GGP to exit bankruptcy in days

After a $6.8bn recapitalisation involving Brookfield, Pershing Square, Fairholme, Blackstone and Texas Teachers, a judge has backed the mall REIT’s plans to leave bankruptcy on or around 8 November.

General Growth Properties could exit bankruptcy in the next two weeks, 18 months after first filing for Chapter 11 protection.

New York bankruptcy judge Allan Gropper late last week approved the mall REIT’s plan to exit bankruptcy on or around 8 November. It follows a process that saw the company split in two, require more than $6.8 billion of recapitalisation equity and require the restructuring of $15 billion of project-level debt.

GGP will emerge from Chapter 11 as two separate publicly traded companies. GGP will continue to operate and own more than 185 stable, income-producing regional malls in 43 states, while a spin-off – known as The Howard Hughes Corporation – will control the non-income producing assets owned by the REIT, including development land and air space with approved planning consents. 

When GGP first filed for bankruptcy in April 2009, it sent shockwaves through the industry not least because the REIT also took into Chapter 11, 158 cash-flowing properties that were created as “bankruptcy-remote” special purpose entities. CMBS investors challenged the move arguing the SPEs were income-producing assets that should be dealt with as stand-alone entities and not under the GGP umbrella. However, a bankruptcy court backed GGP.

With more than 200 malls at stake, interest in GGP and its real estate was intense. In February, just as Brookfield Asset Management was reportedly eyeing taking a 30 percent stake in GGP, Simon Property Group made an unsolicited $10 billion bid to take over the mall REIT.

That was flatly rejected, with GGP instead turning to Brookfield for answers. By March, Brookfield – which funded the deal from its $5.5 billion Real Estate Turnaround Consortium – had been joined by hedge fund Pershing Square Capital Management and Fairholme Capital in providing more than $6 billion of recapitalisation equity. That was followed in the summer by The Blackstone Group and The Teachers Retirement System of Texas, the latter of which invested $500 million.

As part of the deal, the five equity investors have the right to reduce the amount of their investment at any time, while GGP also has the right to replace up to $2.15 billion of the capital being committed by Fairholme, Pershing Square and TRS with new rights issuance.

Adam Metz, chief executive officer of GGP, said the past 18 months had been “challenging times” but the firm was now “prepared to begin a new era … on a firm financial footing”.

GGP has also restructured approximately $15 billion of project-level debt, with maturities, except for some non-filed joint venture properties, now pushed out to January 2014 and beyond.