Two Miami Malls Not In Immediate Danger After Owner General Growth Properties Files For Bankruptcy
Written by Yudislaidy Fernandez on April 23, 2009
By Yudislaidy Fernandez
Second-largest mall-owner General Growth Properties’ decision to file for bankruptcy does not pose an imminent threat to its upscale Village of Merrick Park and tourist-favored Bayside Marketplace — both joint ventures with local governments that city officials say are up-to-date on rent payments.
The City of Coral Gables owns the 20 acres on which Village of Merrick Park sits. General Growth operates under a 99-year lease there, said Kathy Swanson-Rivenbark, city development director.
The company pays the city about $40,000 monthly in rent and is "totally current on rent," she said.
Ms. Swanson-Rivenbark said she is "confident they’ll weather this storm." The next rent payment is due in May.
The City of Miami — which also has a joint venture with General Growth for the Bayside Marketplace property — is not worried, either.
Miami Chief Financial Officer Larry Spring said the city hasn’t had any issues with the mall owner.
"They have been good partners and good about communicating with us," he said.
The city receives $833 monthly from Bayside’s parking garage rent, plus $80,000 yearly from additional garage income and 50% of net ground rent on the garage that last year totaled $350,000, the city’s public facilities department reports. In retail rent on the complex, the company contributes another $1 million annually.
General Growth is also obliged to pay the city a $500,000 settlement that was reached after audits revealed that for two years Bayside had underpaid the city’s garage rent. The settlement committed the company to pay $100,000 yearly from 2009 to 2013. This year’s installment was paid in January and the next is due in October 2010, the city reports.
Mr. Spring said the company has been making all required payments under its lease, including an annual amount equal to 10% of net retail income or $100,000, whichever is greater, to Bayside Minority Foundation, a board created in the 1980s to attract minority-owned businesses to the retail complex.
The Bayside property was put up for sale about two months before the bankruptcy filing.
If General Growth finds a buyer, Mr. Spring said, the city commission first has to approve the sale. "They are selling Bayside under our lease terms," he said.
Calls to Village of Merrick Park and Bayside Marketplace requesting tenant occupancy information were not returned.
Also dodging the bankruptcy filing are other General Growth properties in the tri-county area such as Pembroke Lakes Mall in Broward and Mizner Park in Boca Raton.
General Growth’s filing comes months after the company’s failed attempt to renegotiate with its creditors and bondholders.
The company reported $29.5 billion in total assets and debts of about $27.3 billion.
Thomas Nolan, General Growth’s president and chief operating officer, said its 200-plus malls in 44 states will remain open for business as usual.
The company is restructuring its debt, he told reporters during a conference call last week, but added it plans to continue paying its 3,500 employees and operating normally.
Mr. Nolan said business operations remain stable and that the operating malls are performing well.
"We are convinced we will make this bankruptcy filing invisible to the shoppers in our malls," he said.
The losses cash-strapped shoppers are causing in the retail sector are not expected to affect General Growth, he said.
Retailers want to be in productive shopping centers where they can get the sales. What the company is dealing with is a "corporate-level balance sheet issue," Mr. Nolan said.
A drop in sales does not directly impact the company, he said, because it has long-term leases with tenants and its overall occupancy rate remains at 92.5%.
Plus, he said, tenants are adapting their business models to deal with the slumping retail market.
The causes for filing Chapter 11 bankruptcy were an unforeseen disruption in the credit markets and inability to refinance its debt, Mr. Nolan said.
Both the management and board asked for a court-supervised restructuring to preserve the value of the company, he added.
Mr. Nolan said the 2004 acquisition of Rouse Co. — which owned most of its current South Florida properties — required "significant debt to finance."
It wasn’t so much the Rouse acquisition, he said, but an inability to refinance the company’s debt that prompted the filing.
The mall owner paid $7.2 billion and assumed $5.4 billion in debt in 2004 when it acquired Rouse.
Meanwhile, the lack of liquidity in the market is affecting not only the retail industry but other real estate sectors like office construction and leasing, said Suzanne Amaducci-Adams, commercial real estate partner at law firm Bilzin Sumberg Baena Price & Axelrod LLP.
"It’s a perfect storm," she said. "Everything is happening at the same time. There is no money."
Regarding plans to sell Bayside Marketplace — for sale since March — Ms. Amaducci-Adams said that may not be an easy task.
The attractiveness of a retail property is determined by its tenant mix and how well they are performing, she said, and both areas are impacted by the recession.
Another factor working against a potential sale is that the real estate values are decreasing because of the cap rate and the lack of credit, she said.
"The value won’t be as high and the buyer won’t be able to find financing to purchase the property."