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Published: Friday, 4/17/2009

Fallen Timbers shops' owner seeks bankruptcy protection

FROM BLADE STAFF AND NEWS SERVICES

CHICAGO - 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. Yesterday, the retail giant buckled under the weight.

After months of talks with lenders, General Growth filed for Chapter 11 bankruptcy in a bid to protect its 200-plus shopping malls, which include the Shops at Fallen Timbers in Maumee.

It is the biggest real estate bankruptcy in U.S. history.

General Growth also operates the Glendale Galleria in Southern California, the South Street Seaport in Manhattan, and Water Tower Place in Chicago.

The Chicago-based 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 cut back on making loans last fall, it left General Growth without recourse to pay its debts.

"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.

By placing its fate in the hands of a bankruptcy judge, General Growth hopes to cast off its debt and emerge with its landmark retail centers intact, though 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."

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 New York.

In the short term, the company's only northwest Ohio holding, the Shops at Fallen Timbers in Maumee, will keep operating.

But whether the $125 million center of U.S. 24 west of the I-475/U.S. 23 interchange is later sold off or whether tenants leave is unclear. The outdoor shopping center, which opened in 2007, has 49 stores and is about a third vacant. It has 1 million square feet.

Kurt Palmer, general manager of the center, couldn't be reached for comment yesterday.

The mall posted a message on its Web site stating that the firm's "retail centers ... will be open for business as usual as the company restructures our debt. Our properties will continue to operate, our employees will continue to come to work and get paid, and shoppers will continue to shop."

Phil Kajca, owner of J Foster Jewelers at Fallen Timbers, is not worried about the bankruptcy filing.

General Growth is big enough to withstand the problems, he said. A merger or sale of the company is possible, but that probably wouldn't affect retail tenants of the malls, he said.

"They still take good care of the property," he added.

Germano Bressan, a retail specialist with the Toledo office of Signature Associates, said the Shops at Fallen Timbers could be among malls the firm looks to sell.

"It's the only property they have in the area," he said. "In places where they have two or three malls, they can consolidate management easier and spread costs over several properties."

Prospective buyers, he said, include Simon Properties or the Westfield Group, owner of Toledo's Westfield Franklin Park mall.

Given difficulties at the Shops at Fallen Timbers, a buyer might be able to snag the property at a bargain price.

"I don't know if anybody is looking. But somebody is going to get a bargain," he explained. "The mall isn't totally finished and it's not full of tenants yet."

General Growth also owns 11 malls in Michigan, including Novi Town Center in Novi, Southland Center in Taylor, and Lakeside Mall in Sterling Heights.

While the bankruptcy was not a surprise within the industry, it underscored what many see as a looming crisis in commercial real estate. This market is weakening, as the housing market did before it, leaving real estate companies straining to pay their debts.



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