No sooner has the ink dried on the preceding post, that we learn that General Growth Properties, the second largest shopping mall owner in the United States, has filed for bankruptcy under Chapter 11. The official explanation is that it carried a heavy short-term debt that it intended to refinance, but it turned out that refinancing is not available in the current recession, what with the big banks teetering on the edge and all that stuff. It’s the biggest bankruptcy of a real estate business in history.
This story is of special significance to us for two reasons. First, because one of the many malls owned by GGP is the Glendale Galleria in Glendale, California. We recall how it was built on land acquired by the local redevelopment agency, some of it by eminent domain. And while over the years the Glendale Galleria became a spiffy shopping place, the people whose land was taken for it were often underpaid, and it wreaked havoc on small businesses located along Brand Boulevard, Glendale’s main drag. Once the Galleria opened for business, it swamped the small businesses competing with it. For a long time, Brand Boulevard was dotted with empty storefronts sporting FOR LEASE signs, and it took years to recover. Second, here is a vivid reminder of the wisdom of Justice Macklin Fleming whom we quoted in the preceding post, that whether under the banner of redevelopment or not, the creation of malls is risky business.
To compound things, one of the problems that mall owners have to face, is a growing pressure from their tenants to lower rents in light of the ongoing recession. But it’s that phenomenon that makes lenders reeluctant to lend to malls because they see a diminishing flow of rent revenues in the offing.
So stay tuned. It looks like we haven’t heard the last of it.