GGP’s woes part of bigger commercial picture

The April bankruptcy filing of General Growth Properties Inc., owner of the Foothills Mall in Fort Collins, was early evidence of the dire financing situation that would continue to plague commercial property owners throughout the rest of the year.

The trail leading to GGP’s bankruptcy started in 2008. The company’s inability to secure financing to replace expiring debt obligations resulted in a precipitous drop in its stock price – down more than 90 percent from the 52-week high of $55 – and junk status from the ratings firms.

After several months of unsuccessful negotiations with potential lenders, GGP and more than 380 of its subsidiaries filed for Chapter 11 bankruptcy protection in the Bankruptcy Court in the Southern District of New York in mid-April. GGP’s troubles vanquished any remaining hopes that the Foothills Mall property might soon see a redevelopment. Rumors of a potential facelift for the aging facility had been floated for years.

Now in the final month of the year, GGP is taking the final steps necessary to emerge from bankruptcy, and it appears the company will do so largely in one piece. GGP filed the first documents of its reorganization plan with the bankruptcy court on Dec. 2. The reorganization plan comes after GGP was able to secure $9.7 billion in mortgage loans. The bankruptcy court was slated to decide on confirmation of the plan on Dec. 15, the day this story went to press.

The company’s emerging from bankruptcy still leaves some uncertainties, the least of which is the future of the Foothills Mall. Some industry watchers have pointed out that GGP will still face debt issues in the next few years and that there are several potential acquirers circling.

What is certain is that GGP’s financial woes were an indication of issues that would plague the entire industry. According to a report from ratings agency Realpoint LLC, delinquencies for commercial mortgage backed securities increased to $32.55 billion in October, up only slightly from September but an increase of 504 percent from October 2008. Changes in property value and general risk aversion have made it difficult to refinance, while economic conditions have put stress on borrowers trying to keep current on payments.

Local impact

In Northern Colorado, several large property owners are feeling the impact of the tightened credit markets. In August, the foreclosure process was initiated on three Marriott-flagged hotel properties in Fort Collins. The lender group filed a notice of election and demand for sale in Larimer County on the portfolio held by Los Angeles-based Integrated Capital LLC.

The filing shows that a balance of $32 million is due on the notes that held an original balance of $32.5 million and indicates that the filing was made because of a “failure to make timely monthly payment.” The company has until Jan. 12 to cure its deficiency.

In November, the lender group for the Promenade Shops at Centerra filed a notice of election and demand for sale. The ownership group of Centerra Lifestyle LLC, consisting of local developer McWhinney and Tennessee-based Poag & McEwen, was unable to secure long-term financing to replace a short-term $112 million construction loan.

In all three cases, the properties continued normal operation despite the financial troubles. While they point to major issues in the financial sector and the underlying values in commercial real estate, some in the industry are pointing to relatively positive trends.

The fourth quarter Commercial Property Index from Integra Realty Resources indicates that the rate of decline in commercial real estate valuations is slowing across the board geographically and by sector. According to the report, deterioration in values during the past three months has been much less than the past 12 months.

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