General Growth – Second Largest Mall Owner Files Bankruptcy
In what is being called the biggest real estate bankruptcy in history, General Growth has filed for Chapter 11 bankruptcy. General Growth is the second largest mall owner in the country.
The real estate debacle has largely been one that seems to be restricted to the residential real estate field. We’ve all seen the carnage. Day after day on the news, the story lines are endlessly focused on foreclosures and people losing their homes. It is a sad subject indeed, but a second real estate disaster is on the way – commercial real estate. It is estimated that $831 billion dollars in financing may be defaulted on in the next two years. General Growth is the first big example.
General Growth is a large company that owns over 200 malls across the country. Some of the bigger malls include Fashion Show in Las Vegas, Faneuil Hall in Boston and South Street Seaport in New York. The company is simply a major player and a real indicator of what is going on in the commercial real estate field.
At first glance, General Growth looks in decent shape. It reported total debts of $27.29 billion in the bankruptcy filing. That may seem like a lot, but it reported $29 billion in assets. Why then is it filing bankruptcy? The answer is found in the credit markets. Simply put, the company is missing payments and cannot refinance the debts it has coming due. In short, it lacks liquidity.
Commercial Real Estate Outlook
The Chapter 11 filing of General Growth should be a big red light in the financial markets. This is a huge company with more assets than debts that is being forced into bankruptcy because of the credit crunch. It is unable to leverage its assets, which is pretty scary when you consider how many companies out there are actually upside down.
General Growth is the first big commercial real estate bankruptcy of the year, but it will not be the last. Expect to see commercial real estate companies failing right and left through the rest of 2009 and into 2010. The second domino in real estate is now beginning to fall.