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(This story, in slightly different form, originally appeared in Incisive Media’s Daily Business Review.)

MIAMI-Tourists snapping pictures and buying caramel roasted peanuts at Miami’s Bayside Marketplace don’t realize it, but the waterfront property is a symbol of its owner’s dire financial condition. The 310,000-square-foot open-air retail center has been put up for sale as part of General Growth Properties’ rush to raise cash.

Chicago-based GGP, a publicly traded real estate investment trust, is drowning in debt it took on to expand over the last decade. Now, it is selling off chunks of its portfolio, including the landmark property south of AmericanAirlines Arena in Downtown Miami.

“It is not the best time to sell, but GGP is clearly having its own problems right now,” says Alan Merkur, a principal with Global Fund Investments in Miami Beach. Its earnings have dropped sharply. It’s stock is trading for less than $1. And the deepening economic turmoil continues to plague the retail sector with slower sales and increasing vacancies for landlords.

Bayside Marketplace general manager Pamela Weller was not available for comment. Executives of GGP spokeswoman Lesley Cheers confirmed the mall is for sale “or open to a joint venture partnership.”

Merkur says his company, which focuses on grocery-anchored centers and distressed notes on shopping centers and multifamily properties, won’t be making a bid for the open-air entertainment center. Merkur is a former executive of Equity One, a North Miami Beach-based REIT.

In addition to Bayside, GGP owns three other retail centers in South Florida: Mizner Park in Boca Raton, the Village of Merrick Park in Coral Gables and Pembroke Lakes Mall in Pembroke Pines. GGP acquired Bayside in 2004 when it purchased the Rouse Cos., developer of the dining and retail center.

Merkur says Bayside is a quality property and could attract several joint ventures and private equity funds interested in entertainment and restaurant centers. “This is probably one of the best pieces of real estate in Downtown Miami,” he reveals. However, deals for retail properties have dried up because of the credit crisis and severe cutbacks in consumer spending, and it may be tough for GGP to find a buyer.

The open-air center is especially vulnerable because it gets much of its business from passengers coming off cruise ships in the nearby Port of Miami. If cruise traffic slows, Bayside would see a drop in business from tourists, he says. Another downside for potential buyers: The city of Miami owns the land Bayside occupies. That could complicate efforts to obtain financing. “But it is not the end of the world,” Merkur comments. “It is done all the time.”

It’s unclear whether GGP’s other South Florida properties are for sale. Analysts who follow REITs say GGP could hurt itself by flooding the market with properties. “If a lot of their properties are put up for sale in today’s market, this may depress overall sale prices,” says Victor Calanog, director of research for property research firm Reis.

GGP is in crisis partly because it couldn’t get additional loan extensions or locate new financing to replace loans that were about to come due. It owes $1.1 billion in loans that matured in the last few months and has nearly $4 billion of debt that could be accelerated at anytime, according to the company’s latest filing with the Securities and Exchange Commission. So far, lenders have not demanded full repayment of the delinquent debt. “Our lenders have not yet exercised any of their remedy rights,” the company told the SEC.

The company, which has said seeking Chapter 11 bankruptcy protection from its creditors was an option this year, also has $1.4 billion of mortgage debt and about $595 million of bonds set to mature this year. Whether the company will be able refinance, repay or extend that debt is uncertain. Commercial real estate mortgages are increasingly hard to get and bonds hard to sell. High unemployment and sinking consumer spending are scaring investors away from investments backed by income-producing properties.

GGP’s net operating income fell 2.4% to $701.8 million for the fourth quarter of 2008, down from $718.9 million reported for the fourth quarter of 2007, according to the SEC filling. The drop in income was mostly caused by a decline in rents and other income, the company said.

Around noon on Friday, restaurants and eateries were bustling with a hungry crowd. But shopkeepers stood idle inside their empty stores. GGP stock has taken a dive since the beginning of the year, when it traded around $40 dollars.

GGP’s financial troubles say more about a liquidity crisis in the banking sector than about the company, says Brad Case, vice president of research and industry information for the National Association of REITs in Washington, DC. “It is not a matter of having made risky investments in commercial real estate,” he explains, about REITs in general. “It is a matter of getting roll-over financing for fully performing loans for properties that are leased and producing an income.”

Case says REIT-owned properties may be on the market, but that doesn’t mean sellers will let them go for cheap. So far, he hasn’t seen any “desperation transactions” among REITs. Putting a property on the market at this time, he explains, doesn’t mean buyers will get hefty discounts. “That’s why you haven’t seen many sells.”

Paola Iuspa-Abbott can be reached at [email protected]

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