Commercial Real Estate and Shopping Centers and Simon Property Group and Real Estate Investment Trust and Real estate deals and Real Estate & Retail

Simon says new General Growth plan is less uncertain

March 11, 2010

A new plan by mall owner General Growth Properties Inc. to exit bankruptcy with funding from Brookfield Asset Management Inc. and two other creditors resolves some uncertainty rival bidder Simon Property Group Inc. has criticized, Simon CEO David Simon said.

“The first plan had a tremendous amount of uncertainty on how ultimately it would impact shareholders,” Simon said Thursday at a real estate conference in New York. “The second plan eliminates some of that uncertainty, but not all of it.”

General Growth’s biggest debt and equity holders are offering to invest $3.93 billion in the company, adding to $2.63 billion pledged by Toronto-based Brookfield as the mall owner restructures in bankruptcy. Bruce Berkowitz’s Fairholme Capital Management LLC and William Ackman’s Pershing Square Capital Management LP are offering the additional money.

Fairholme is Chicago-based General Growth’s biggest unsecured creditor and Pershing Square its largest equity investor, holding a 25-percent economic interest. Their investments would allow General Growth, the second-biggest U.S. mall owner, to pay unsecured creditors in full with cash.

Indianapolis-based Simon, General Growth’s largest rival with stakes in 382 properties across North America, Europe and Asia, offered more than $10 billion to buy its competitor out of bankruptcy, a proposal that has so far been rejected.

The offer by Brookfield, Fairholme and Pershing Square matches a provision in Simon’s bid to pay all unsecured creditors in cash. General Growth rejected Simon’s bid and lined up the Brookfield investment last month as part of a plan to split into two companies.

Simon Property and lawyers representing General Growth’s unsecured creditors had called the bankrupt mall owner’s previous proposal for restructuring its debt too risky because it relied on raising capital from public markets.

“Simon could pay much more than it originally offered and, perhaps, as much as a couple of dollars more per share than the value of the BAM/Fairholme/Pershing deal now on the table, and still get a good deal for Simon shareholders,” said Jim Sullivan, an analyst with Green Street Advisors in Newport Beach, Calif.

General Growth, owner of New York’s South Street Seaport and Boston’s Faneuil Hall, filed the largest real-estate bankruptcy in U.S. history in April after amassing $27 billion in debt making acquisitions.

Ackman, who spoke on a separate panel Thursday, said he invested in General Growth because “the mall business is one of most resilient asset classes in real estate.” Interest rates were low and it was unlikely that a judge would liquidate the company during the financial crisis, he said.

“If you think about a judge balancing the equity for all the various people here, this was a major restructuring that required no taxpayer investment,” he said. “Ultimately everyone wins.”

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