The Work

December 2, 2009 4:38 PM

Kirkland, Venable, Weil on General Growth Properties Reorganization Plan

Posted by Julie Triedman

General Growth Properties, Inc., the nation’s fourth-largest real estate investment trust, filed a set of restructuring plans Tuesday night that would collectively restructure billions of dollars in mortgages that it holds.

The proposed plans cover the lion's share of GGP subsidiaries, and, if approved, would represent a significant step toward solving the parent company’s problems by taking a substantial proportion of those subsidiaries' debt out bankruptcy. The remainder of GGP's property-related debt, including $7 billion in trade and unsecured parent company debt, $6 billion in other property-related debt, and several billions of dollars more connected to joint ventures, must still be reconciled in bankruptcy court.

Nevertheless, the company's plans for modifying the terms of its plethora of securitized loans is already being studied by others in the industry as a possible alternative to foreclosure for similarly troubled real estate debtors. If successful, it would be the largest restructuring of commercial mortgage-backed securities (CMBS) debt ever, according to Kirkland & Ellis’s James Sprayregen, who represents the GGP subsidiaries, and Venable’s Gregory Cross, who represents the special servicer trusts negotiating on the lender-investors’ behalf.

Also involved in the effort is a team led by Weil, Gotshal & Manges' Marcia Goldstein, on behalf of the parent company. Goldstein is working with Gary Holtzer, Sylvia Mayer, Adam Strochak, Steven Youngman, and Elisa Lemmer. Kirkland's Sprayregen is teamed closely with Anup Sathy, associates Chad Husnick, Scott Kitei, Todd Schwartz and Ryan Dahl. Cross, chair of Venable’s bankruptcy group, was assisted by Courtney Capute for real estate matters and Edward Smith for bankruptcy advice in the loan modification negotiations, and by associate Dana Fidazzo.

With roughly $27 billion in debt, GGP's April Chapter 11 filing represented the largest real estate bankruptcy in United States history. The REIT had been known in the industry as one of the most aggressive investors in malls and shopping centers (its 200 mall holdings include South Street Seaport in Lower Manhattan). GGP typically paid the highest prices in bidding wars and structured its deal financing as shorter-term debt than other real estate investors, with the repayment of those mortgages dependent on the CMBS market. 

"When the CMBS market disappeared, so did [General Growth's] liquidity," says Derek Smith, a real estate finance partner at Paul, Hastings, Janofsky & Walker, who represents many real estate investors. "I'd been hearing for years, 'They're going to have to pay the piper some day.'"

Under the proposed plans, Venable's Cross says, lenders on some 78 loans covering 93 GGP properties would recover all of their principal and interest, as well as attorneys' and other fees. The mortgages involved total about $9.7 billion, according to a GGP statement. The plan extends the loans’ maturity dates by various amounts, with the lenders getting their principal repaid much faster, as well as receiving more favorable and protective terms in the loan contracts. "It won't solve all of GGP’s problems, but it significantly lessens them," notes Smith.

Hearings on the plan are scheduled to begin in U.S. bankruptcy court in Manhattan on December 15.

The work on the various loan modification agreements has been all-consuming for several months, say Sprayregen and Cross. Kirkland has tapped a total of 50 lawyers at various times since last April's filing; Cross has roughly 14 working full time on the loan agreements, and relied on roughly eight lawyers for the bankruptcy filing.

This is not Cross's first go-round in renegotiating CMBS debt. In 1998, he helped renegotiate the CMBS held by Criimi Mae, once a pillar of the market. That was the last major CMBS restructuring achieved via a bankruptcy proceeding, he says.

Are more REIT bankruptcies likely? Probaby not, says Paul, Hastings' Smith. Most other large REITs, he says,  have already deleveraged and have sold off assets or raised cash in other ways. "I don't see anybody [else GGP’s size] who hasn’t cleaned up their balance sheets by now," Smith says.

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