General Growth Properties Inc, the second-largest US mall owner, declared bankruptcy on Thursday in the biggest real estate failure in US history. Ending months of speculation, General Growth, along with 158 of its more than 200 US malls, filed for Chapter 11 protection from creditors while it tries to restructure some of its debt.
Its joint-venture properties and third-party management business were not included in the bankruptcy. The Chicago-based company, which owns such valuable malls as Fashion Show in Las Vegas and Faneuil Hall Marketplace in Boston, listed total assets of $29.56 billion and total debt of $27.29 billion. Since November, General Growth had been warning that it might seek protection from its creditors due to its failure to refinance maturing mortgages. Earlier this month, the company had tried to restructure bonds from Rouse Cos, a high-end mall owner that it bought in 2004. But General Growth failed to garner the necessary support.
"When we did not achieve the necessary amount of agreement on the bond solicitation, at that point we recognised that it was conceivable that we would not get the time outside of bankruptcy that we had hoped for to work on a restructuring," General Growth President Thomas Nolan told Reuters.
General Growth's collapse is emblematic of the enormous pressure on US commercial real estate, as there are few sources of funding for sales or to refinance maturing debt. "We will see a significant rise in delinquent and defaulted mortgages in commercial real estate above and beyond what we already experienced," said Sam Chandan, president and chief economist at research firm Real Estate Economics. About $814 billion of commercial mortgage debt is expected to mature over the next two years, according to real estate research firm Foresight Analytics.
General Growth said in a statement that it would keep exploring strategic alternatives during bankruptcy protection, from which it is seeking to emerge as quickly as possible through a reorganisation that preserves its national business. General Growth's filing in the US Bankruptcy Court in Manhattan makes it one of the largest nonfinancial companies to succumb to the global financial crisis. It is also the biggest bankruptcy of a US real estate company, according to BankruptcyData.com.