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Town East Mall owner files for bankruptcy, but shopping continues

town-east-mall

By J.J. Smith

When the going gets tough, the tough go shopping!

The good news about Town East Mall owner General Growth Properties filing for Chapter 11 bankruptcy protection yesterday is that all of its 200+ shopping centers will continue to stay open for business.

So, ladies, keep on shopping!

Thursday’s massive bankruptcy, one of the largest in U.S. history, is as complicated as they come.

According to General Growth CEO Mark Nolan, it was the collapse of Lehman Brothers that led to the bankruptcy filing.

“Up until the Lehman Brothers crash, this company was refinancing all its debt,” Nolan said.

Since that crash, General Growth has failed to persuade its lenders to refinance billions of dollars in debt it had accumulated in recent years from building and buying malls in 44 states, including 16 regional centers in Texas.

General Growth’s $27 billion in debt is a web of individual mortgages for each mall and unsecured bonds at the corporate level.

Some properties could be sold to raise funds needed to keep the rest afloat and to form a company that’s able to exit bankruptcy, he said.

Chicago-based General Growth’s local malls include Stonebriar Centre in Frisco and the Parks at Arlington. It also has attractive land holdings that include a large parcel at the southwest corner of U.S. Highway 75 and State Highway 121 in Allen.

In recent months, it has tried to sell some properties, but interested parties have had problems securing financing, Nolan said.

“We’re at this point today because we have a credit crisis. Our operating properties are performing very well,” Nolan said.

He noted that operating income was higher last year than the prior year and said it plans to keep paying interest on its mall mortgages during the bankruptcy. The average General Growth mall occupancy rate is 92.5 percent, which Nolan said is the company’s highest in 15 years.

Its Rouse Co. subsidiary, which it acquired for $12 billion in 2004, failed to persuade enough bondholders to accept restructuring terms in recent weeks.

Rouse owns Collin Creek Mall in Plano, which has seen an explosion of competition from a shopping center boom in Allen and McKinney and from Firewheel Town Center in Garland.

Eight of General Growth’s malls in Texas were excluded from the bankruptcy because they don’t have immediate refinancing needs or the centers are jointly owned.

Asked if a mall’s performance was a driver in the decision to include a property in the bankruptcy, Nolan acknowledged that performance is one factor.

General Growth also is a major mall operator. It manages Galleria Dallas, which is owned by UBS Realty, through its General Growth Management Inc.

That unit wasn’t included in Thursday’s bankruptcy filing, but overall uncertainty about General Growth’s future has been a source of confusion even to the Galleria’s tenants.

Tenants said mall management announced earlier this year that a new company would be taking over the management contract in April. That was moved to May.

Simon Property Group, the largest U.S. mall owner, was expected to take over management of the Galleria. A Simon Property Group spokesman confirmed that there had been discussions with UBS.

General Growth’s management company is “working hard” to please owners of the malls it operates and to make the bankruptcy filing an “invisible” event to them, Nolan said.

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