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What Happens if a Mall Owner Goes Bankrupt?
By JLP | November 12, 2008
I have read a couple of articles recently about how mall owner, General Properties, may have to file for bankruptcy if they can’t shore up their financing quickly.
According to this article in today’s Houston Chronicle, General Growth Properties owns a lot of malls in the Houston area:
…the real estate investment trust owns, in whole or in part, Baybrook Mall, Deerbrook Mall, First Colony Mall, the Woodlands Mall and Willowbrook Mall. It also owns just over half of The Woodlands.
General Growth Properties has nearly $1 billion coming due later this month and ANOTHER $3.1 billion coming due next year! That’s what I call some serious leverage! Leverage is great when things are going good and bad, bad, bad, when things turn south.
My question is: what happens to the malls when their owner goes bankrupt? Do they close down? Do they continue operating in bankruptcy?
To make matters worse, retailers are also in trouble and I’m almost certain that we haven’t seen the worst of their troubles—just wait until after the Christmas shopping season. I bet we’ll see more bankruptcies and going-out-of-business sales.
Topics: Business News | 9 Comments »
November 12th, 2008 at 1:14 pm
It’s so funny, PHIL TOWN earlier this year, on CNBC: The Millionaire Inside: Your Guide to Retiring Rich” recommend that the stock was on sale and to buy it.
I wonder was he is thinking now
November 12th, 2008 at 2:42 pm
Interesting, this shows that a company involved in different market areas is getting hit. In the Houston area from what I have seen things are mostly ok, and people are still shopping etc. The stores that are closing here is due to problems other places. I don’t see how in a bankruptcy that somehow the mall would stay open. That would be a huge hit on the economy if all those stores had to fire all their employees.
In Lubbock there is the mall, no defining which one because there is only one. Are there to many malls in the Houston area now? It kind of seems crazy how many copies of a store there are in this area, even with how big it is.
November 12th, 2008 at 3:33 pm
I would imagine it would continue operating and someone would buy it from them for pennies on the dollar.
November 12th, 2008 at 5:12 pm
There was a local mall owner here that went into bankruptcy and the financier kept the mall operating. They want to get as much money out of it as possible while they are trying to find a buyer.
November 12th, 2008 at 5:35 pm
Mall owners go bankrupt all the time; it’s one of those businesses where leveraged high-wire acts are typical. For the businesses operating in the mall, things don’t change much other than it may be more of a pain to get things done that are done by the mall management company as its personnel change.
Their leases are basically graven in stone, so they still need to pay them. The money will just go to the new owners.
November 12th, 2008 at 5:54 pm
It would depend on whether they filed for a Chapter 11 or Chapter 7 bankruptcy. Under Chapter 11 they would continue operations as they reorganize their business and debts, the idea being that at some point they once again become a profitable and viable entity. Under Chapter 7 they would liquidate assets and wind down the affairs of the corporation.
I don’t see all these malls closing down and taking the stores along with them. They probably go Chapter 11 and continue operating the malls themselves, or in a Chapter 7 filing they sell off the mall properties to outside investors at fire sale prices who assume the outstanding lease agreements they have with the retailers.
To Philip’s comment, I don’t think there are too many malls here considering the number of people that have moved to Houston in the last decade. Most of the malls serve local populations in the suburbs that don’t really have another convenient competing mall. Plus you have to remember that some of the older malls that have been in decline for years (Sharpstown, Northwest Malls) will probably be going away soon seeing that they are already half empty anyway.
November 12th, 2008 at 6:30 pm
General Growth Properties owns a mall near me in Salt Lake that they recently tore down to redevelop. It is a big empty lot at the moment. Guess I shouldn’t hold my breath waiting for construction to begin.
November 13th, 2008 at 10:31 am
It depends on what legal entities are part of the bankruptcy proceeding. The most likely scenario at the moment is that GGP loses select properties to its mortgage lenders – similar to a bank foreclosing on a house. The first to go would probably GGP’s mall in Vegas. The lenders would become the new owners of the mall but not much else would change initially. Subsequently, they may elect to sell the mall to a third party (SPG) or renegotiate lease agreements to extract higher rents (wherever possible).
In the event that General Growth Properties, Inc. files, the company will need debtor in possession financing to continue operating the mall management part of their business. The danger in this situation for store owners and customers is that some mall services may be disrupted while GGP restructures.
November 22nd, 2008 at 12:13 am
thank everyone for their comments. i have owned and operated my business for over 12 years. we have seen the good and the bad. but this seems ugly. so reading all of the blogs you all are pretty much saying if ggp decides chapter 11 that business for the vendors goes on a usual and the only disruption would be dealt with at a corporate level?