Could Commercial Real Estate Market be next to Tumble? Read this….
Investors will Profit from General Growth Losses
Back in 2004, when General Growth Properties Inc bought Rouse Co and became the second largest mall owner in the United States, there was no credit crunch and the recession that we are dealing with right now wasn’t on anyone’s radar. The purchase gave General Growth control of some premium commercial properties including Faneuil Hall in Boston, the South Street Seaport in New York, and the Woodlands in Houston. The final sale price was $14.2 billion, a number that was all financed new debt for General Growth but justified because they outbid Simon and picked up what was termed “five years worth of acquisitions in one fell swoop” by Chief Executive Officer John Bucksbaum.
In 2008, commercial real estate values fell 15%. Unemployment has climbed to 8.5% nationally and retail sales have dropped reciprocally as that number has risen. General Growth’s debt has risen in the past five years to over $27 billion and they have been trying to sell off assets to stay afloat. On April 16, 2009, General Growth Properties of Chicago, Illinois, facing a global credit freeze and a debt-to-asset ratio of 92%, filed for Chapter 11 bankruptcy protection. According to most experts this is only the tip of the iceberg.
According to real estate research firm Foresight Analytics, $814 billion of commercial mortgage debt is expected to mature over the next two years. General Growth may be the largest to go under but they won’t be the only ones. Despite assurances from management that a fire sale will not be necessary competitors like Simon are lining up to snatch up properties for what they are sure will be rock bottom prices. What is already being seen in the housing market may quickly become the norm in commercial real estate. There are those who are suffering tremendous losses as a result of the recession and the credit crunch but there are other smart investors who are seeing this as a golden investment opportunity.
The day that General Growth filed for bankruptcy protection they owned over 200 United States malls in forty four different states. They are looking to restructure and have received a $375 million investment commitment from Pershing Square Capital Management LP to keep them afloat but the bankruptcy court will no doubt require some type of liquidation with their debt-to-asset ratio being what it is. If this triggers the type of fire sale that many experts expect then commercial property values will go down even more. Add this to maturing commercial mortgage debt in the hundreds of billions range and you have … opportunity. Don’t let it pass you by.
General Growth properties in Southern California include the Burbank Town Center, Fallbrook Center in West Hills, Northridge Fashion Center and the South Bay Pavilion in Carson.
For additional information on the General Growth bankruptcy filing visit:
http://news.yahoo.com/s/nm/20090416/ts_nm/us_generalgrowth_bankruptcy
http://www.bloomberg.com/apps/news?pid=20601087&sid=awd7cutxI554&refer=home
