The Rogue Valley Mall will continue operating as usual while its owner, General Growth Properties Inc, seeks bankruptcy protection.

By Greg Stiles

For the Tidings

The Rogue Valley Mall will continue operating as usual while its owner, General Growth Properties Inc., seeks bankruptcy protection. The company made the move Thursday in what analysts are calling the biggest real estate failure in American history.

General Growth's board decided to file in U.S. Bankruptcy Court in Manhattan after failing in efforts to piece together a plan for an out-of-court restructuring with a growing list of creditors, according to people familiar with the talks.

The filing makes General Growth the biggest bankruptcy of a U.S. real estate company, according to BankruptcyData.com.

It includes General Growth, its Rouse Co. subsidiary and most of its malls. It doesn't include General Growth's management company or joint-venture holdings.

The company said Thursday that all day-to-day operations and business of its shopping malls would continue as usual while it reorganizes.

General Growth, which owns and manages more than 200 malls, is the second-largest U.S. mall owner by number of properties behind Simon Property Group Inc.

The Chicago-based company bought the Rogue Valley Mall in December 2003 for more than $57 million from Gregory Greenfield & Associates.

The total area within the mall is about 847,000 square feet. Macy's owns its building on the west side and leases the former Montgomery Ward site on the east side. Kohl's owns its site on the north end, while J.C. Penney Co. has a lease for its building running into 2011.

Saddled with $27 billion in debt from a series of purchases, General Growth has tried for months to unload some of its ritziest properties, including mega malls in Las Vegas.

Medford commercial real estate broker Sam Fung said rapid expansion limited General Growth's ability to build equity in its shopping centers.

"In a way, the whole company is based on other people's money, banks and investors, with everything revolving around the continued use of debt," Fung said.

"When the financial markets collapsed, they could not refinance the debt and with the bank threatening foreclosure, the only alternative was to file bankruptcy. A lot of times, they have more leverage to negotiate with the banker."

When companies are in growth modes, there are only two sources of capital — either generating it internally through sales and leases or borrowing it.

"It all comes back to capital, and how much they've tucked away in reserves," Fung said. "When you keep expanding, you're utilizing your money to make more money."

That works until a revenue drop undercuts a company's ability to finance debt.

General Growth's big retail tenants indicated they would continue normal operations during what could be a lengthy restructuring period. J.C. Penney has 111 of its 1,101 stores in General Growth malls, according to a regulatory filing by General Growth. Macy's has 106 of its 840 stores in General Growth's malls.

General Growth's debt issues surfaced last year and have been a topic of discussion for sometime. So Thursday's news didn't come as a surprise to retailers at the Rogue Valley Mall.

"It's come up in conversation in the past 60 days, but there hasn't been an influx of questions today," said J.C. Penney Medford store director Frank Clifton. "I can't tell you it wouldn't be in the back of people's minds, but nothing significant."

A memo was sent to mall tenants explaining the process General Growth will go through in the weeks ahead.

"In summary, there's really nothing different going on today," Clifton said. "There's no visible change."

The Wall Street Journal reported many analysts suspect General Growth will survive a lengthy bankruptcy intact, but perhaps come out smaller after selling properties.

General Growth's Oregon holdings include Clackamas Town Center and Gateway Mall in Portland, Gateway Mall in Springfield and the Salem Center. It also owns or manages several planned communities and a collection of commercial office buildings, including Bailey Hills in Eugene and Division Crossing and Halsey Crossing in Gresham.

Reach reporter Greg Stiles at 776-4463 or e-mail business@mailtribune.com.