OK, now the commercial property bankruptcies start...

[CosmicCowboy]

I told you guys this was coming...these guy own North Star Mall and La Cantera...


Chicago-based General Growth Properties, which owns North Star Mall and The Shops at La Cantera, Thursday filed for Chapter 11 bankruptcy.

The company filed because it could not refinance as much as $1.12 billion in debt that was overdue. The giant mall owner had $27 billion in total debt.

In addition to the company, 158 properties have filed for protection, including North Star Mall. This does not mean the mall will close -- the company says it will continue operating its properties as usual.

"Our core business remains sound and is performing well with stable cash flows. We believe that Chapter 11 is the best process for restructuring maturing mortgage loans, reducing the company's corporate debt, and establishing a sustainable, long-term capital structure for the company," Adam Metz, CEO of General Growth, said in a statement. "While we have worked tirelessly in the past several months to address our maturing debts, the collapse of the credit markets has made it impossible for us to refinance maturing debt outside of Chapter 11."

[mrsmaalox]

La Cantera always felt a little "iffy" to me!

[KinkyFriedman]

I can fix that.

[Frenzy]

i'll help u fix

[clambake]

easy call to make.

[JoeChalupa]

Now I feel guilty for never shopping at the Shops at La Cantera.

[JudynTX]

North Star Mall isn't what it used to be. :rolleyes

[SpursStalker]

It was bound to happen as soon as Central Park Mall was leveled ...

I've not been inside of a mall in years.

[clambake]

its not just about malls.

[koriwhat]

Now I feel guilty for never shopping at the Shops at La Cantera.

nothing but shitty stores and a bunch of international fags.

[JoeChalupa]

nothing but shitty stores and a bunch of international fags.

And high end prices which leaves me out. :lol

[JudynTX]

And high end prices which leaves me out. :lol

I just think more people are buying online, rather than going into the mall.

[Marcus Bryant]

Of course. And how many banks are invested in that asset class which ultimately overstates their true capital position?

[CosmicCowboy]

Of course. And how many banks are invested in that asset class which ultimately overstates their true capital position?

Not to mention the billions of dollars of iffy credit card receivables still being carried as assets that will probably never be repaid.

[Marcus Bryant]

It's cool. Some Asians will give us $.

[JoeChalupa]

I just think more people are buying online, rather than going into the mall.

I concur. Overstock.com!! I buy quite a bit of stuff online but it all depends on the shipping costs.

[CosmicCowboy]

It's cool. Some Asians will give us $.

LOL

Looks like they are starting to buy copper instead. They may be commies but they ain't stupid. They see where the dollar is headed.

[JudynTX]

It's cool. Some Asians will give us $.

Space cash, according to South Park. :lol

[Marcus Bryant]

At least they aren't stealing to finance their crack habit....

[JoeChalupa]

Maybe they simply made investments that didn't pan out? I know it wasn't no drop in the bucket to build the Shops at La Cantera and the money coming in simply isn't what they thought it would be?

[CosmicCowboy]

Maybe they simply made investments that didn't pan out? I know it wasn't no drop in the bucket to build the Shops at La Cantera and the money coming in simply isn't what they thought it would be?

Joe...this is not an isolated case. Commercial/Retail is overbuilt and their client base is falling. Major retail anchor chains are going bankrupt and closing stores. They built all these centers with borrowed money and don't have the cash to make payments.

This is going to be the next "mortgage crisis" that the Feds say they have to bailout if the "credit card default crisis" doesn't get there first.

This shit ain't over.

[JoeChalupa]

Joe...this is not an isolated case. Commercial/Retail is overbuilt and their client base is falling. Major retail anchor chains are going bankrupt and closing stores. They built all these centers with borrowed money and don't have the cash to make payments.

This is going to be the next "mortgage crisis" that the Feds say they have to bailout if the "credit card default crisis" doesn't get there first.

This shit ain't over.

Yup. Like I've mentioned before when I drive on NE 1604 I see all these new shopping centers and businesses opening up and I wonder how they are getting customers and surviving since most of the businesses are ones that I'll never step foot in. Not they need my measly spending.

[Marcus Bryant]

Joe...this is not an isolated case. Commercial/Retail is overbuilt and their client base is falling. Major retail anchor chains are going bankrupt and closing stores. They built all these centers with borrowed money and don't have the cash to make payments.

This is going to be the next "mortgage crisis" that the Feds say they have to bailout if the "credit card default crisis" doesn't get there first.

This shit ain't over.

From back in Jan, but still pertinent. (http://online.wsj.com/article/SB123137829623663061.html)

[Extra Stout]

CRE is usually a lagging indicator, isn't it?

[Marcus Bryant]

CRE is usually a lagging indicator, isn't it?

Yep.

[Drachen]

One thing that this doesn't mention is that GGP has assets that outweigh their debts (30 B vs. 27 B) Also, those assets are priced at historical prices. What this means is that on they have not appreciated their assets on their balance sheet since they bought these malls (some many years ago), so many of them may be valued substantially higher. Their core business is producing quite well (considering) and their malls are operating at somewhere between 93 and 97% capacity. Really the problem boils down to they have some money past due to mortgage banks and bond holders (about 1.2 B), and are unable to refi their mortgages due to problems in the credit market, or sell bonds (basically to refi their bonds) due to the fact that most of the money being invested in bonds is going to Treasuries instead of corporate bonds. I have read a few of the analysts who think that this will be a BK just like UHaul's (they had 1.04 B in assets and 889 M in liabilities, and had the same situation trying to refi their existing debt even though their business was good). In this situation, they went through BK to refi debt, and even their common shareholders (those that usually get completely wiped out), didn't lose their ownership of the company. Then UHaul went on with business.

I am looking into this pretty closely because I am hoping that the stock just tanks due to the word BK so that I can buy some (low cost, high risk), but unfortunately the stock opened HIGHER today after the BK announcement.


Edit: I forgot to add that one of its lenders, Citigroup, is its second largest shareholder, so it would make sense that they would fight to keep the stockholders equity in the company intact.

[CubanMustGo]

As long as these guys are filing Chap 11 instead of Chap 7, it's OK. Chap 11 means the creditors have to work with them to get the money owed them, Chap 7 means 'screw you creditors, try and get your money now.'

Freakin' banks have hundreds of billions of gov't money and the bastards refuse to lend it. No wonder they're all suddenly reporting better-than-expected results.

[JoeChalupa]

sucks

[RandomGuy]

Retail space in general has been very overbuilt, IMO.

Expect to see losses on commercial property further wear down balance sheets of banks.

The problem is that once the banks take ownership of all of these assets, they are responsible for things like taxes, maintenance, etc. as they are the new owners.

For this reason, many banks are hesitant to "pull the trigger" on some of the properties where the loan is failing, because not only do they have to take the loss on the loan, they assume some rolling expenses.

This will take a while to wind down for this reason, current profitability of some larger banks notwithstanding.

[Mark in Austin]

retail is slightly overbuilt, but the big problem is commercial construction loans.

The loans usually used to build retail/commercial centers are 10 year loans with a giant balloon payment at the end. The normal practice is to refinance the loan after 10 years to eliminate the massive balloon payment. Unfortunately with credit markets tied up hardly any refinancing is going on at all. The developer usually has no way to cover the massive balloon payment, and defaults on the loan.

[1369]

retail is slightly overbuilt

Come down to San Antonio and check out the 1604/281 North area and I'll bet you change your mind.

[Mark in Austin]

overbuilt, or not overbuilt - that's not the primary cause. The main reason for the commercial bankrupcies is that NOBODY - not even leased, revenue generating properties - can refinance their balloon payments right now.

[RandomGuy]

overbuilt, or not overbuilt - that's not the primary cause. The main reason for the commercial bankrupcies is that NOBODY - not even leased, revenue generating properties - can refinance their balloon payments right now.

Bullshit.

If US consumer spending moderates, who will occupy all those fancy retail stores?

Amount of retail square footage per American has quadrupled in the last 20 years or so.

If consumers consume less, there WILL be less demand for retail space to sell to consumers.

If you build retail space in strip malls or malls to lease and that comes online in the middle of a retail contraction, you won't lease them. It doesn't matter what your balloon payments are 5 years down the road, or even 5 months down the road, because you can't make even the normalized payments.

If you currently own a retail property, like a mall, and one of your tenants goes under, you will have to work REALLY hard to replace that tenant. Either you will go without the rent, or have to bring down your rent to get it leased.

Either way it hits your cashflow.

To be certain, refinancing troubles work into it, but that is not the only cause of the coming commercial defaults.

[RandomGuy]

Come down to San Antonio and check out the 1604/281 North area and I'll bet you change your mind.

Drive south on I-35 from Austin to SA.

Count the number of "for lease" signs in the new stripmalls on what used to be the Meadows.

Keep counting until you get to San Antonio.

I commute to both cities, and you would be surprise at the number you will reach.

Don't take my word for it, do it yourself.

[Mark in Austin]

Bullshit.

If US consumer spending moderates, who will occupy all those fancy retail stores?

Amount of retail square footage per American has quadrupled in the last 20 years or so.

If consumers consume less, there WILL be less demand for retail space to sell to consumers.

If you build retail space in strip malls or malls to lease and that comes online in the middle of a retail contraction, you won't lease them. It doesn't matter what your balloon payments are 5 years down the road, or even 5 months down the road, because you can't make even the normalized payments.

If you currently own a retail property, like a mall, and one of your tenants goes under, you will have to work REALLY hard to replace that tenant. Either you will go without the rent, or have to bring down your rent to get it leased.

Either way it hits your cashflow.

To be certain, refinancing troubles work into it, but that is not the only cause of the coming commercial defaults.


In a normal downturn, (re)financing is still available. What is going to make this commercial downturn seem like a giant shitstorm is the fact that aside from the normal bankrupcies that occur in marginal markets / higher risk areas, this time even solidly performing centers are going to be denied the credit needed to survive unless the markets shake loose.

Not trying to minimize the number of bankrupcies or other very legit factors, but if the question is about what is going to make THIS downturn especially bad, the answer currently is no commercial credit.

[Mark in Austin]

Also, there's a difference between "moderates" and "falls off a cliff". Consumer spending may never rise to the unsustainable highs it once had, but it's not going to stay where it is, either.

[Drachen]

Bullshit.

If US consumer spending moderates, who will occupy all those fancy retail stores?

Amount of retail square footage per American has quadrupled in the last 20 years or so.

If consumers consume less, there WILL be less demand for retail space to sell to consumers.

If you build retail space in strip malls or malls to lease and that comes online in the middle of a retail contraction, you won't lease them. It doesn't matter what your balloon payments are 5 years down the road, or even 5 months down the road, because you can't make even the normalized payments.

If you currently own a retail property, like a mall, and one of your tenants goes under, you will have to work REALLY hard to replace that tenant. Either you will go without the rent, or have to bring down your rent to get it leased.

Either way it hits your cashflow.

To be certain, refinancing troubles work into it, but that is not the only cause of the coming commercial defaults.


I understand what you are saying, but in this instance, it is not the case. Their business is still running well, their lenders have waited, and not pushed bankruptcy for 8 months because they see that GGP is not distressed. They just can't refi their loans as per their normal business model. As I said before their occupancy percentage is mid to high 90s.