The second largest shopping mall owner in the country has filed for Chapter 11 bankruptcy protection, putting yet another stamp of certification that America is indeed waist-deep in a recession.
General Growth Properties, a publicly traded REIT (Real Estate Investment Trust) which according to the Associated Press has a financial position in 200 shopping centers throughout 44 of our 50 states, filed bankruptcy as part of an effort to restructure $27 billion in debt. The company owns The Streets at Southpoint in Durham, Carolina Place in Pineville, Four Seasons Town Center in Greensboro and Valley Hills Mall in Hickory.
Chapter 11 bankruptcy is meant for companies to continue day-to-day operations while formulating a feasible restructuring of its debt. Creditors are put on hold while the company plans and executes its strategies. The current plan calls for the company to cut company debt but primarily, it needs to "extend its mortgage maturities." In other words, extend the dates on which their property loans become due.
While the size of General Growth and the numbers are impressive, the action is not entirely surprising, as retailers nationwide have been walloped by the drastic decline in consumer spending.
Considered the primary cause for General Growth's current financial situation is its rapid acquisition of several properties during the recent real estate boom, which saw financing available at record low rates and historically unheard of terms. Like so many homeowners who were lured by the attractive buying options, many large corporations and commercial real estate companies across the country were also drawn to the lending industry's open door vault policy.
Commercial real estate values have plummeted across the country as tenants halt expansion plans, downsize or close up shop altogether. With less revenue from rent showing up in the till drawers, commercial property owners are facing an uncertain future. Couple that with the now stringent lending environment which would typically provide a safety net through re-financing, and many landlords, like General Growth, have no choice but to seek a new start by protecting their operation through bankruptcy.
Not unlike the problems facing General Motors, General Growth has been working for months to restructure its debt outside of court. The proceedings did not go as planned for the Chicago company.
As many of our nation's most recognized brands are realizing, bankruptcy is a very viable option when seeking relief from an over-accumulation of debt. And, we now know that the easy money of the last few years was as attractive to established businesses as it was to the first time home buyer.