Thursday, February 25, 2010

The Battle of the Mall Operators

By Eric Jackson

RealMoney Contributor

2/25/2010 9:30 AM EST

It's been interesting watching the emerging battle between Simon Property Group (SPG - commentary -Trade Now) and Brookfield Asset Management (BAM - commentary - Trade Now) over General Growth Properties.

General Growth filed for bankruptcy-court protection last year. Simon Property came out a week ago with an offer for the entire company, which would help it put a stranglehold on the high-end mall business in the U.S. Yesterday, however, word leaked out that Brookfield was helping General Growth to restructure and emerge from bankruptcy as two new companies. Brookfield has the upper hand in this battle, and its investors seem to like what they are hearing.

A year ago, no one wanted to be in the business of running malls. Consumers were in a bunker mentality, dimming the prospects for retailers. Traffic to malls was plummeting. The mall owners were stuck with commercial real estate that was dropping in value from its highs in 2007, and mountains of debt had to be rolled over at some point in the future.

It was this terrible macro environment, plus a coming liquidity crunch, that drove high-end mall operator General Growth into bankruptcy last April. This was a still-solvent company that couldn't roll over its debt.


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