Has the fat lady sung for General Growth?
Today's Financial News - Posted March 30, 2009
As much as real estate investors would like to see the worst of the industry’s problems in the past, the outlook remains bleak, especially for the commercial sector. With the threat of bankruptcy slamming General Growth Properties (NYSE:GGP) and its investors, the entire industry is at risk.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): It is amazing that it hung on this long. After pushing back critical bondholder concession deadlines several times, missing multi-million-dollar interest payments and watching the courts take control of several of its assets, the company refuses to throw in the towel.
General Growth Properties (NYSE:GGP), the nation’s second-largest mall owner, is hanging tough, but all the stalling and begging will not keep the company out of bankruptcy court. At this point, it looks as though nothing will.
This time last week, I was writing about General Growth’s decision to push its bondholder concession deadline back for a second time as it hoped it would get approve to defer payment for five of its outstanding bond series. The third, and presumably final, deadline has come and the company still does not have the votes it needs.
General Growth continues to stall for time and look for any concession it can get, but today’s news is surely an indication of what is to come. After losing 98% of their value, dropping to the price of a pack of pencils, shares of General Growth are going to lose their remaining worth as investors prepare for bankruptcy.
A big stone in a little pond
While the threat of General Growth filing for bankruptcy is certainly nothing new, the ripples of a filing would be felt throughout the commercial real estate industry.
Major competitors like Simon Property Group (NYSE:SPG) and CBL & Associates Properties (NYSE:CBL) are both down by close to double-digit proportions today on the news from their competitor.
As property values continue to drop, stores close and retail revenues dwindle, the vice will tighten around the commercial real estate industry. The chances of a widespread successful turnaround will vanish.
But there is at least a glimmer of hope. Macerich (NYSE:MAC), which own nearly 100 mall-related properties, remains fairly strong today as investors digest the news the company was able to get $446 million worth of debt refinanced. The company now has $223 million worth of debt due this year.
Certainly, the worst is not over. As much as the markets were hoping for a quick rebound, the fundamentals simply are not there. Until companies like General Growth can find the capital they need to survive, investors are going to be looking at an awful lot of red.
If your portfolio needs some exposure to the nation’s real estate markets, stick with the retail sector. With low interest rates and a government willing to force homebuyers into houses, it will be the first indicator of an industry-wide rebound.
The commercial real estate market has yet to see the worst of the downturn. Steer clear of this potential disaster. You will be able to buy shares much cheaper in just a few weeks.
Next Article: Regulation bonanza: Next up, the credit card industry
Be the first to leave a reply.
Your comments are welcome
Follow TFN via RSS or Twitter |
 |
 |
 |
Advertisement
Latest Headlines
- The Big Picture for Sinobiopharma, Inc. (SNBP)
- Beazer Homes USA, Inc. (BZH) and Hovnanian Enterprises, Inc. (HOV) up despite horrid housing news
- The FDA catalyst: 2010 moves in MannKind (MNKD), Roche Holding (RHHBY), Acorda Therapeutics (ACOR) show it still works!
- Steepest drop since Feb. 2009: Here we go again!
- Is the silver run over? Coeur d’Alene Mines (CDE), Silver Wheaton (SLW), Alto Group (ALTO), Hecla Mining (HL), Endeavour Silver (EXK) close down