General Growth Properties, which filed for Chapter 11 bankruptcy court protection April 16, is the second largest mall owner in the United States and also has sizeable interests in five large master-planned communities in Nevada, Maryland, and Texas.
It wasn’t clear what , if any, impact the filing would have on the operations of the communities, which hold 18,500 saleable acres of land including residential, retail, office, and other mixed uses, as well as parks, lakes, golf courses, and wilderness trails.
Only one of the five, Summerlin near Las Vegas, was included in the filing. The subsidiary companies that operate General Growth’s other master-planned communities, Columbia in Maryland, and Bridgeland, Fairwood, and The Woodlands in Houston, were not included in the filing.
General Growth acquired the master-planned communities along with other more high-profile assets such as Faneuil Hall in Boston and South Street Seaport in New York City when it bought The Rouse Co. in 2004 for $11.2 billion.
General Growth president Thomas Nolan answered questions during a Thursday news conference about whether the Rouse purchase was prudent and the root of the company’s current troubles. “That’s a very incredible portfolio of properties,” Nolan said. And it involved a significant amount of debt. “But up until last October, refinancing that debt was not an issue. The company was easily able to finance and refinance debt.”
Then last fall, financing for commercial projects dried up, leaving the company with no means to pay off debt coming due in many projects, including the Summerlin development.
“They were the ones where the first mortgage was coming due right after the credit crisis,” Nolan said of the Las Vegas assets. “They were the early catalysts.”
In deciding which of its subsidiaries to include in the Chapter 11 filing, Nolan said those that were in better shape, with debt that had already been renegotiated for longer terms, were left out of the filing; those with unsuccessful negotiations were included.
Nolan said the company anticipates it will have the cash available to easily keep the company operating the same as it would if it were not under Chapter 11 protection. Answering a question about whether the redevelopment of notable Rouse-created community Columbia, Md., would still take place, he said that plan would not be affected by the Chapter 11 filing but that it could be affected by the demands of the market in general. “I think we will look at any new redevelopments independent of the filing and on the merits of the case," he said. "The reality is there is not much new capital now available for new development.”
Nolan said the company’s fundamental business model is strong and that its revenues were even higher last year than the year before, but that its debt structure needs some work. Even in Chapter 11, it expects to have enough revenue to pay the interest on the mortgages on its properties. But the company also carries a significant amount of corporate debt that needs to be restructured.
Before filing, General Growth had asked its bond holders to give it some “breathing room” on the debt while it restructured outside of bankruptcy court. “While we got a majority of bond holders to agree, we didn’t get the level we were looking for to satisfy ourselves that we could get this quiet period we would need to restructure," Nolan said.
Nolan did not rule out selling some assets to generate cash. In fact, the company was shopping some its properties last fall. However, the credit crash affected both potential prices for the assets as well as buyers' ability to get financing.
Nolan said the company plans to keep the bulk of its portfolio in place because the sheer number of shopping centers it owns are what gives the company much of its value to its retail customers. The company’s shopping centers had a 92.5% occupancy rate in 2008, the highest level since the company went public, he said. “We have signed hundreds of leases in the last 90 days. … We have shopping centers that they [retailers] want to be in.”