General Growth collapse bucks Bucksbaum dynasty

CHICAGO (Reuters) - Do the Bucksbaums stop here?

It took half a century for No. 2 U.S. mall operator General Growth Properties Inc -- launched when brothers Martin and Matthew Bucksbaum expanded the family grocery business in 1954 by building a shopping center in Cedar Rapids, Iowa -- to peak with the purchase of mall owner Rouse Cos for $14.2 billion.

But that deal, financed entirely with debt, was also the undoing of General Growth and cost its shareholders -- the Bucksbaum family chief among them -- a fortune.

Less than five years after then Chief Executive and family scion John Bucksbaum -- son of Matthew -- proudly announced the Rouse deal on Aug 20. 2004 and promised to "create the most profitable and productive shopping center company in the world," General Growth has filed for Chapter 11 bankruptcy protection.

"General Growth was leveraged at an extreme level compared to any other real estate investment trust," said Anthony LoPinto, Chief Executive of real estate executive search firm Equinox Partners. "When the credit markets collapsed the company was left with no room to maneuver.

"This was a family business with a long, fine tradition in the real estate industry, with a great reputation." he added. "That was destroyed with one fell swoop by poor management of their balance sheet."

While there is some debate as to whether General Growth's failure stems from being a victim of circumstances or self- inflicted wounds, there is no doubt the Bucksbaum family has lost billions of dollars.

And what little this Midwestern family has left will be further eroded as the bankruptcy process is seen likely further diluting the already negligible value of their shares.

FAMILY LOSES $4 BILLION

General Growth shares hit their lifetime high of $67.43 on March 23, 2007, in the boom days before the collapse of the credit market. Regulatory filings at the time showed the Bucksbaum family trust, Matthew Bucksbaum and John Bucksbaum, owned around 64 million shares, or more than 23 percent of the company. That put their stake at around $4.3 billion.

But General Growth's short-term debt financing was a ticking bomb.

"A company with that much short-term debt will not necessarily implode when the markets are functioning normally," said BMO Capital Markets analyst Paul Adornato. "But during a time of stress they will experience the most pain."

As the boom withered on the vine and turned to bust, General Growth's stock declined throughout 2008.

The stock hit a miserable low of 24 cents on Nov 12, not long after CEO John Bucksbaum was forced out. The board of directors had discovered the family's trust had lent disgraced former chief financial officer Bernard Freibaum -- widely regarded as the power behind the throne and the architect of the wobbly balance sheet -- $90 million.

A keen cyclist -- he serves on the board of USA Cycling, the U.S. national governing body for competitive cycling -- John Bucksbaum remains company chairman.

"The Bucksbaums are exceptional people, but like many others, they bet on the capital markets continuing to rise," said Bernie Haddigan, managing director of brokerage Marcus & Millichap Investment Services' retail division. "That was a fatal mistake. They won't miss a meal, but they've lost billions."

As of March 23 this year, the Bucksbaums owned a combined 69 million shares. Based on the $1.05 closing price of General Growth stock on Wednesday -- its last day of trading -- their stake was now worth $72.45 million.

NOT YET AT THE BOTTOM

BMO's Adornato said the remnants of the Bucksbaum billions are under threat.

"It depends how much additional equity the company needs to recapitalize," he said. "But at this point I think it's less a question of if, but rather how much more equity they need."

John Davis, a senior lecturer at the Harvard Business School said there is an unfair tendency to blame the families that own corporations for failure.

"The family generally plays a role in failure, but there are often outside factors involved," he said. "In this case, the collapse of the credit markets."

Others point out that some other real estate investment trusts -- including Developers Diversified Realty Corp -- are highly leveraged, meaning General Growth was not alone.

"No one predicted how deep and complete the withdrawal of credit would be," said Susan Wachter, a University of Pennsylvania real estate professor. "With hindsight it's easy to say they should have been more conservative."

But Equinox's LoPinto said ultimately responsibility for General Growth's problems lies with John Bucksbaum.

"They left themselves short and now the company's shareholders, employees, management and the Bucksbaum family are all paying the price," he said.

(Editing by Andre Grenon)