Not included in the Bankruptcy filings are 91 operating retail, office, master planned communities and development properties, including Quail Springs Mall (www.quailspringsmall.com) in Oklahoma City. Also not included in the filing are 24 properties managed by GGP. The management company that manages the GGP properties was not included in the Bankruptcy filing.
Chief Executive Adam Metz said in a conference call on April 16, that after the credit crunch hit last October, several major properties were considered for sale, and several offers were made, but none were accepted. GGP’s fundamental business model is very sound, the average occupancy of the properties is 92.5%, almost the highest in the company’s history, and operating profits were higher in 2008 than in 2007. Metz said that the primary consideration in the bankruptcy filing was the capital structure of the properties; those properties that had already had their loans restructured were not included in the filing. Properties that are in partnership with institutional investors are not included in the filing. With the bankruptcy filing, the company will also be relieved of the dividend payout requirements the tax code currently mandates of REITs.
Debtor in possession financing of $375 million by Pershing Square Capital LP, as agent, has been secured. Pershing Square is a hedge fund run by William Ackman, who also has purchased about 25% of General Growth Properties since last October. Ackman has expressed an interest to the company about joining the GGP board of directors.
Reuters reported that at the end of 2008, GGP had about:
- $15.17 billion of General Growth’s debt was comprised of mortgage loans that had been securitized into commercial mortgage-backed securities
- $1.18 billion in past due debt and an additional
- $4.09 billion of debt that could be accelerated by its lenders.
Reuters also reported that earlier GGP had been negotiating the restructure $2.25 billion of Rouse bonds, offering bondholders a percentage on their bonds if they allowed the company to skip interest payments and principal until the end of the year. The necessary support it needed to restructure the debt was not obtained. Another factor in the Chapter 11 filing seems to be an April 15 auction, where credit default swaps insuring the Debt of the Rouse company unit were found to be worth 29.25% of the debt they insured. Payments on the contracts were triggered after the GGP failed to pay more than $2 billion in debt due on March 16.
This bankruptcy is a result of the October Lehman Brothers surprise, the credit markets have frozen.
Metz concluded the conference call by saying that interest on unsecured bond debt will not be paid but that mortgage interest will be paid. Metz also said that it is not GGP’s ambition to be smaller. Based on the business plan, the basic component of the restructuring, there is not an intent to sell any of the iconic properties. Rather the focus of the restructuring will be to stretch out the maturity of debt and increase the company’s capital structure.
Is this the first shoe to drop in the commercial real estate market meltdown?
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