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Published: Thursday, 4/16/2009

Chicago company that owns Fallen Timbers files for bankruptcy

BLADE STAFF

The Chicago-based company that owns the Shops at Fallen Timbers in Maumee is filing for bankruptcy.

In its drive to become the second-largest owner of shopping malls in the nation, General Growth Properties Inc. racked up $27 billion in debt.

At about 2 a.m. in Chicago Thursday morning, the retail giant buckled under the weight.

After months of tense negotiations with tightfisted lenders, General Growth filed for Chapter 11 bankruptcy in a bid to protect its 200-plus shopping malls including the Glendale Galleria in Southern California, the South Street Seaport in Manhattan, and Fallen Timbers

Fallen Timbers, 6832 Russell Rd. in Maumee, was built in 2007. The $125 million project has one-million square-foot with about 50 stores..

The Chicago company is paying the price for its aggressive expansion at the height of the real estate boom, when cheap lending proved an irresistible option for bankrolling prime acquisitions, such as its 2004 purchase of the Rouse Co.

The deal gave General Growth retail gems such as Faneuil Hall in Boston, the Providence Place mall in Rhode Island and the Harborplace waterfront marketplace in Baltimore, but at a hefty price: $7.2 billion plus $5.4 billion in assumed debt.

Rolling over financing for commercial properties is common in the industry, but when lenders all but stopped making loans last fall, it left General Growth without recourse to make its debt payments.

While we have worked tirelessly in the past several months to address our maturing debts, the collapse of the credit markets has made it impossible for us to refinance maturing debt outside of Chapter 11, Chief Executive Adam Metz said in a statement.

By placing its fate in the hands of a bankruptcy judge, General Growth hopes to cast off its debt and emerge with its portfolio of landmark retail centers intact, although there are no guarantees the company will be able to do so.

We will not have to sell substantial amounts of our iconic assets, Tom Nolan, president and chief operating officer, said during a conference call with reporters. We believe we can maintain those.

But should General Growth have to sell-off even 10 percent of its shopping centers, that could depress overall mall property prices, said Chris Stanley, a research associate covering commercial real estate for Reis Inc.

Mall owners are scared and don t really want this to happen, so I think [General Growth] will try to avoid that route as much as possible, he said.

Mr. Nolan acknowledged that the company took on significant amounts of debt to finance its expansion efforts, but stressed that the company didn t run into trouble trying to refinance until last fall.

It wasn t so much the Rouse acquisition as it was the credit markets simply shut to really any refinancing and the company found itself, unfortunately, in the position of having a significant amount of debt come due since last October, Mr. Nolan said.

Hessam Nadji, managing director at Marcus & Millichap Real Estate Investment Services, said he doesn t see much fallout from the General Growth bankruptcy because its debt problems were well known.

I don t think it will have an immediate ripple effect, he said.

But tight credit markets could force other major commercial real estate owners into bankruptcy, he said.

We could see other examples of that, Mr. Nadji said.

Chapter 11 protection typically allows a company to hold off creditors and operate as normal while it develops a financial reorganization plan.

The company had about $29.6 billion in assets at the end of last year, according to documents filed with the U.S. Bankruptcy Court in the Southern District of New York.

The company noted that some subsidiaries, including its third party management business and joint ventures, were not part of the bankruptcy petition.

The move by General Growth had been widely anticipated since the fall, when the company warned it might have to seek bankruptcy protection if it didn t get lenders to rework its debt terms. Efforts to negotiate with its creditors ultimately fell short late last month.

While we got a majority of the bondholders to agree, we didn t get the levels we were looking for, Mr. Nolan said.

General Growth said it intends to reorganize with the aim of cutting its corporate debt and extending the terms of its mortgage maturities. The company has a financing commitment from Pershing Square Capital Management of about $375 million to use to operate during the bankruptcy process.

Mr. Nolan said the bankruptcy process wouldn t lead to large cuts in the company s work force of more than 3,500 employees.

Last month, General Growth said it got lenders to waive default on a $2.58 billion credit agreement until the end of the year.

But its Rouse subsidiary failed to convince enough holders of unsecured notes worth $2.25 billion as of Dec. 31 to accept a proposal that would let the unit avoid penalties for being behind on its debt payments and give it some time to refinance its debt load.

In February, the company reported lower-than-expected fourth-quarter funds from operations and a dip in revenue amid weaker retail rents.

The company has suspended its dividend, halted or slowed nearly all development projects and cut its work force by more than 20 percent. It also has sold some of its non-mall assets.



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