the credit markets simply shut.”
--
Sandra M. Jones of the Chicago Tribune contributed to this report.
--
(BEGIN TEXT OF INFOBOX)
Local malls
Here are the malls that General Growth Properties Inc. owns or operates in Southern California. Some aren’t included in the bankruptcy filing because General Growth owns the property with others or manages but doesn’t own the mall.
* Burbank Town Center*
* Chula Vista Center
* Fallbrook Center (West Hills)
* Galleria at Tyler* (Riverside)
* Glendale Galleria*
* Montclair Plaza*
* Moreno Valley Mall
* Northridge Fashion Center
* Otay Ranch Town Center* (Chula Vista)
* Redlands Mall
* South Bay Pavilion* (Carson)
* Not included in bankruptcy
Source: General Growth Properties
