Mall Owner's Struggle to Pay Loans Could Thwart Local Projects

By Alejandro Lazo
Washington Post Staff Writer
Friday, December 12, 2008

General Growth Properties, the Chicago real estate behemoth that owns Tysons Galleria, Landmark Mall and the Mall in Columbia, faces a major deadline today as it tries to negotiate new terms for $900 million worth of loans on two Las Vegas properties.

The company, which took on substantial debt when it acquired Columbia-based developer Rouse in 2004, said in a regulatory filing last month that it may seek bankruptcy protection if it cannot refinance its debt and its lenders declare it in default.

If that happened, General Growth said its malls would stay open. "The malls stay open. In terms of the development projects, that is on a case-by-case basis," spokesman Timothy Goebel said.

The debt payments were originally due two weeks ago, but the company was granted an extension until today. General Growth was also working yesterday to negotiate with the lender of a separate, $58 million loan. In the Nov. 10 filing with the Securities and Exchange Commission, the company said weakness in the retail and credit markets cast doubt on its ability to refinance its loans or obtain capital.

General Growth assumed the majority of development rights for Columbia, an unincorporated community of about 100,000 people, when it bought Rouse. Just two months ago, it presented plans for an ambitious overhaul of Columbia's downtown, with 5,500 new townhouses, 1 million square feet of retail space, upgrades to the Merriweather Post Pavilion and extensions for a path around the community's lake.

"If they are going into bankruptcy, how are they going to keep those promises?" Tom O'Connor, chairman of the Columbia Association's board, said this week. "This financial fiasco throws a whole monkey wrench into our plans."

The company declined to comment on any specific projects.

Alexandria city officials and residents are also concerned. General Growth has been working with the city to redesign the aging Landmark, one of the oldest malls in the region, and some of the area around it. The company this year hired a landscape designer and urban architect to develop a vision for turning the 52-acre site into an urban town center with greenery and a distinct "Southern charm," said Faroll Hamer, director of the city's planning and zoning department.

Alexandria Mayor William D. Euille (D) said he viewed the mall's redevelopment as the linchpin of a plan to remake the area. But now that General Growth is struggling, he said those plans could be in jeopardy.

"We have very grave concerns," Euille said. "With their current financial situation, it seems that it will be doubtful this will be happening anytime soon."

Hamer and Euille said another company could take over the development if General Growth were to sell Landmark. But money for commercial real estate developments has largely dried up because of the country's economic problems, real estate experts said, and retailers' troubles may put an extra damper on interest in malls.

"The value is really in the development rights, but the development rights don't have a lot of value with the market today," said Herb Miller, a Washington area retail developer. "If you can't get money to buy existing properties, how are you going to get money to build things?"

Locally, General Growth also handles leasing for Laurel Mall, which is being redeveloped and renamed Laurel Commons, and is the developer of two planned communities near Columbia -- Stone Lake and Emerson -- both of which are near completion. In addition, General Growth is developing the Fairwood subdivision in Bowie, where it has completed 251 lots and has 372 to finish.

Founded more than half a century ago in Iowa, General Growth specialized in large, enclosed malls, following the country's burgeoning suburbs. The company expanded aggressively in the 1990s and earlier this decade, acquiring properties and property companies. The Rouse deal was its biggest, with General Growth paying $7.2 billion and taking on $5.4 billion in debt.

When it bought Rouse, it acquired Columbia Mall, Boston's Faneuil Hall and the Fashion Show in Las Vegas, among others. .

The company has an additional $3.1 billion in debt due next year.

Craig Guttenplan, an analyst with the firm CreditSights, said a default on the loans for the two Las Vegas malls would trigger a default on the majority of the company's debt, probably sending it into bankruptcy protection.

"It is a story of too much debt coupled with an industry-wide downturn," he said.

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