"General Growth Files Biggest Real Estate Bankruptcy in U.S.
By Daniel Taub and Brian Louis
April 16 (Bloomberg) -- General Growth Properties Inc. filed the biggest real estate bankruptcy in U.S. history after amassing $27 billion in debt during an acquisition spree that turned it into the second-largest shopping mall owner.
The owner of Boston’s Faneuil Hall and the South Street Seaport in New York City ended a seven-month effort today to rework its financing. The company listed $29.5 billion in assets and debts of about $27.3 billion in the Chapter 11 filing. General Growth will continue operating its more than 200 properties.
“We intend to emerge as a leaner company,” General Growth President Thomas Nolan said in an interview today. “We want to come out as a less leveraged company. Our business model remains strong.”
General Growth collapsed after spending $11.3 billion to buy commercial-property developer Rouse Co. in 2004 only to get caught in the credit crunch and a U.S. recession that has cut spending and property values. Banks have reduced lending amid mortgage-related writedowns. Commercial real estate prices in the U.S. dropped 15 percent last year, according to Moody’s Investors Service. Retail sales in the U.S. unexpectedly fell in March as soaring job losses forced consumers to pull back.
The filing lists Eurohypo AG, a unit of Commerzbank AG, as General Growth’s largest unsecured creditor with claims totaling $2.59 billion under two loans. Noteholders are owed about $4 billion.
Hedge fund manager William Ackman’s Pershing Square Pershing Square Capital Management LP will provide General Growth with $375 million in financing to help run the company during the Chapter 11 process, today’s statement said. Ackman is likely to play a key role in the reorganization since Pershing is the third-largest shareholder, according to Bloomberg data.
Much of the company’s debt can be traced to its purchase of Rouse Co. in 2004, which owned malls including South Street Seaport. As Chicago-based General Growth struggled to meet debt deadlines, it lost 81 percent of its market value in the last six months after saying repeatedly it may have to file for bankruptcy.
Nolan said General Growth, the largest mall owner after Simon Property Group Inc., was a victim of “a broken capital market.” No one could have predicted the severity of e “the credit markets shutting down,” he said.
The company plans to file a reorganization plan by the end of the year, he said.
Rouse and 165 units were included in the bankruptcy filing. General Growth said several properties that are part of joint ventures weren’t included.
The company on March 23 said that a deadline for bondholders to agree to new terms for $2.25 billion in debt expired without the minimum number of holders accepting the agreement. General Growth said on March 30 it was continuing to negotiate with creditors.
“It was a disaster waiting to happen,” said Patrick Sumner, head of real estate securities at Henderson Global Investors in London. “They didn’t realize the market was going to get like this and that they were going to be in the front line when the guns went off.” Henderson doesn’t own any shares in General Growth.
Standard & Poor’s in November removed General Growth from the S&P 500 Index, saying the mall owner’s stock-market value of about $128 million at the time ranked it last in the index.
Two weeks later, Ackman’s bought a 20 percent interest through shares and swaps. The hedge-fund manager has since boosted its General Growth stake.
General Growth’s history stretches back to 1954, when brothers Matthew and Martin Bucksbaum expanded their family’s grocery business by building the Town and Country Center in Cedar Rapids, Iowa, one of the Midwest’s first regional shopping malls. General Growth became the No. 2 U.S. mall owner in 1989 when it bought the assets of Center Cos., and in 1993 raised about $300 million in an initial public offering.
For the first time in its history, General Growth in October was turned over to someone outside the family when it replaced CEO John Bucksbaum, Matthew’s son, with 47-year-old Metz. John Bucksbaum, 52, replaced his father as chairman last year, and remains in that position. Martin Bucksbaum died in 1995.
John Bucksbaum’s removal as CEO followed the October departure of Chief Financial Officer Bernard Freibaum after he sold 2.95 million shares to meet margin calls. An affiliate of a Bucksbaum family trust had loaned Freibaum $90 million to pay margin debt. Bucksbaum’s failure to disclose the loan violated company policy, a review by General Growth’s independent directors found.
Marcia Goldstein of Weil Gotshal & Manges LLP and James Sprayregen of Kirkland & Ellis LLP will represent General Growth in bankruptcy. The company also hired turnaround firm AlixPartners LLP and investment bank Miller Buckfire & Co.
General Growth closed at $1.05 in New York Stock Exchange composite trading yesterday, valuing the company at $329 million. The shares traded as high as $67 in March 2007.