Mall Owner’s Bankruptcy May Send Investors on Shopping Spree

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The Chapter 11 filing last week of Glendale Galleria owner General Growth Properties Inc. made history as the largest real estate failure in U.S. history. But that may be good news for some local players.

Competing mall owners and real estate investors are expected to scoop up some of the 158 shopping centers owned by General Growth at what could be fire-sale prices as the Chicago company restructures its debt load.

Cardinal Real Estate Investments, an L.A. real estate investment firm, said it has been in talks to become a joint partner in General Growth’s prized South Street Seaport property in New York.

Kyle Ransford, general partner of Cardinal, said the bankruptcy means that the giant real estate investment trust will be seeking to get the financing and form the joint venture as quickly as possible.

“It’s a big development opportunity,” he said.

And there could be prospects in Los Angeles as well.

General Growth owns three of the largest shopping centers in Los Angeles County the Galleria, Northridge Fashion Center and Fallbrook Center in addition to the Burbank Town Center and SouthBay Pavilion in Carson.

The slowdown in consumer spending and international credit crisis hindered General Growth’s ability to refinance its huge debt, most of it acquired in the 2004 purchase of competitor Rouse Co. for $11.3 billion.

The company filed for Chapter 11 protection April 16 in U.S. Bankruptcy Court in New York, listing $29.6 billion in assets and more than $27 billion in debt, after failing to reach agreement with its creditors in negotiations last month.

A General Growth spokesman did not return a call seeking comment. Chief Executive Adam Metz said in a prepared statement that the company plans to preserve its business operations.

“We believe that Chapter 11 is the best process … for establishing a sustainable, long-term capital structure for the company,” Metz said.

But its widely expected that General Growth will have to sell some of its properties in order to raise capital and emerge from bankruptcy as a leaner operation. Ransford agreed.

“They will be trimming back their portfolio. What will likely be sold the quickest are properties in need of financing,” he said.

Likely bidders include L.A.-based Westfield LLC, the U.S. arm of Westfield Group, an Australian company that is the world’s largest mall owner, and Indianapolis-based Simon Property Group Inc., the nation’s largest shopping mall operator. Santa Monica-based Macerich Co. also could be a bidder.

“It’s going to be Simon first because they have the wherewithal to do such things,” said George Whalin, founder of Carlsbad-based Retail Management Consultants. “The second would be Westfield. They are in the same financial position as Simon to buy other malls.”

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