Glendale Galleria owner General Growth finds a possible rescuer
General Growth Properties, owner of the Glendale Galleria and other large Southland shopping centers, said Wednesday that it had reached an agreement with a Canadian investor that would enable the mall owner to leave Chapter 11 bankruptcy protection.
Brookfield Asset Management Inc., which is part of a company that owns a handful of premier office buildings in Los Angeles County, would invest $2.5 billion in cash in General Growth stock in return for 30% ownership.
The deal must be approved by a Bankruptcy Court judge, but if the agreement stands it could rescue Chicago-based General Growth from a hostile takeover attempt by archrival Simon Property Group, the country’s largest mall operator.
It’s too soon to determine what changes might be seen at the chain’s malls if the deal is approved, General Growth spokesman David Keating said.
General Growth is the second-biggest mall chain in the country, but it borrowed too much money to finance acquisitions earlier in the decade, when commercial real estate prices were peaking and money was easy to borrow. The company was $27 billion in debt when it sought bankruptcy protection last April in the largest Chapter 11 filing for a real estate company in U.S. history.
“They got greedy thinking cheap money is cheap money,” said Los Angeles real estate attorney Lewis Feldman of Goodwin Procter.
Then came the credit crunch and recession, which battered commercial property values -- they’ve fallen as much as 40% since 2007, according to analysts. Indianapolis-based Simon was in better financial shape to weather the downturn, and last week it made a $10-billion bid to take over General Growth. Some industry observers expressed alarm that if Simon took over General Growth’s malls it would be so powerful it could set mall rents in much of the country.
“It would give them the ability to push back at national tenants,” said Steve Jaffe of BH Properties, a private commercial real estate investment firm. The combined company would also have leverage to keep big retailers from abandoning weak malls.
Simon’s offer will also be considered by the Bankruptcy Court.
“This is not over,” said Peter Lynch of DJM Realty in Los Angeles, who helps retailers manage their real estate. The Brookfield offer is obviously more appealing to General Growth, he said.
“They would maintain their independence and it would allow them to continue to develop their properties,” Lynch said. For helping the company raise capital, Brookfield would also be granted seven-year warrants to buy 60 million shares of existing General Growth stock at $15 a share.
“We are excited about the opportunities this recapitalization creates for our company and all of our stakeholders,” said Thomas H. Nolan Jr., president of General Growth.
General Growth’s portfolio of more than 200 malls in 44 states includes Northridge Fashion Center; Fallbrook Center in West Hills; and other malls in Burbank, Chula Vista, Riverside, Moreno Valley and Redlands.
Brookfield Properties, part of a group of companies that includes Brookfield Asset Management, owns some of the choicestbuildings in downtown Los Angeles, including Bank of America Plaza and Figueroa at Wilshire.
Shares of General Growth fell 8 cents to $12.89 on Wednesday.
