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General Growth Properties Inc., the nation's second-largest mall operator, filed for Chapter 11 bankruptcy protection early Thursday after it failed to persuade a majority of its debt holders to give it more time to refinance billions of dollars in debt racked up during the housing boom.
The news sent the real estate investment trust's stock down 60 cents, or 57 percent, to 45 cents in electronic premarket trading. Its stock traded last spring as high as $44.23.
The move by the Chicago-based company had been widely anticipated since the fall, when the company warned it might have to seek bankruptcy protection if it didn't get lenders to rework its debt terms. Efforts to negotiate with its unsecured and secured creditors ultimately fell short late last month.
Even if banks were being completely honest about their marks -- which we know they're not -- the accelerating collapse of the commercial real estate market would mean billions more in writedowns.
WSJ: The delinquency rate on about $700 billion in securitized loans backed by office buildings, hotels, stores and other investment property has more than doubled since September to 1.8% this month, according to data provided to The Wall Street Journal by Deutsche Bank AG. While that's low compared with the home-mortgage delinquency rate, it's just short of the highest rate during the last downturn early this decade.
Some experts say it now looks as if the current commercial real-estate slump will rival or even exceed the one in the early 1990s, when bad commercial-property debt played a big role in dragging the economy into a recession. Then, close to 1,000 U.S. banks and savings institutions failed. Lenders took about $48.5 billion in charges on commercial real-estate debt between 1990 and 1995, representing 7.9% of such debt outstanding...
This is one area in particular where banks are carrying assets an unrealistically high levels. Citigroup (C) is marking many of its loans at .95 on the dollar and up. And though it's already rivaling the last bust, our sense is that this will prove to be far worse than that one, deliquency-wise, when all is said and done.
General Growth Files Biggest U.S. Property Bankruptcy (Update1)
By Daniel Taub and Brian Louis
April 16 (Bloomberg) -- General Growth Properties Inc. filed the biggest real estate bankruptcy in U.S. history after amassing $27 billion in debt during an acquisition spree that turned it into the second-largest shopping mall owner.
The owner of Boston’s Faneuil Hall and the South Street Seaport in New York City ended a seven-month effort today to refinance its debt. The company listed $29.5 billion in assets and debts of about $27.3 billion in the Chapter 11 filing. General Growth will continue operating its more than 200 properties.
The market started showing signs of cracking last autumn, and recent reports from various brokerages and investors' ratings firms say, among other things, that property prices are expected to drop by one third to one half.
On top of that, more delinquencies are expected in the retail sector with lower consumer spending.
The Fed is jumping in too. Dennis Lockhart, chief of the Federal Reserve in Atlanta, said Thursday: "I am concerned about the commercial real-estate sector and how its performance could affect the banking system, which I addressed in a recent speech."
The company – one of the nation’s largest real-estate investment trusts (REITs) – has seen profits turn to losses over the past year as retail sales have faltered and land sales have plunged. In February, General Growth posted a 2007 profit of $287.95 million, or nearly five times the previous year’s $59.27 million, on total revenue that increased 0.2 percent to $3.26 billion. (READ MORE)
Last week, it posted a third-quarter loss of $15.41 million, on total revenue that fell 5.73 percent year over year to $814.70 million. (READ MORE) The company cited a $40.34 million provision for impairment in its master-planned communities division. Occupancy at the retail centers that comprise the majority of its holdings dipped half a percentage point to 92.7 percent, but that decline was partly offset by a 3.8-percent rise in comparable-tenant revenue, General Growth added.