Mounting strains in Commercial Property

[Crewleader]

Property in America
Commercial break

Apr 23rd 2009
From The Economist print edition
Disaster looms in yet another asset class


GENERAL GROWTH PROPERTIES (GGP) and the Great Basin Bank do not have a lot in common. One is America’s second-largest mall owner, the other a small bank in Elko, Nevada. But both shut their doors within a day of each other this month because of their exposure to commercial property, the most threatening in a line-up of suspect asset classes.
Alamy Vegas fashion victim

GGP filed for Chapter 11 bankruptcy protection on April 16th. Its assets, which include the Fashion Show Mall in Las Vegas (pictured) and South Street Seaport in New York, are high-quality and continue to generate decent income. Its financing structure is what got it into trouble. GGP found that it simply could not roll over its debts because of a lack of liquidity.

GGP’s difficulties were not unexpected. It was carrying lots of debt, principally because of a big acquisition in 2004, and much of it was short-term. But its failure still sends two shock waves. First, by including several properties that back commercial mortgage-backed securities (CMBS) in its Chapter 11 filing, GGP has unnerved investors who expect such assets to be ringfenced in a bankruptcy.

http://www.economist.com/finance/displayStory.cfm?story_id=13528258&