As the retail real estate industry awaits the fate of General Growth Properties Inc.—will it be dispositions, a wholesale liquidation, a merger or a miraculous recovery-- the uncomfortable question that arises is whether the drawn out credit crisis will claim another victim in the sector. Although General Growth, the second largest mall owner in the U.S., has the largest long-term debt overhang in the sector at $27 billion, the continued illiquidity in the market has made refinancing deals difficult for even the most disciplined REITs.

The good news is that industry analysts insist that General Growth is an anomaly and the rest of the retail REIT universe remains safe. “I don’t see any other REITs heading in the same direction as General Growth and, quite frankly, the problem with General Growth is one of perception,” says Robert McMillan, an industry analyst with New York City-based rating agency Standard & Poor’s. “Credit has definitely become a lot tighter, but they can still get credit. Insurance companies are still lending.”

In fact, despite the credit crunch, many retail REITs have already secured enough loans to resolve outstanding maturities for 2008. The main effect of the credit crunch has been on the type of financing REITs have received. For all intents and purposes the unsecured debt market closed down in April, says Merrie Frankel, vice president and senior credit officer with Moody’s Investors Service, a New York City-based credit rating agency. As a result, most REITs are lining up financing secured by properties.

For example, Chattanooga, Tenn.-based CBL & Associates Properties Inc., a company some observers raised red flags about because of its debt obligations, announced on Sept. 25 that it had arranged enough new financing to pay down all of its $400 million in debt expiring in 2008. It secured $288 million in new financing and an $85-million term loan. The following week, Santa Monica, Calif.-based Macerich Co. announced that in recent months it had closed three loans and secured commitments for two others for a total of $579 million. Other REITs that secured refinancing deals recently include Glimcher Realty Trust, Ramco-Gershenson Properties Trust, Cedar Shopping Centers, Inc. and PREIT.

The lending market, however, is no longer a free-for-all as it was in 2006 and early 2007, says Jennifer Pierson, senior vice president with the Dallas-based retail private client group of CB Richard Ellis. Most of the interest rates CBL and Macerich secured hovered between 6 percent and 7 percent , whereas a year and a half ago, lenders were completing deals in the high 4 percent to mid 5 percent range, Pierson notes. In addition, borrowers should now come to the table ready to accept recourse requirements of up to 50 percent, loan-to-value ratios of no more than 65 percent and debt service coverage ratios of 1.25. As recently as last year, borrowers were able to secure non-recourse loans that featured loan-to-value ratios of more than 75 percent and debt service coverage ratios of 1.05.

“It got really silly,” Pierson says. “Now, lenders are looking at liquidity, they are looking at experience, they are looking at the borrower’s ability to cover the debt service if the income stream from the property doesn’t. They don’t want to make any mistakes now; they have enough on their books.”

That may not detour large public REITs, which for the most part tried to keep their leverage levels low through the most recent acquisition frenzy and have the wherewithal to raise extra cash through stock offerings, according to McMillan, but it’s likely to affect some of the smaller, private players in the sector. REIT executives have told McMillan and other analysts they are getting more and more offers from the private sector for joint ventures and other types of partnerships because the private firms lack the funds to execute their deals.

“There are several companies that have pretty vast exposure to loans coming due and I think they are faced with some pretty difficult circumstances because the vehicles they used to get debt a year or two ago are no longer there to help them refinance,” says Pierson, who declined to cite any names. “We need some kind of CMBS vehicle to get back into the game because it’s difficult to find a lender at this moment.”

--Elaine Misonzhnik