General Growth files historic real estate bankruptcy

By Ilaina Jonas and Emily Chasan

NEW YORK (Reuters) - General Growth Properties Inc, the second-largest U.S. mall owner, declared bankruptcy on Thursday in the biggest real estate failure in U.S. history.

Ending months of speculation, General Growth, along with 158 of its 200-plus U.S. malls, filed Chapter 11 while it tries to refinance its debts.

But the ongoing global financial crisis made it impossible for General Growth to restructure outside of bankruptcy and could signal further troubles for other financial institutions who are General Growth creditors.

The collapse underscores the pressure on U.S. commercial real estate with few sources of available funding.

Chicago-based General Growth, which owns such valuable properties as South Street Seaport in New York, Fashion Show in Las Vegas and Faneuil Hall Marketplace in Boston, listed total assets of $29.56 billion and total debts of $27.29 billion.

The collapse marks a sad chapter for a company that has been growing since 1954, when brothers Martin and Matthew Bucksbaum decided to expand their family's grocery business and build a shopping center in Cedar Rapids, Iowa.

The company expanded steadily through both building and buying malls, the largest acquisition being the 2004 purchase of high-end mall owner Rouse Cos for $14.2 billion. That deal, financed entirely with debt, added 37 valuable U.S. malls to its portfolio, but also added enormously to its debt load.

"There are quite a few companies out there on the buyside who can now buy properties at a deep discount," said Anthony LoPinto, chief executive of real estate executive search firm Equinox Partners. "A lot of fortunes are going to be made out of the Bucksbaums' misfortune."

Since November, General Growth had been warning it might seek protection from its creditors due to its failure to refinance maturing mortgages. Earlier this month, the company had tried to restructure Rouse bonds, but failed to get the necessary support.

"When we did not achieve the necessary amount of agreement on the bond solicitation, at that point we recognized 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.

The company's collapse is not expected to be an isolated event. About $814 billion of commercial mortgage debt is expected to mature over the next two years, according to real estate research firm Foresight Analytics.

"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.

SEARCHING FOR ANSWERS

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 reorganization that preserves its national business.

Its filing in the U.S. Bankruptcy Court in Manhattan makes it one of the largest nonfinancial companies to succumb to the global financial crisis and is the biggest bankruptcy of a U.S. real estate company, according to BankruptcyData.com.  Continued...