General Growth Properties, which owns several North Carolina Shopping Centers, is Enduring a Challenging Chapter 11

Published Wednesday, February 24, 2010 @ 9:50 am

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We sure do like to shop in America.

Despite the rise of Internet browsing, there are still few environments more attractive to a modern-day capitalist than a shopping mall during the holidays. Even in down-times, like the last two major holiday periods, just about any mall appears packed with people as diverse as the brand names on the bags that dangle from their wrists. Despite two years of serious recession, it’s still hard to find a place to park.

So, as we try figure out who exactly is being pained by the Great Recession when we visit a mall (we know who is), the bigger question that looms is about on how on earth can the owner of one of these Great Pyramids of commerce can possibly go bankrupt? Well, it happens, and it did last year to General Growth Properties, one of the nation’s largest owners of malls and retail centers.

As we previously reported last year on this blog, the publicly-traded REIT (Real Estate Investment Trust) that had owned part or all of more than 200 shopping centers in almost every state, needed to restructure $27 billion in debt and filed Chapter 11 bankruptcy to help with the process. The company owns properties in North Carolina, including Durham’s The Streets at Southpoint and Valley Hills Mall in Hickory.

The company actually did not file a pre-packaged bankruptcy like so many other large companies have done during the last number of months. Since it has filed, the company has been courted by a number of buyers and as they get closer to exiting, the suitors are lining up.

In order to exit bankruptcy alone, General Growth needs to convince bankruptcy Judge Allan Gropper that they can pay off nearly $7 billion in unsecured debt. They would plan to do that with a good portion of it coming from stock. Problem is, their stock price may not be sufficient.

The Wall Street Journal is reporting that the company’s best strategy to exit alone will be to convince Judge Gropper that creditors’ acceptance of stock would be a reasonable settlement. That of course also depends on to what extent General Growth can convince their creditors that its stock is valuable enough.

In the last several days, competitors to General Growth, like Simon Properties, the nation’s largest mall owner, has caught wind of the company’s challenges and like any other understanding, cash-rich corporate entity who smells blood, submitted their own takeover bid.

Simon has put a $10 billion bid on the table that includes the creditors’ payoff in cash, a much preferred currency than the stock of a company in bankruptcy. Thus, the Simon plan is winning over critical parties to the transaction. General Growth’s board, not surprisingly, is not overly thrilled.

General Growth ultimately is hoping for a old fashioned bidding war over its assets. Enter Brookfield Asset Management, Inc., which announced it will outbid Simon and allow General Growth to exit bankruptcy on its own. Brookfield would become the company’s largest shareholder, despite just exiting bankruptcy itself. Based in Canada, Brookfield publishes Reader’s Digest and already owns a significant amount of General Growth stock.

Other potential bidders for the mall owner include Westfield Group and Vornado Realty Trust. If no bids get the approval of the court, a hearing will occur in which General Growth will need to convince Judge Gropper that they should be allowed to continue conceptualizing a reorganization plan, at which point the story will begin to get quite a bit longer.

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