General Growth wins extension in Bankruptcy Court

General Growth clears a hurdle from Bankruptcy Court this morning that many creditors and lenders are paying attention to (from WSJ):

The judge in General Growth Properties Inc.'s bankruptcy case rejected creditors' motions to dismiss several properties from the case, clearing the way for the mall owner to begin talks with its lenders about long-term debt extensions that would eventually allow it to exit bankruptcy court.

In a decision Tuesday, Judge Allan Gropper of the U.S. Bankruptcy Court in Manhattan ruled against the arguments of loan servicers ING Capital Loan Services LLC and Helios AMC LLC and lender Metropolitan Life Insurance Co. The three had separately argued that the General Growth malls they financed with mortgages are structured as individual "special purpose entities" that shouldn't be included in a broad corporate bankruptcy filing.

The judge ruled Tuesday that the so-called SPE structure doesn't preclude an entity in danger of financial difficulty such as a loan default from being included in such a filing. He added, however, that the ruling has no bearing on the question of substantive consolidation, which entails combining separate entities of the same corporate parent in a bankruptcy case. The case is being closely monitored by real-estate investors and borrowers, since many securitized mortgages are packaged as special purpose entities.

"I think this is a rude awakening for a real-estate finance industry that placed faith in certain structures without any thought to how they could be stressed in a severe economic environment or how they could be tested under the bankruptcy code," said Kevin Starke, an analyst with CRT Capital Group LLC, which tracks distressed securities. "The lenders that wanted these cases dismissed failed to demonstrate why the subsidiaries they loaned money were any different than any other corporate subsidiary."

With the judge's ruling in hand, General Growth will begin negotiating with its creditors for multiyear extensions of its debt maturities that are critical to its effort to exit bankruptcy.

General Growth, the second-largest U.S. mall owner behind Simon Property Group Inc., owns and manages more than 200 U.S. malls. It filed for Chapter 11 bankruptcy protection in April with $27 billion in debt. General Growth included 166 of its malls in the bankruptcy filing.

Blue is bad, red is good

Zillow.com came out with a graphical interface to show the housing market at a glance in 161 MSA's around the country..

U.S. home values continued to slide for the ninth consecutive quarter, declining 14.2 percent from a year ago, and falling 21.8 percent since the market peak in 2006. Additionally, one-fifth (21.9%) of all homeowners in the United States is in negative equity, and one in five homes sold in the past 12 months was a foreclosure.

Zillow Q1 Real Estate Market Reports track 161 metropolitan statistical areas (MSAs) throughout the U.S., identifying market trends including, but not limited to: five and 10-year annualized change, negative equity, short sales and foreclosure transactions.

To view this data for the nation and 161 MSAs, click on the Excel icon  below to see the report or click the graph icon  to see graphs and maps suitable for printing. Scroll and click the interactive map to explore each metropolitan area.

For more information about Zillow's Q1 Real Estate Market Reports, including the press release and additional graphics, visit the special Real Estate Market Reports section in the Zillow press room.

Commercial Links - 4/13/09

Commercial Property news and links for 2nd week of April 2009:

1. Rocklin door company slams shut - Sacramento

2. Job losses, real estate woes fuel a run-up in bankruptcies across state - Columbus

3. Florida bankruptcies are surging in Jacksonville, Orlando and Tampa

4. U.S. financial system still on life support

5. REITs up 5% for week ended April 10

6. Dubai World offers plan to complete Las Vegas City Center

7. Track performance of U.S. and global real estate markets

8. Snipers Kill Pirates, Save Captain

9. Banks own growing number of Hawaii foreclosed homes

10. Private equity dries up - Portland

11. New accounting rules may boost banks’ bottom lines - Kansas City

Impending Wave of Commercial Foreclosures

Several of today's news feeds argue that Obama's stimulus will not "fend off" the impending wave of commercial foreclosures but only help to get the banks lending again.

"This isn't designed to head off foreclosures," said Thomas Barrack Jr, head of real estate private equity firm Colony Capital, which has $36 billion of assets under management. "This is designed to start the banks lending."

The U.S. commercial real estate boom that started around 2004 and peaked in 2007 was fueled by cheap debt. Banks and other lenders were often willing to lend up to 90 percent or more of the purchase price. The loans often assumed optimistic rent growth and rising occupancies in the future.

Some analysts (including billionaire, George Soros) think the price declines could hit 30-40% and worse than the 1990’s, with rent levels and vacancies hitting levels from the early 1990’s.

"The problem with the foreclosures is that anyone with any real estate today may own it at less than 50 percent of the value that it was two years ago," Barrack said. "That problem isn't going to go away."

The delinquency rate among CMBS loans, which hit 1.8 percent in March, could rise to 3.5 percent by the end of the year, and 6 percent next year. CMBS loans comprise about 20 percent of the outstanding U.S. commercial real estate loans.

But what happens when the stimulus hits after our period of deflation, and we begin to leverage that printed money.. an explosion of inflation..

“In order to make up for the collapse of credit, we are effectively creating money,” Soros said. “If and when credit is restarted, you would then have an incredibly swollen monetary base, which, if it were leveraged, you would have an explosion of inflation.”

“Right now we are in a period of deflation, but it could easily tip over, where you are facing inflation,” Soros said. “You are then faced with the prospect of draining money supply as fast as credit is created.”

Some large projects around the country (in typically growing, recession proof locations such as Los Angeles and Las Vegas) are fending off creditor calls with bankruptcy ahead of the predictable inflation balloon.

Las Vegas, a city known for its elaborate multibillion-dollar resorts, is already reeling. Echelon, a $4.8 billion resort project on the Las Vegas Strip, was shuttered last year after its parent, Boyd Gaming Corp., and partner Morgans Hotel Group struggled to finance the project. A Las Vegas Sands Corp. condo tower sits unfinished after the casino operator decided to concentrate on finishing other projects. Several projects were canceled before work even started.

Meruelo Maddux Properties Inc., the biggest private landowner in downtown Los Angeles, is filing for bankruptcy protection after experiencing cash shortfalls because of the credit crunch and real estate downturn, the company said.

Commercial Real Estate Links - 3/23/09

I was going through some information on Google Analytics (video on setting up your blog or website) for research on driving traffic and found out that my most loyal viewers want a return of the Monday morning Commercial Real Estate list:

1. The Chicago Fed National Activity Index (CFNAI) was −2.83 in February, up from −3.74 in January. 

2. St. Louis - Bad loans rise more than 160% at St. Louis banks

3. Denver - Home sale prices show dip in Denver area for first two months of ’09

4. Winston/Salem - N.C. foreclosure program runs into ‘significant obstacles’

5. San Antonio - About 14 percent of San Antonio homes face negative equity, study shows

6. Sacramento - Business bankruptcies soar

7. Orlando - Business bankruptcies more than double in Central Florida

8. Bloomberg - U.S. banks brace for rising commercial loan defaults

9. Commercial Property News - Commercial Lending Up in 2008

10. Time Magazine - Banks need to overcome CRE debt glut

11. WSJ Online - General Growth in talks with Bondholders

12. Minneapolis - Real estate TIC boom has busted, players say

13. Dallas - It’s a buyer’s market with office leasing

Fed Money Supply

New graph (hit tip from Coyote Blog) from the St. Louis Fed website.. The Adjusted monetary base makes the point that we may not be in a recession long.. but what about inflation..

Northern California Market Updates

Received this link (The Registry) from a friend regarding the status of the market in Northern California:

What sectors of the commercial market will fare best or worst in 2009?

We are long in the $1-$20 million sales market, always more enduring, especially under $10 million. Lease work will be much more focused on renewals and reductions. Urban cores will do much better than fringe exurban markets.

How will the Bay Area fare in relation to other parts of the country?

The best by far, and even that will be tough. But we will all feel some light from late 2009.

How will a successful deal look in 2009?

Anything with public money attached to it, or rewriting leases long before they would have been rewritten before.

Who made the list?

The Madoff List has been published..