We’re bankrupt but not broken, Seaport says


By Julie Shapiro

After General Growth Properties executives spent months promising the community that the company’s finances were strong, the South Street Seaport owner filed for bankruptcy last Thursday.

The Seaport mall will remain open while G.G.P. tries to restructure its $27 billion of debt, but the proposed redevelopment of Pier 17 is on hold. G.G.P. had hoped to build a new hotel and retail complex on the pier, complete with a 500-foot tower to the north. The company and its consultants spent dozens of hours meeting with the community about the controversial plans.

“We said, ‘Where’s the money?’ and they said, ‘Don’t worry,’” said Roger Byrom, chairperson of Community Board 1’s Landmarks Committee. “It’s all wasted, wasn’t it? The whole community came out over and over again for nothing.”

Julie Menin, chairperson of the community board, said she could not recall another topic as divisive for the neighborhood as General Growth’s redevelopment plans. The board will likely not receive the givebacks G.G.P. promised in conjunction with the development, including a 30,000-square-foot community center. But Menin said the process of planning the center with consultant Debby Hirshman was helpful.

Janell Vaughan, senior general manager of the Seaport, said G.G.P. still hopes to overhaul the Seaport but has slowed down the process. The company is employing consultants and meeting with them as needed, she said in a phone interview.

“Our intent is to continue working with the city and community on our plan while we also engage in the Chapter 11 process,” Jim Graham, a corporate spokesperson for G.G.P., said in a statement, although the firm’s president said development plans were pretty much on hold.

Graham and Vaughan declined to comment on whether the Seaport mall would remain up for sale.

The redevelopment plan suffered several blows prior to the bankruptcy, including the city Landmarks Preservation Commission’s sharp criticism last fall.

Tom Nolan, president and C.O.O. of General Growth, said last week in a conference call with reporters that virtually all development is on hold not because of the bankruptcy but because of the difficulty all companies are having in getting financing.

All of General Growth’s more than 200 malls are staying open during the bankruptcy, because the problem is not with G.G.P.’s operational model, Nolan said. Rather, G.G.P. was unable to refinance its billions of dollars of debt and many creditors were not willing to keep waiting.

“We’re going to make this bankruptcy filing invisible to the shoppers in our malls,” Nolan said.

Vaughan said everything was “business as usual” at the Seaport this week, with plans underway for events this summer, including the Seaport Music Festival, a New York City opera performance and the opening of Water Taxi Beach. G.G.P. will also reopen its farmer’s market this summer and house the Dog Run Repertory Theatre Company in the @Seaport space.

“The Seaport hasn’t changed,” Vaughan said.

Dave Nerahoo, manager for the As Seen on TV and Choice Portables stores in the mall, said he and other store owners are rooting for General Growth to recover.

“It’s just a numbers thing,” Nerahoo said. “They’ll get back on their feet — they’re strong…. No one’s jumped out of windows or anything like that.”

“I don’t think they’re going to go anywhere,” added Yasir Abdul, president of the company that owns those two stores. “They’re a good property holder and a good operator.”

Vaughan said the mall’s occupancy is at 93 percent, the same as last year. That’s just above the company’s national 92.5 percent occupancy at the end of 2008, which was one of the highest levels General Growth had seen in 15 years, Nolan said.

Faith Hope Consolo, a New York retail broker, does not expect the bankruptcy to dissuade new tenants from signing leases at the Seaport.

“It puts the mind to rest of the new retailer knowing that resolution is on the way,” Consolo said. “Sadly enough, we’re getting used to the word ‘bankruptcy.’”

To keep the Seaport and its other malls open, G.G.P. received a $375 million infusion from Pershing Square Capital Management, a New York-based firm that took a 25 percent interest in G.G.P. as the company’s stock plumbed new depths last fall. William Ackman, who runs Pershing and also owns a large stake in the Target retail chain, declined to comment on prospects for the Seaport.

Many blame G.G.P.’s meltdown on the company’s aggressive acquisition of property over the past 10 years, including its 2004 acquisition of the Rouse Company, a deal that gave General Growth the South Street Seaport.

But Nolan, the company president, said the Rouse purchase was not a problem until recently, when the credit markets shut down and prevented G.G.P. from refinancing the loans. Prior to that, G.G.P. had successfully financed pieces of Rouse-related debt, he said.

Scott Robinson, a professor at New York University’s Schack Institute of Real Estate, said the next step is for General Growth executives to look at the value of the company’s assets and compare that to its debts. The problem, though, will be the gap between the book-value of the properties and their market-value, since property values have declined over the last year.

Robinson is banking on General Growth succeeding in balancing its books and said it was wise for the company to declare bankruptcy.

“They’ll look at everything in the big picture, rather than piecemeal like they’ve been doing,” Robinson said.

General Growth may look to sell properties to raise money and last December put the Seaport on the market along with two other high-profile properties from the Rouse acquisition: Boston’s Faneuil Hall and Baltimore’s Inner Harbor. Robinson said it would make sense for G.G.P. to sell the Seaport because it is not a cookie-cutter mall that fits easily into the company’s portfolio.

Consolo, the broker, and several others guessed that if anyone does buy the Seaport mall, a New York developer, not a national mall owner, would be the most likely candidate, since much of the Seaport’s value is in its development potential.

While the Seaport’s future is in limbo, Community Board 1, which backed General Growth’s landmarks application last year, is taking the opportunity to try to extend the city’s South Street Seaport Historic District to cover the entire project site. One parcel left out of the district, holding the dilapidated New Market building, gave G.G.P. the opportunity to build a tower that would not have been permitted in the district. C.B. 1’s Landmarks Committee passed a resolution last week to extend the district to include all of Pier 17 and the New Market site, which would make the city’s district match the federal one.

Lisi de Bourbon, spokesperson for the Landmarks Preservation Commission, which has the final say, declined to comment on the proposal because the L.P.C. has not received it.

The Preservation League of New York State just listed the Seaport on its “Seven to Save” list, though it does not look like the property is in danger right now.

Several residents who opposed General Growth’s development plan for the Seaport said they hope a future developer will come up with a plan that gets broader support. Paul Hovitz, a Seaport resident who was among the sharpest critics of the plan, sounded a bit nostalgic for it this week, saying it had some good ideas. Hovitz also would have liked the community center General Growth offered and said one is still necessary on the east side of Lower Manhattan.

“It’s a shame there wasn’t something that could be worked out,” Hovitz said.