We are victims of a completely broken capital market

After the crisis of the "subprime" residential, it is the turn of the commercial real estate us suffer the effects of the recession head-on. With the impossibility to refinance its colossal debt of $ 27 billion, General Growth, second American operator of commercial centres behind Simon Property, agreed yesterday under the authority of Chapter 11 of the U.S. Bankruptcy Act. Owner of some 200 shopping malls, including several "malls" of a very large scale in Las Vegas, New York and Boston, the Chicago firm (owned at 25 by the hedge fund Pershing Square Capital Management) has lost 80 of its market value in six months. According to BankruptcyData site, it is the largest bankruptcy in the history of the American housing market.

"We are victims of a completely broken capital market." "No one could predict the severity of the crisis in the credit markets," said General Growth President Thomas Nolan. Still controlled by the founders Bucksbaum family, the firm hopes to conclude its restructuring by the end of the year plan to get rid of a number of assets and reduce its size.

The fall of General Growth comes five years after the resumption of commercial developer Rouse Co. For $ 11.3 billion in 2004, and then that the commercial real estate prices collapsed 15 in 2008. Among its major creditors mentioned in the procedure is the German bank Eurohypo AG (a subsidiary of Commerzbank). For its part, the hedge fund manager William Ackman (Pershing Square Capital Management), which took 20 of the capital of General Growth in November and was eager for its reorganization under Chapter 11, will provide funding of $ 375 million to ensure its management during the procedure.

Extreme fragility of the sector

"It is a disaster that was expected for several months." "There will be other victims in this sector, because these operations were all mounted on LBO (leveraged buyout) models based on soaring real estate prices," explained yesterday a sector specialist. The Rouse subsidiary and 165 shopping centres were also placed under Chapter 11 plan. "Our core business remains strong and has a stable cash flow." "We believe that chapter 11 is the best way to ensure the restructuring of our mortgage and to reduce the indebtedness of the company," explained the operational pattern of General Growth, Adam Metz.

Even before to opt for bankruptcy, the Chicago firm, which will continue to operate the South Street Seaport in Manhattan and Faneuil hall in Boston, "malls" had already released his three malls in Las Vegas. According to the documents submitted to the Bankruptcy Court in New York, General Growth was still 29.6 billion of total assets for 27 billion in debt at 31 December.

General Growth bankruptcy implementation illustrates the extreme fragility of the sector of commercial real estate hit head-on by the restructuring of the channels of distribution such as Home Depot, Circuit City, which announced closures massive stores or Linens'n Things, itself placed under Chapter 11 in May 2008. Some experts believe that operators of shopping malls will have difficulty to redress their situation. Because they are now confronted with a real haemorrhage of tenants.