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Mall Bankruptcy Is New Domino In Commercial Property
Published: Thursday, 16 Apr 2009 | 12:34 PM ET
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By: Christina Cheddar Berk
News Editor

No doubt General Growth Properties' bankruptcy filing will have far-reaching implications for the commercial real estate market.

General Growth Properties owns the Grande Canal Shoppes at the Venetian in Las Vegas and more than 200 other shopping centers.
Photo by: Phil Guest
The Grande Canal Shoppes

The bankruptcy, which is said to be the largest real-estate failure in U.S. history, will further pressure already stressed property values for U.S. malls and mall mortgages.

It's also likely to lead to speed up consolidation in the mall industry, with companies such as Simon Property [SPG 47.25 3.25 (+7.39%) ], Westfield Group [WFD 9.65 0.02 (+0.21%) ] and Taubman Centers [TCO 21.66 1.49 (+7.39%) ] emerging as potential winners, that is, if they can come up with the cash to pick-up prime pieces of General Growth's portfolio.

The company does have some choice pieces of real estate among its holdings, including the Ala Moana Center in Honolulu, Water Tower Place in Chicago, and the Grand Canal Shoppes at the Venetian in Las Vegas.

But if you listen to General Growth [GGP 1.05 1.05 (+0%) ], the proposition of raising money for these deals might not be easy. The company claims it is the latest victim of the credit crunch, and it sees looming problems for other commercial real estate because of constraints in the credit markets.

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That also means, the mall operator could have a tough time using asset sales to pay off its creditors.

And so the domino effect begins with effects for other commercial property owners as well as for banks who loaned money to these property owners such as Citigroup [C 4.01 0.04 (+1.01%) ], Deutsche Bank [DB 52.90 1.96 (+3.85%) ] and Goldman Sachs [GS 121.19 --- UNCH (0) ], which are among General Growth's creditors.
CONTINUED: Business Model is 'Sound'
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Topics:Economy (U.S.) | Consumers
Sectors:Personal and Household Goods | Food and Beverage | Retail
Companies:Goldman Sachs Group Inc | Deutsche Bank AG | Citigroup Inc | Simon Property Group Inc | Westfield Financial Inc | Taubman Centers, Inc. | General Growth Properties, Inc.
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