Area Mall Owner's Crisis Signals Wave of Distress

By David S. Hilzenrath
Washington Post Staff Writer
Friday, April 17, 2009

General Growth Properties, the giant shopping mall company whose holdings stretch from Tysons Corner to the planned community of Columbia and Baltimore's Inner Harbor, yesterday sought protection in bankruptcy court, citing debts of more than $27 billion.

The bankruptcy heralds a wave of trouble in commercial real estate that threatens to put another damper on the economy, industry analysts said. By the end of 2011, $1.2 trillion of commercial real estate debt will come due, and like General Growth, many of the borrowers will be unable to refinance or repay their loans, said Gregory H. Leisch, chief executive of Delta Associates, which tracks the industry.

That would spell more losses for banks and institutional investors such as life insurance companies that are already coping with the meltdown in residential real estate.

The bankruptcy adds a new element of uncertainty to the future development of Columbia, where General Growth has been working on a long-term plan that county officials have been counting on to revitalize the downtown. The economic crisis already assured a delay for the first major effort to remake the 1960-era planned community in decades.

But for people visiting General Growth's malls, the Chapter 11 reorganization could be imperceptible.

"We're convinced that we're going to make this bankruptcy filing invisible to the shoppers in our malls," company president Thomas J. Nolan Jr. told reporters. "We're open for business today, and we're going to be open for business tomorrow."

General Growth, the nation's second-largest shopping mall owner, had struggled for months to win reprieves on billions of dollars of debt, much of which was past due. The company tried to sell some properties to raise money, but the same lack of credit that prevented it from replacing its loans kept prospective buyers from raising money.

"What it tells you is that if they don't get the financial system restarted, then every real estate company is going to go bankrupt," said William Ackman, principal of the hedge fund Pershing Square Capital Management, which holds a major stake in General Growth.

Other observers said General Growth left itself exceptionally vulnerable to the recession and credit crunch because it had mortgaged itself so heavily.

"They're the poster child for too much debt, and they have been for five years," said analyst Richard Moore of RBC Capital Markets.

The company, based in Chicago, owns or manages more than 200 malls in 44 states. Its interests include Harborplace and the Gallery in Baltimore, Boston's Faneuil Hall Marketplace, New York's South Street Seaport, the Fashion Show Mall in Las Vegas, Alexandria's Landmark Mall as well as Laurel Commons and Tysons Galleria.

General Growth's problems can be traced partly to its debt-financed purchase in 2004 of Rouse, the pioneering developer of Columbia and of festival markets such as Harborplace.

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