NEW YORK, April 16 (Reuters) - Shopping malls sold in bankruptcy by General Growth Properties may finally set prices in a stalled market and release billions of dollars stockpiled for good buys in U.S. commercial real estate.
On Thursday the No. 2 U.S. mall owner, along with 158 of its properties, filed for Chapter 11 bankruptcy protection, ending months of speculation as to when, not if, that would happen. Company executives said they intend to sell some properties.
"The public companies we think are best positioned to capitalize on General Growth's unraveling are Simon Group Inc (SPG.N), Taubman (TCO.N), Westfield WDC.AX, and Vornado (VNO.N)," J.P. Morgan real estate investment trust (REIT) analysts wrote in a research note.
Representatives from Vornado and Westfield declined to comment. A Taubman representative was not immediately available for comment.
Taubman, which is known for its luxury malls, has one of the healthiest balance sheets among REITs, but its high-end retailers have been among the hardest hit in the U.S. recession.
However, the other three have each raised or retained vast amounts of cash, either through equity offerings, debt issuances or retaining earnings.
"I can see the biggest global players like Simon, possibly some of the specialist pension funds like Calpers or Teachers, Westfield and maybe some opportunistic money like Area Property Partners (formerly Apollo Real Estate) taking a look at this portfolio," Bruce Nutman, UK head of retail capital markets at CB Richard Ellis Group Inc (CBG.N).
But Simon Chief Financial Officer Stephen Sterrett reiterated what his boss David Simon has said earlier: that Simon $1.2 billion cash and equity raised plus nearly $1 billion in cash savings from a change in its dividend policy was strictly to ensure Simon will navigate the credit crisis.
"I don't think it's appropriate for me to comment on assets within their portfolio or potential acquisition opportunities," Sterrett said. "We would hope that there comes a point in time of the cycle that we would all feel comfortable being offensive. I don't think we're to that point yet."
General Growth President Thomas Nolan said the company has about a handful of properties for sale and J.P. Morgan does not believe the company would be liquidated.
The U.S. commercial real estate market has been at a near standstill as buyers and sellers refuse to make deals for fear of either paying to much or demanding too little. Without trades, the market cannot establish prices, especially in the current environment where the cost of debt financing, if available, has soared.
"Everybody is sort of waiting for a defining moment, and unfortunately it probably takes something like a bankruptcy filing to find out where that is," said David Csontos, senior vice president of the Investment Sales Division of real estate services firm FirstService Williams.
Other experts said public pension funds, such as Calpers and Teachers' Pension and Annuity Fund, likely will stay out of the ring, several experts said.
"They have too much in real estate and the least thing that want is exposure to something like that," said an investment banker who declined to be identified. "They are much more risk adverse than all the other guys."
Some of them are over-weighted in U.S. commercial real estate. In fact, for the first time in 12 years, U.S. public pension funds in the fourth quarter withdrew more commitments for real estate funds than they made, according to weekly financial newsletter Real Estate Alert.
Private equity firms are likely to take a long hard look at the assets.
In an annual review Real Estate Alert published March 18, 466 active funds seeking commitments from U.S. investors have targeted $312 billion in equity for commercial real estate investments with a projected return after fees of at least 10 percent. So far they have raised slightly more than $200 billion of that, according to Real Estate Alert.
Sterrett said he believes the market will gradually come back.
"Whether this is the event that would cause some of that to be invested, my gut answer is 'no' -- only because I think the bankruptcy proceeding will take some time and I'm not sure in any event there will be a single thing that would cause the money to be shaken loose," Sterrett said. (Reporting by Ilaina Jonas; editing by Richard Chang)