Scott Moskol is an attorney with the Boston-based law firm, Burns & Levinson, representing investors and other institutional clients in matters pertaining primarily to commercial and bankruptcy law. His business practice spans the areas of corporate transactions, commercial finance, business workouts and reorganization.
PBN: What are your thoughts in general on the two rival plans for pulling General Growth Properties out of bankruptcy?
MOSKOL: What is happening presently in the GGP bankruptcy is not that unusual (in or out of bankruptcy). Two rival groups are trying to buy GGP’s assets. One group is led Fairholme Capital Management and Pershing Square Capital Management and supported by GGP’s management. Simon Property Group Inc., which owns hundreds of malls and shopping centers around the country, had made a separate bid to buy the company for approximately $10 billion.
First, it is difficult to evaluate the two competing plans, mostly because neither appears to be final. There are media reports that Simon is preparing a higher bid for the GGP assets. Similarly, whereas GGP was expected to file its proposed plan with the bankruptcy court on March 19, it has instead requested additional time to file in order to finalize post-petition financing. Second, it is difficult to compare the two rival plans because each offers different pools of assets and assign different pricings on each group.
Further, my belief is that we will see further delays as the two rivals jockey for control of the various commercial real estate assets owned by GGP. We will need to stay tuned before coming up with a final evaluation of the two offers.
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PBN: Simon’s offer by some has been seen as hostile, but a better deal for creditors. What’s your perspective?
MOSKOL: As noted, until we see the final terms of both parties’ competing plans for acquisition and/or ownership of the debtors’ assets, it is premature to make any final evaluations. It is not certain if Simon’s offer is actually better at this time. Further, until GGP files its latest version of its proposed plan of reorganization, we can’t be sure what amount creditors might receive under any plan.
That said, we do know that Simon, the nation’s largest mall operator in terms of gross leasable area, has been seeking to expand rapidly. Later this year, Simon is scheduled to close on its $2.3 billion acquisition of Prime Outlets Acquisition Co. The key question is whether Simon can truly absorb another multi-billion acquisition without it becoming a candidate for bankruptcy. Remember that many analysts believe that part of the reason that GGP filed for bankruptcy was due to its $14.2 billion acquisition from Rouse Cos. in 2004. While that acquisition was highly leveraged – and at this point Simon’s offer to GGP allegedly is not – if the economy takes a dip back into recession as some economists are predicting, or if unemployment does not improve, then we certainly would need to keep an eye on Simon’s economic future.
PBN: There are some local players and assets involved in the case. How big of a role do you think they’ll play as the case goes on?
MOSKOL: Right now GGP owns two of the region’s most prestigious properties – Providence Place and Faneuil Hall. Locally, Met Life holds the mortgage on the Providence Place.
In the grand scheme of things, the battle over GGP’s properties will have little impact on these local players and assets. Regardless of who buys GGP, the purchase won’t invalidate any lender’s mortgages on the properties. Thus instead of having GGP pay the mortgage on the Providence Place Mall, it might be Simon who collects the rents from those tenants and makes the mortgage payments to Met Life.
Indeed, Providence Place Mall was never truly insolvent. GGP had set up individual companies to own each of its malls. It was surprising to many lenders when all the malls owned by GGP filed for bankruptcy as many of the properties were not insolvent. In fact, Met Life sought to dismiss the bankruptcy with respect to the Providence Place, arguing that since it was not insolvent and paying its bills as they come due, there was no reason for that company to be in bankruptcy. Met Life was concerned that profits might be used to pay the bills for other insolvent or bankruptcy malls. Ultimately, the court overruled Met Life’s motion to dismiss (and indeed overruled all such similar motions), allowing GGP to treat its entire real estate empire in a similar way and use all its properties’ revenues to support the bankruptcy as a whole.
PBN: This has been a large case, both in terms of dollars and assets. Do you see it setting precedent for future bankruptcies?
MOSKOL: I actually do. As I mentioned, GGP set up individual companies for each of its malls (and other pieces of commercial properties) into what are called Special Purpose Vehicles (SPVs). Lenders like to use this type of corporate structure as the bankruptcy of one or more malls shouldn’t – theoretically – drag the other malls into a bankruptcy situation.
While there were several unique factors in this case, ultimately the judge did allow GGP to include all of its subsidiary companies (each one containing a different property) to be included in the bankruptcy. This surprised many bankruptcy experts who fully expected that the profitable malls would be dismissed from the bankruptcy. As a result, many corporations that hold commercial real estate are re-evaluating the way these entities are held. Certainly, with respect to new lending work, lenders are asking their counsel about this issue.
PBN: And with all these reorganizations is it – for better or for worse – a good time to be in the bankruptcy field?
MOSKOL: It’s a good time to be in the bankruptcy field if your work is diversified. While we aren’t seeing an uptick in bankruptcies, we are seeing quite a few workouts, foreclosures and receiverships. Proper strategic planning and preparation, for any business, are the keys to success when managing through troubled times. The ability to look at failing companies and suggest ways other than bankruptcy to keep them going is essential in this economy.
