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General Growth finally sees turnaround

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General Growth Properties appears to be well on the way to recovery now, but the Chicago-based shopping center real estate investment trust could have just as easily disappeared.

John Bucksbaum, the former CEO of General Growth Properties (NYSE: GGP), was in town for the Mortgage Bankers Association’s Commercial Real Estate/Multifamily Housing Convention at Manchester Grand Hyatt Monday.

The large mall owner, with such assets as the Otay Ranch Town Center and Hawaii's Ala Moana Center, appeared to be riding high until the recession.

Bucksbaum said the company currently has about 200 regional malls in the United States and about 15 in Brazil, totaling 135 million square feet. The REIT made some hefty purchases in the 1980s and 1990s including the acquisition of Homart Development Co. for $1.85 billion from Sears & Roebuck in 1995, and The Rouse Co. for $12.6 billion in 2002.

The company has roughly 24,000 retail tenants and employs about 3,700 people.

During the 1980s, 1990s and 2000s, General Growth was also buying large numbers of shopping centers — many of which were very large acquisitions in their own right.

At the top of this list was the nearly $1 billion paid for property that included much of the Ala Moana Center in Honolulu and development rights for an additional 312,000 square feet, bringing the total to about 2.1 million square feet at the Hawaiian property.

Bucksbaum said his shopping center REIT, which was founded by his father in 1954, had a $45 billion market cap and the stock hit as high as $67 per share in 2007.

“How could you mess up something this good?” Bucksbaum asked aloud.

Bucksbaum said there was no single answer. Whatever the reason, before the bottom fell out of the market in 2008, the stock had dropped to 32 cents.

While the recession hit harder than expected, Bucksbaum said what nearly killed the company for good was the fact that multibillion-dollar loans were coming due each of the next three years.

“We had $28 billion in debt. Debt was so plentiful before that time, and it was cheap,” Bucksbaum said. “Every center had about a 65 percent LTV [loan-to-value], so we weren’t heavily leveraged.”

The company found itself with $900 million worth of maturing debt on its Grand Canal property in the Venetian Hotel & Resort complex in Las Vegas, as well as about $3.5 billion in maturing debt in 2009, and about $7 billion in 2010.

Bucksbaum admits having General Growth’s planned acquisitions easily bankrolled, as they were at the outset, was tempting.

“I hate to use the word greed, but this made sense to us at the time,” Bucksbaum said.

Bucksbaum said with the CMBS (commercial mortgage-backed securities) market dead, despite the fact that the REIT had $2 billion in liquidity, it became impossible to refinance the existing debt. The REIT managed to raise $82 million in equity for its operations, but it was too late to help the company.

“Bankruptcy was inevitable,” Bucksbaum said, adding that he had resigned as CEO in October 2008, but remained as chairman of the company.

In what was billed as the largest commercial property bankruptcy in U.S. history, General Growth filed for Chapter 11 bankruptcy protection in April 2009. The filing listed $29.56 billion in not very liquid assets and $27.29 billion in liabilities.

Bucksbaum, who said he was hardly sleeping at this point, said it was an extremely difficult time.

“It was like being in the deepest, darkest hole,” Bucksbaum said.

With the aid of the U.S. Bankruptcy Court, the REIT was able to emerge from bankruptcy in early 2010.

In February 2010, Simon Property Group (NYSE: SGP) made a $10 billion bid to acquire General Growth, including $9 billion in cash. Despite what, or perhaps because of what General Growth had been through, the Chicago REIT rejected the Simon offer.

Simon then came back and instead of trying to control the entire company, said it would be willing to pay $6.5 billion for General Growth, plus a $7 billion pay off of all the REIT’s unsecured creditors. General Growth, sensing that it could rebound without having to sell, rejected the deal once more.

Today, Bucksbaum has moved on, having formed a new urban shopping center acquisition firm known as Bucksbaum Retail Properties LLC. Bucksbaum’s new assets include the retail portions of the 835,000-square-foot Liberty Town Square in north Cincinnati and the 195,000-square-foot Maxwell property in Chicago, among others.

General Growth meanwhile posted $35.66 million in net income on $675.71 million in revenues for the quarter ended Dec. 31, 2012 -- compared to a hefty $367.83 million loss on $643.98 million in revenues. In short, the firm was able to turn a profitable fourth quarter after having gone through a very rough time.

General Growth’s stock price closed Monday at $19.98-per-share unchanged from the prior trading day. The stock has ranged from $15.85 to $21.25 during the past 52 weeks.

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