The nation's No. 2 mall owner filed bankruptcy reorganization plans Tuesday that call for it to split itself in two but continue to operate all six of its malls in Minnesota.
After restructuring about $15 billion in secured debt, scoring up to $8.6 billion in new capital and landing a $500 million equity investment from Texas' large teachers' pension fund, General Growth Properties Inc. of Chicago said it plans to satisfy most of its debts and claims in full. The plan calls for it to exit bankruptcy court in October.
"It's a better than expected outcome for most of the players involved," said Nathan Isbee, a real estate investment trust (REIT) analyst at Stifel, Nicolaus & Co. Inc. in Baltimore.
General Growth also plans to hold on to most of the 180 malls it operates around the country.
That's good news for Minnesota, where General Growth owns six malls: Ridgedale in Minnetonka, Eden Prairie Center, Knollwood Mall in St. Louis Park, Apache Mall in Rochester, River Hills Mall in Mankato and Crossroads Center in St. Cloud. That's 5 million square feet of space -- and a lot of employees who can "get out of the heart ward now," as one broker put it.
General Growth spokesman David Keating said the company has no plans to sell its Minnesota malls.
"It's a great state for us. We have great properties there," he said.
After cleaving itself into two new publicly traded companies, General Properties proposes moving almost all of the shopping centers into a company temporarily called "New GGP." The other company, nicknamed "Spinco" for the time being, will house other assets such as land and master-planned communities, mostly in Maryland, Texas and Nevada, Keating said.
With stabilized finances and a barge full of new capital, General Growth should be able to reinvest in malls and lure influential national tenants, local retail brokers said. Tenants have had the upper hand and frequently require hefty tenant improvement allowances -- money to remodel spaces to suit their needs.
"This will give them ability to start working on some deals," said Chris Simmons, senior vice president at Minnetonka-based Welsh Cos. "It's good for Minnesota, but it's also good for the retailers within those centers."
Brokers say General Growth's Minnesota malls are all solid and well-positioned, and that the malls outside the Twin Cities dominate their markets. But they point to Ridgedale as being at the front of the line for a little TLC.
"It's been so long since they reinvented that mall and pumped new life into it," said retail industry veteran Dick Grones, principal with Edina-based Cambridge Commercial Realty. It "could use a new hairdo."
Ridgedale suffered two blows in recent years. In the fall of 2008, plans for a new Trader Joe's grocery store there stalled out and the store ended up opening at another Minnetonka location. Then in February 2009, a few months before General Growth declared bankruptcy, Seattle-based Nordstrom Inc. tabled plans to open a two-level store there. Nordstrom didn't return calls Tuesday.
General Growth filed for Chapter 11 bankruptcy protection in April 2009 after facing high levels of debt that came due as the markets shut down, said Isbee, the REIT analyst. Isbee said General Growth's bankruptcy is the largest real estate bankruptcy in U.S. history.
One key to getting out of bankruptcy was the new capital, up to $8.6 billion from Brookfield Asset Management, Fairholme Capital Management and Pershing Square Capital Management. The plan is subject to court approval.
Isbee said he isn't surprised General Growth attracted large infusions of capital. It's known for its high quality portfolio, he said, and the performance of mall stocks indicates that investors are favoring the sector.
Shares of No. 1 mall operator Simon Property Group Inc. are trading at $85, up from $47 a year ago, he noted. General Growth shares bottomed at 40 cents and are now trading above $13.
"At the end of the day people still want to shop at the malls and the retailers need to rent space where people are shopping," he said.
Jennifer Bjorhus • 612-673-4683