Even as the county begins reviewing General Growth Properties Inc.'s historic plan to redevelop downtown Columbia, the company itself has reached a major financial crossroads, industry analysts said.

In the last week, the company has lost its chief financial officer, suspended its stock dividend and seen its share price tumble.

Still, all that bad news might not spell tough times ahead for the company's ambitious plan for downtown Columbia, which was unveiled last week, according to analysts that track the company. While financial analysts differ on exactly what the future holds for General Growth, there was some consensus that changes at the company would not necessarily hurt plans for downtown Columbia. For the time being, the company will be in "capital conservation mode," trying to limit spending in any area they can, said Jonathan Miniman, vice president of ING Clarion Real Estate Securities in Philadelphia. ING Clarion Real Estate Securities handles portfolios of real estate assets for individuals and corporate investors and tracks General Growth, a real estate investment trust that is publicly traded on the New York Stock Exchange.

Spending money on the design and planning phase of a project is nothing compared to construction costs, Miniman said, so that process in Columbia would likely continue for now. General Growth has said construction would not begin until late 2010 or even early 2011, years removed from the decisions the company will make in the near future, Miniman said.

The General Growth projects that are in jeopardy are more likely to be in less proven markets, such as Las Vegas, where homes were built in anticipation of expected demand that never arrived, he said.

Rich Moore, an analyst with RBC Capital Markets in Cleveland who studies General Growth, said he expected the company to be bought out within 45 days.

The company's current troubles, he said, stretch back to its purchase of the Rouse Co. in 2004. The company went into debt making the purchase and is facing problems getting that debt -- $1 billion due by the end of the year and more due in 2009 -- refinanced in a tough market.

"It's pretty clear that there's no easy fix," Moore said.

Still, he said, even if the company is sold that might not change any of its current plans.

"The important thing to remember is the projects stand on their own and it's the merit of the project that's judged," Moore said. "If the dollars spent make sense, then the new guy will spend them as well."

GGP expects to stay

Gregory Hamm, regional vice president and general manager of Columbia for General Growth, told the Columbia Association Board of Directors last week that he had every reason to believe General Growth would stay in Columbia. Putting into place the company's plans to redevelop Columbia is important, he said, because even if another company were to take over, the agreed-upon plan would be locked in.

"Now is the time to get it right because we can," Hamm said. "A year from now, we may not have the opportunity."

Hamm said he was not worried about gaining financing because the community is in a prime location between Washington and Baltimore, has a good school system and offers other amenities that make it attractive to developers.

General Growth, the second-largest owner of U.S. shopping malls, owns the Columbia mall and six other shopping centers in Maryland. It also owns and develops planned communities and is the majority landowner in downtown Columbia.

The company formally submitted its 30-year plan Oct. 1 to redevelop downtown Columbia with new residential, retail, office and hotel space. The county Department of Planning and Zoning and other agencies are reviewing the proposals and will issue a report in about a month.

General Growth's stock fell to $3.51 a share on Oct. 7, a drop in value of almost 90 percent from the start of the year when the stock was selling at around $41 a share.

Mixed opinions

Outside opinions on the company remain mixed.

"They're in a very precarious position right now," Miniman said. "The stock continues in this death spiral until we get some clarity on how they're going to bring equity into the company."

Miniman said he thinks the company still has options, but a large-scale asset sale would be the most likely one at this point. County land records show the company last week sold the Rivers Corporate Park on Guilford Road to First Potomac Realty Trust for $42.2 million, a step in the right direction, Miniman said, but not enough to right the ship.

A General Growth official told the Baltimore Sun the property had been on the market for months and was sold because it did not fit with the rest of its portfolio.

Paul Morgan, an analyst with FBR Capital Markets in Arlington, Va., gave credit to General Growth for suspending its 50 cents per quarter dividend and replacing CFO Bernard Freibaum last week. But he recommended that investors "remain on the sidelines" while the company figures out its strategy, according to a research report released by Morgan on Oct. 3.

Wachovia Capital Markets took a different view, writing in a research report Oct. 3 that the shares of the company were undervalued and the total potential on returns outweighed the current risks.

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user comments (3)

user exinsider says...

Just don't be under the false impression that Columbia is a priority with GGP. They are a Chicago-centered company, oriented heavily towards retail development, and virtual strangers to community development. So if something has to be sold off, it would likely be a "non-core" asset--in GGP's case: Columbia or another community development project.

A side note on former CFO Bernard Freidbaum. Ex-Rouse employees working in GGP's Columbia offices will recall Bernie from a webcast on the GGP intranet. Mr. Freidbaum cavorted with a scantily-clad female "actress" in a skit that was supposed to be funny, but was offensive in the extreme. However, the skit apparently reflected Bernie's poor judgment. Adios, Bernie!

Posted 4:06 PM, 10.11.08

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user david14750 says...

Are you a disgruntled former employee or are you just trying to undermine the redevelopment process by bad-mouthing GGP? Or maybe just misinformed.

GGP has spent millions of dollars on the best consultants to create the plan for Town Center, which presents huge RETAIL opportunities for GGP. That, combined with the geographic concentration they enjoy in the region, absolutely makes CTC a core investment. Plus, the basis on this property is so low, tax on the gains would wipe out a big part of the proceeds if these properties were sold.

They have significant office holdings, which are not, as you correctly point out, their core business. These properties, especially those in non-target/concentrated geographic areas and/or those with a more favorable tax basis, would likely be the first to go.

Additionally, raw land and operating retail properties are not nearly as marketable as stable commercial office properties in this capital-strapped market. If GGP needs to raise some quick cash in this market, without giving it all away in taxes, sale of office properties outside of their core market areas would likely be their strategy.

Let's keep thinking positive, work together and get something great accomplished!

Posted 2:22 PM, 10.12.08

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user exinsider says...

"The stupid neither forgive nor forget; the naive forgive and forget; the wise forgive but do not forget. " --T. Szasz

Thinking positive is great, but being naive about the fate and motivations of GGP is foolhardy. As one of the REITs that has been hit the hardest, (Kilpinger calls GGP's 80% decline "extreme" among its peers. GGP needs to raise $1 BILLION by year end.

The comments about the ex-CFO are true and serve as one indication of the corporate culture. It pays to understand that culture when the company is requesting major development changes from Howard County.

Posted 11:42 AM, 10.13.08

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