General Growth Properties Inc. said Wednesday lenders have agreed to restructure about $9.7 billion in debt under a plan that will allow 92 of its properties to emerge from bankruptcy protection by the end of the year.
The nation's second-largest mall operator will pay off loans that cover regional shopping centers, offices, community centers and related subsidiaries. The plan will allow the real estate investment trust to retain ownership of the properties, including the Ala Moana Center in Honolulu and the Harborplace & The Gallery in Baltimore.
The Chicago-based company expanded aggressively during the real estate boom, amassing $27 billion in debt. As the real estate market imploded and financing dried up, General Growth was unable to refinance its short-term loans and in April became the largest U.S. real estate company to file for bankruptcy.
Greg Cross, an attorney representing the largest block of secured General Growth creditors, said lenders extended the length of their loans in exchange for full repayment, plus interest and bankruptcy costs. The lenders also will get increased oversight of the loans and General Growth's financial reserves.
The plan will go before the Bankruptcy Court of the Southern District of New York on Dec. 15.
General Growth's debts are tied to securities, which were purchased by investors. On Wednesday, Fitch Ratings said it doesn't expect the securities' ratings to be affected by the plan.
General Growth's reorganization plan comes at one of the most challenging times in commercial real estate history. The national vacancy rate for retail space, for example, is over 10 percent, up from about 8 percent last year, according to Reis Inc., a real estate data tracker.
At the same time, landlords have had to cut deals to keep struggling tenants, driving rents down almost 2 percent to $19.22 per square foot, and Reis economist Ryan Severino doesn't expect conditions to improve for the next two years.
And while General Growth has been mired in bankruptcy, its rivals took advantage of thawing equity and debt markets to raise cash. REITs raised about $20 billion this year, after the capital markets virtually shut down in 2008.
"REITs have demonstrated the ability to access capital," said Richard Anderson, an analyst at BMO Capital Markets, "and put to rest any conversation of their survivability."