[Marxism] Thomas Friedman's cash cow declares bankruptcy

Louis Proyect lnp3 at panix.com
Thu Apr 16 11:55:20 MDT 2009

April 16, 2009, 2:34 am
General Growth Properties Files for Bankruptcy

Update | 6:50 a.m. General Growth Properties, one of the largest mall 
operators in the nation, filed for bankruptcy early Thursday morning in 
one of the biggest commercial real estate collapses in United States 

Despite bargaining for months with its creditors, General Growth faced 
dwindling options for handling its more than $25 billion in debt, 
largely in the form of short-term mortgages that will come due by next 
year. The company has been severely wounded by the trouble in the 
financial markets, which has wreaked havoc on its ability to refinance 
that debt.

The filing by the Chicago-based company, made in federal bankruptcy 
court in Manhattan, included most of the company’s malls, which will 
continue to operate. General Growth’s reorganization efforts will likely 
focus on selling off properties. It has already suspended its stock 
dividend, cut its workforce by 20 percent and stopped virtually all new 
development. (Read the filing after the jump.)

“Our operational model is sound,” Thomas H. Nolan Jr., the company’s 
president and chief operating officer, said on a conference call early 
Thursday morning, citing “the unprecedented disruption in the real 
estate financing markets and the need to extend maturing debt” as the 
reason the company filed.

“We made extensive efforts to modify existing maturing debt outside of 
bankruptcy,” he added.

What began as a crisis in residential real estate has since seeped into 
the commercial real estate market, as landlords of retail and office 
space face rising numbers of vacancies. Analysts expect many of these 
companies to struggle as the recession forces steep cuts in consumer 
spending and employment rolls.

As the second-biggest operator of malls in the nation, behind only the 
Simon Property Group, General Growth’s troubles have been closely 
watched by the real estate industry for months. Founded in 1954 and 
expanded through a series of acquisitions — topped by a $12.6 billion 
deal for the Rouse Company in 2004 — the company has a huge retail 
presence that has served as a barometer for the troubles bedeviling the 
American retail market.

As more stores have closed, mall vacancies are at their highest point in 
almost a decade, according to Reis, a research company, which said the 
vacancy rate at the end of 2008 was 7.1 percent, compared with 5.8 
percent at the end of 2007.

That has left many of the roughly 1,500 malls in the United States 
groping for a solution — any solution — to their woes. Some have 
converted retail space into office space. Others have drastically 
lowered rents for prized tenants, agreeing to cut deals to keep revenue 
flowing. Some have simply gone dark.

Shares in General Growth, which closed on Wednesday at $1.05, have 
fallen 97 percent over the past 12 months.

General Growth’s filing also marks a humbling of the Bucksbaum family, 
which grew the company from a family grocery business in Marshalltown, 
Iowa, into a powerhouse of retail shopping in the Midwest. The family 
still holds about a 25 percent stake in the company, and John Bucksbaum, 
an avid cyclist, remains its chairman after having served as its chief 

Few analysts dispute the quality of General Growth’s malls, which 
include the Ala Moana Center in Honolulu, Water Tower Place in Chicago 
and the Grand Canal Shoppes at the Venetian in Las Vegas. But its 
undoing was the mounting pile of short-term mortgages the operator used 
to expand. That financing strategy was devised by its longtime chief 
financial officer, Bernard Freibaum, who was dismissed last October.

Since then, the mall owner has pleaded with holders of $2.25 billion in 
bonds to hold off on demanding payment as it sought to reorganize its 
debt outside of a bankruptcy filing. But bondholders grew increasingly 
impatient as bond maturities continued to mount and denied General 
Growth an abstention from payments for the rest of the year.

The company said in its statement that it has secured a commitment for 
$375 million in bankruptcy financing from Pershing Square Capital 
Management, the hedge fund that owns more than 25 percent of the company 
through its holdings of shares and swap contracts. That financing must 
be approved by a bankruptcy court judge.

William A. Ackman, the head of Pershing Square, told Bloomberg 
Television last month that he foresaw an “imminent” bankruptcy filing by 
the company.

Among the companies listed as General Growth’s 100 largest unsecured 
creditors are Eurohypo, a unit of Germany’s Commerzbank that holds $2.6 
billion worth of loans; Wilmington Trust and the Bank of New York 
Mellon, representing several classes of bonds; casinos including 
Mandalay Bay and the Venetian; and an assortment of retailers such as 
Sephora, Guess?, Borders and Macys.

In its bankruptcy filing, General Growth said that it sought permission 
to retain a bevy of advisers, including the investment bank Miller 
Buckfire, the turnaround consulting firm AlixPartners and the law firms 
Weil, Gotshal & Manges and Kirkland & Ellis. The document was signed by 
Marcia L. Goldstein, the chair of Weil’s well-known bankruptcy practice.

–Michael J. de la Merced

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