Just days after General Growth Properties (NYSE: GGP) filed for Chapter 11 bankruptcy in April, the giant mall real estate investment trust began taking steps to preserve its choicest assets. As the company laid out initial restructuring plans, executives said they were not prepared to dismantle the firm's portfolio.

The assets are key to generating net operating income and enabling the Chicago-based REIT to emerge from bankruptcy, said General Growth president and chief operating officer Tom Nolan. The filing, on April 16, had been widely anticipated, as the REIT had been laboring for more than a year to secure refinancing or extensions for its $27.3 billion in debt.

The second largest owner of regional malls in the country, General Growth had failed to convince bondholders of its corporate debt to defer loan payments. The company's largest unsecured creditors include Eurohypo AG, at $2.6 billion, Wilmington Trust, at $2.3 billion and Bank of New York Mellon Corp., at $1.4 billion. Under bankruptcy protection the REIT will to try to bolster its cash position and restructure its debts.

In a media conference call following the bankruptcy announcement, Nolan said executives have been combing through General Growth's portfolio, which encompasses 182 million sq. ft., to identify non-strategic assets that can be sold to raise cash, but it does not want to touch the top 25 centers in the portfolio. “It's our obligation to consider all strategic opportunities, but we look at [our portfolio] as integral for establishing the entire platform for the company,” Nolan said.

To avoid asset sales, General Growth's creditors would need to agree to restructured or reduced debt, and the plan would require approval by the bankruptcy court. Under Chapter 11, General Growth has 120 days to propose its reorganization plan and must emerge from bankruptcy within a year, unless extensions are granted. If creditors object to its plan, the firm could be forced to sell trophy assets, possibly at steep discounts.

Last fall, General Growth tried to sell several large assets, including the 1.8 million sq. ft. Fashion Show Mall and the 510,285 sq. ft. Grand Canal Shoppes at the Venetian in Las Vegas. However, the REIT was not satisfied with the offers and opted not to sell. Now, with real estate investment sales at a standstill, bankruptcy could make it easier for stronger REIT players to acquire the troubled company.

Some observers think General Growth's plan to hang onto its best assets is unrealistic. “People who have the capacity to buy [in the current market] are not interested in non-strategic assets,” says Ross Glickman, chairman and CEO of Urban Retail Properties, a Chicago-based retail developer and property manager. “They are interested in fortress centers, and I really have to think that sooner or later General Growth is going to be forced to put some of those on the block to generate capital.”

General Growth may be reluctant to agree to discounts because its malls are still performing well. The occupancy rate of its portfolio in late 2008 was 92.5%.

“Their bankruptcy is not reflective of adverse conditions in the retail real estate market,” says Stephen Sterrett, chief financial officer of Simon Property Group, the Indianapolis-based REIT with the only retail portfolio larger than General Growth's at 246 million sq. ft. “This is strictly a situation related to how they financed the company.”