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General Growth Offers More Recourse

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The WSJ has the scoop. The bottom line is that General Growth had to up its recourse levels from 25 percent to 50 percent to secure debts. The company, however, is emphasizing that it felt comfortable doing this because it is confident in its ability to repay. So they don't think they'll have to face the scenario of lenders needing to come after assets. As I'm typing this, General Growth's stock is up 13.7 percent today. It's currently the biggest gainer among all retail real estate REITs. The stock remains well off its 52-week high, however.

Chicago-based General Growth, which owns more than 200 malls, has been struggling in the ailing credit market because it faces nearly $19 billion in debt coming due through 2011. The company also announced yesterday that it had landed another $100 million in capital for refinancing debt, bringing its total raised so far to $1.51 billion of the $1.75 billion it has targeted.

Analysts read the revised recourse provision as a sign that General Growth had lost bargaining position with its lenders. A few analysts published research notes speculating that the loan's sponsors – Eurohypo AG, Wachovia Corp. and ING – had forced General Growth to accept a concession.

But Bernie Freibaum, General Growth's chief financial officer, said in an interview late Thursday that the greater recourse was granted to attract additional lenders, not to mollify those already committed. "It doesn't cost us any money," Mr. Freibaum said of the recourse change. "It doesn't change the interest rate. And if it helps us complete the deal, then it was a good business decision."

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Elaine Misonzhnik

Senior associate editor Elaine Misonzhnik has been writing for National Real Estate Investor since June 2006 and has covered commercial real estate for more than 12 years. She first became...
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