General Growth Properties Inc. filed the biggest real estate bankruptcy in U.S. history last week after amassing $27 billion in debt during an acquisition spree that turned it into the second-largest shopping mall owner in the U.S. The company listed $29.5 billion in assets and $27.3 billion in debts in the filing. General Growth will continue operating its more than 200 mall properties.

The widely-anticipated Chapter 11 filing came after extensive efforts to refinance or extend maturing debt outside of bankruptcy proceedings. The company said that the filing, made in U.S. Bankruptcy Court in the Southern District of New York, wouldn't affect business at its more than 200 malls. Chief Operating Officer Thomas Nolan said during a conference call that the bankruptcy would be “invisible” to shoppers. Tenants will continue to pay rent and leases.


But the bankruptcy could put pressure on already declining property values of U.S. malls, and subsequently mall mortgages, especially if General Growth is forced to dump properties to pay creditors. The collapse also increased concerns that other developers and property owners with heavy-debt loads may be facing similar pressures. Last week, analysts roundly suspected that General Growth will be forced to sell some properties and emerge as a smaller company but won't have to resort to a fire-sale liquidation.

“Our core business remains sound and is performing well with stable cash flows,” said Adam Metz, chief executive officer of the company, in a statement.

Hedge fund manager William Ackman’s Pershing Square Capital Management LP will provide General Growth with $375 million in financing to help run the company during the Chapter 11 process.
General Growth, the largest mall owner after Simon Property Group Inc., collapsed after spending $11.3 billion in 2004 to buy commercial-property developer Rouse Co., which owned malls including South Street Seaport in Manhattan, Harborplace in Baltimore and Faneuil Hall Marketplace in Boston. It subsequently was hurt by the credit crunch and a U.S. recession that has cut spending and property values.
Commercial real estate prices in the U.S. dropped 15% last year, according to Moody’s Investors Service.

The slowdown in consumer spending also played a role as malls often get a percentage of a store's sales as part of the lease.  The mall developer also said the drift by shoppers away from malls to big-box stores and the Internet as well as the consolidation of the department store industry hurt their business.

The company has requested and expects to receive additional approvals to give them the authority to make payments to ensure that the their shopping centers and other properties continue to operate uninterrupted in the ordinary course of business.

The company’s portfolio totals approximately 200 million square feet of retail space and includes over 24,000 retail stores nationwide.