The nation's second-biggest mall operator filed for Chapter 11 bankruptcy on Thursday, touching off another round of death-of-the-mall forecasts.
The filing by debt-ridden General Growth Properties Inc. promises to put some of the nation's trophy malls in new hands. Some big banks and investors will take hits on loans gone bad or canceled by a judge. Cassandras already portray the case as evidence that commercial real estate is the "next time bomb."
So far the numbers aren't that bad: Retail real estate prices are down only about 15 percent from a year ago, rents are depressed 4.5 percent and the national mall vacancy rate is at 7 percent.
However, only one new enclosed mall has been built in the United States since 2006, and only six mall-sized open-air developments are coming out of the ground in 2009.
"The enclosed mall is far from dead," said Britt Beemer, president of an Orlando market research firm, who said 36 percent of shoppers went to a mall in March, down from about half a decade ago. "But it certainly is challenged and needs to reinvent itself."
"A meltdown in retail real estate? Ridiculous," said John Crossman, an Orlando developer. "The site of Governor's Square Mall in Tallahassee was an Indian trading post 1,000 years ago."
About $10 billion in U.S. retail real estate is considered distressed and about $24 billion more is regarded at risk of becoming distressed by Marcus & Millchap, a real estate research firm.
Tom Nolan, General Growth's chief operating officer, paints the Chicago mall operator as the victim of non-functioning lenders.
"The credit markets completely shut off our ability to refinance," he said. "Our business remains strong and profitable. We think our bankruptcy case will be invisible to the shopper."
The company, which claims its malls are 92.5 percent full, even plans to honor its gift cards.
Unable to refinance $1.1 billion of $12.6 billion in short-term debt used to acquire the Rouse Co. in 2004, General Growth steered 158 of its more than 200 malls into a New York bankruptcy court. Listing more than 100,000 creditors, the company claims assets of $29 billion and debts of $27 billion. A default would make $4 billion in other debt payments due and the company was unable to sell other malls to raise cash.
The rest of the 200-mall portfolio, including a half-dozen malls in Florida from Governor's Square in Tallahassee to the high-end Village at Merrick Park in Coral Gables, were left out of the bankruptcy case. Also unaffected are malls the company is paid to manage, such as University Mall in Tampa, joint ventures or properties not staring at short-term debts coming due.
"It's a good company with good assets, but an unfortunate capital structure that has too much debt coming due too soon," Citigroup said in a recent report.
The stock fell off a cliff once General Growth revealed it was having trouble refinancing last fall. After the Lehman Bros.' collapse chilled lending, General Growth shares, which traded at $27.55, dropped to $1.97. The stock closed Thursday at $1.05 after the filing.
Mark Albright can be reached at firstname.lastname@example.org or (727) 893-8252.