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Will General Growth Find a Buyer for its Malls?

As GlobeSt.com has reported, General Growth Properties, owner of the South Street Seaport and 192 other shopping mall properties across the US, is facing major challenges. These stem from the double whammy of a weakening retail environment and the impending due date for $1 billion in short-term debt. The company has said it’s considering the sale of mall assets to refinance the debt; whether that scenario would prove successful is another matter. Forty-two percent of respondents said GGP will find ready buyers for these properties, while 40% expressed doubt this would happen, given the current outlook both for retail and for obtaining financing. Eighteen percent opined that GGP will manage to avoid selling any of its properties—a contention that Dan Fasulo, managing director of Real Capital Analytics, would dispute.

“The question is a little tricky. There’s no doubt in my mind that many of their assets are very attractive to institutional investors, but the way the question is phrased, it’s almost asking whether GGP will find a buyer for the entire company. In this type of environment, I would say that’s very unlikely. But would a company like Vornado Realty Trust love to pick up GGP’s stuff in the Northeast, specifically New Jersey? They would jump on that in a second if they had the opportunity. Would they want the other properties spread around the country in some pretty challenging markets? I don’t think so.

“A couple of years ago, more companies were willing to take on the enterprise risk—buying an entire company and having the confidence that they could spin out assets they didn’t want. In this type of environment, that game’s over with. I don’t want to speak for Vornado, but I’m sure they’re saying, ‘It doesn’t make sense to buy the entire company.’ GGP’s stock is down 85% this year and there are real questions about whether they’ll be able to take care of their debt obligations next year and in 2010. There might be an opportunity just to wait them out and try to pick up their assets on the cheap if they can’t figure out how to recapitalize the company.

“Recapitalizing is a really tall order for them right now, based on the events of the past month or so. Even if they wanted to sell their best assets, a buyer would have a difficult time getting financing. You can see how the market is really punishing companies that have short-term debt exposures that are coming up. It’s kind of scary. And this is an environment where, for the most part, we haven’t seen retail fundamentals fall off a cliff the way they did after the tech bust and 9/11. There’s a thought process out there that what’s happening in the capital markets is going to trickle down and put us in a severe recession.

“What’s unfortunate for GGP is that mall assets tend to be especially sensitive to the general economic environment. They always have been. Not all of their malls are going to perform at the same level. There will be some that will outperform even during the downturn, mostly in the supply-constrained markets on the coasts, especially in the New York metro area. But would I want to own a mall right now in a secondary or tertiary market? Forget about it.”

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