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General Growth Warns of Default

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Updated at 12:51 PM
General Growth Properties Inc., the second -largest U.S. mall owner, said that its looming near-term debt raises doubts that it could continue operating and it would consider turning to the courts to protect the company from its creditors.

The Chicago-based retail property company faces $1.13 billion in debt by the end of the year, including $900 million in secured mortgage debt on the two of its Las Vegas shopping centers due on Nov. 28 and $58 million of corporate debt due on Dec. 1.

It also faces another $3.07 billion due next year, the company said on Monday in filing with the U.S. Securities and Exchange Commission.

Although the company is working with its syndicate of lenders to extend the Nov. 28 deadline for the mortgages on the Las Vegas malls -- Fashion Show and The Shoppes at The Palazzo -- and is reviewing strategic alternatives to generate capital including asset sales and corporate capital infusions, it said it is facing an uphill battle given the constrained global capital markets.

"Given the continued weakness of the retail and credit markets, there can be no assurance that we can obtain such extensions or refinance our existing debt or obtain the additional capital necessary to satisfy our short term cash needs on satisfactory terms," the real estate investment trust said in the filing.

"In the event that we are unable to extend or refinance our debt or obtain additional capital on a timely basis and on acceptable terms, we will be required to take further steps to acquire the funds necessary to satisfy our short term cash needs, including seeking legal protection from our creditors."

"Our potential inability to address our 2008 or 2009 debt maturities in a satisfactory fashion raises substantial doubts as to our ability to continue as a going concern."

Link.

Update: Not surprisingly, General Growth's stock is now way down for the day hovering in near $0.40 per share as I type this. Trading below a $1.00 per share can't be good, although the stock would have to stay there a long time to trigger a problem. According to Reuters, "If the stock closes below $1.00 for 30 consecutive days, General Growth shares could be delisted from the NYSE, which could trigger a default on some of its debt facilities and also further restrict its ability to attract equity financing."

This whole thing raises some big questions. What would a REIT bankruptcy actually look like? Has there been one before of significant size? Would it proceed differently than a bankruptcy of other corporations? What would happen to GGP's debt in this scenario? Would the bankruptcy court restructure the loans on its assets? Would its assets be available at fire sale prices? Would some other company come in and buy its assets? When retailers go bust, we see the excess space firms jump in to deal with the real estate. Could they deal with an inventory like GGP's portfolio?

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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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