Yikes. One of the nation’s largest mall operators filed Chapter 11 in New York this week, after failing to restructure more than $25 billion in outstanding debt. General Growth Properties, based in Chicago, has pretty far reaching tentacles. Just search their property listings by state to see what I mean.
What does this mean?
For a lot of chains and big boxes, it means risk, since there aren’t a lot of companies out there with deep enough pockets to buy up malls (most of which are short on tenants). I looked up the Minnesota listings, and can already see where there might be trouble. While Eden Prairie Mall and Ridgedale Mall have a long, loyal following, the more locally shopped Knollwood could be on the hot seat. Or not. Their price tag would be a lot lower than the big boys who cater to major names like Macy’s and Sears.
While large malls typically house more chains than independents, there are still some locally owned businesses at risk. The good news is that there’s a lot of quality property out there for rent, beyond the big mall environment-—most owned by landlords ready to negotiate very attractive lease rates to avoid the same demise. Could turn out to be a silver lining scenario for retailers who jump at the right moment.
As for Knollwood…that’s where my tailor’s been for more years than I know. Whatever happens, wherever he is, I’ll follow him loyally. In the end, it’s not the zip code that counts, but the quality behind the counter.
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Chapter 11 Bankruptcy doesn’t mean your landlord is automatically going out of business or that you’ll be out on the street.
Many of the large airlines have at least one Chapter 11 in their history and are still flying. K-Mart filed bankruptcy in 2002.
Based on the articles, it does mean that General Growth can continue to try to restructure their debt.
Having said that, another option Chapter 11 gives General Growth is the ability to go through their contracts one by one and accept or reject them. So if they have a few “really bad apples,” in their portfolio (e.g. a lot of debt and very few tenants), it wouldn’t be surprising if they rejected those contracts… But even then whomever ends up with those properties (most likely the entity with the loans) would want them to succeed and be easier to sell.
Editor’s note: The post was not intended to suggest Chapter 11 is an automatic closure scenario, but to show that it does present potential change and options for all concerned.