General Growth in $2.6-Bil CMBS Deal

Freibaum reported on an earnings conference call that the CMBS collateral is 28 properties, more than half of General Growth's portfolio of regional shopping malls, which were appraised at $4.1 billion. The shopping centers were appraised at an overall capitalization rate of about 8.5%, Freibaum adds. Lehman Brothers and Goldman Sachs are advising General Growth on the CMBS deal, he says.

General Growth officials, who reported a 17.5% increase in funds from operations for the third quarter, are guardedly optimistic on the health of the retail sector in the current economic recession.

"Since the fourth quarter of last year, I've been saying that we've been operating in an environment of low consumer confidence, flat retail sales, rising utility costs and increasing unemployment announcements," says CEO John Bucksbaum. "The only difference I can report today is utility costs are no longer rising."

However, Bucksbaum adds business at General Growth's malls, six of which are finished with renovations while another 12 are undergoing overhauls, is "back to normal" after the Sept. 11 terrorist attacks on the US.

More directly, however, retailers are sticking to their lease plans, reports President and COO Robert Michaels, who talked with some of them during the International Council of Shopping Centers meetings. "Committed deals, signed and unsigned, are moving forward," Michaels says. "We find retailers' interest in new stores remains strong. Retailers are working on the third and fourth quarters of 2002 and 2003. We believe 2002 will be a challenging, but good, year for General Growth."

Occupancy has remained steady at 88.3%, Michaels says. Comparable center net operating income increased by 4.8% over last year's third quarter. Meanwhile, sales per square foot rose to $360 in the third quarter, up 1.4% from the same period last year.