Will General Growth Find a Buyer for itsMalls?

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As GlobeSt.com has reported, General Growth Properties,owner of the South Street Seaport and 192 other shopping mallproperties across the US, is facing major challenges. These stemfrom the double whammy of a weakening retail environment and theimpending due date for $1 billion in short-term debt. The companyhas said it's considering the sale of mall assets to refinance thedebt; whether that scenario would prove successful is anothermatter. Forty-two percent of respondents said GGP will find readybuyers for these properties, while 40% expressed doubt this wouldhappen, given the current outlook both for retail and for obtainingfinancing. Eighteen percent opined that GGP will manage to avoidselling any of its properties—a contention that Dan Fasulo,managing director of Real Capital Analytics, woulddispute.

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"The question is a little tricky. There's no doubt in my mindthat many of their assets are very attractive to institutionalinvestors, but the way the question is phrased, it's almost askingwhether GGP will find a buyer for the entire company. In this typeof environment, I would say that's very unlikely. But would acompany like Vornado Realty Trust love to pick up GGP's stuff inthe Northeast, specifically New Jersey? They would jump on that ina second if they had the opportunity. Would they want the otherproperties spread around the country in some pretty challengingmarkets? I don't think so.

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"A couple of years ago, more companies were willing to take onthe enterprise risk—buying an entire company and having theconfidence that they could spin out assets they didn't want. Inthis type of environment, that game's over with. I don't want tospeak for Vornado, but I'm sure they're saying, 'It doesn't makesense to buy the entire company.' GGP's stock is down 85% this yearand there are real questions about whether they'll be able to takecare of their debt obligations next year and in 2010. There mightbe an opportunity just to wait them out and try to pick up theirassets on the cheap if they can't figure out how to recapitalizethe company.

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"Recapitalizing is a really tall order for them right now, basedon the events of the past month or so. Even if they wanted to selltheir best assets, a buyer would have a difficult time gettingfinancing. You can see how the market is really punishing companiesthat have short-term debt exposures that are coming up. It's kindof scary. And this is an environment where, for the most part, wehaven't seen retail fundamentals fall off a cliff the way they didafter the tech bust and 9/11. There's a thought process out therethat what's happening in the capital markets is going to trickledown and put us in a severe recession.

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"What's unfortunate for GGP is that mall assets tend to beespecially sensitive to the general economic environment. Theyalways have been. Not all of their malls are going to perform atthe same level. There will be some that will outperform even duringthe downturn, mostly in the supply-constrained markets on thecoasts, especially in the New York metro area. But would I want toown a mall right now in a secondary or tertiary market? Forgetabout it."

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Paul Bubny

Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.