UPDATE 2-General Growth, Hughes heirs settle Vegas dispute

* General Growth to pay $230 million to Hughes’ heirs

* Disputed payment on Summerlin residential development

* General Growth to make payment after bankruptcy exit (Recasts, adds dateline)

NEW YORK, Sept 20 (Reuters) - General Growth Properties Inc GGP.N, a shopping mall owner operating in bankruptcy, will pay the heirs of late billionaire Howard Hughes $230 million to resolve a long dispute over its acquisition of Summerlin, a huge Las Vegas residential development.

The settlement is one of the last hurdles that General Growth needed to remove before emerging from Chapter 11, as the second-largest U.S. mall owner hopes to do this fall.

General Growth said it will pay Hughes’ heirs $10 million of cash and $220 million of either cash or stock in a reorganized company, and make the payment shortly after it emerges from bankruptcy. The settlement requires approval by U.S. Bankruptcy Judge Allan Gropper in Manhattan.

Summerlin is a 22,500-acre master planned community located roughly 12 miles (19 km) from downtown Las Vegas. It has nearly 100,000 residents, 26 public and private schools, close to 150 parks, golf courses, medical facilities and shopping centers.

Rouse Co had acquired Summerlin from the Hughes estate in 1996. It set up a 14-year payment schedule where a final payment was to be made in December 2009, and based on half the value of some 7,500 acres of undeveloped land.

That schedule went on hold when General Growth, which had bought Rouse in 2004, filed for Chapter 11 in April 2009 after tight credit conditions left it unable to refinance billions of dollars of debt.

Known as an eccentric recluse, Hughes died in 1976, and his assets including casinos and many aircraft went to his heirs. The Summerlin property is its principal remaining asset, according to Summerlin’s website.

General Growth has more than 200 properties, including the Ala Moana Center in Hawaii, Faneuil Hall Marketplace in Boston, Harborplace in Baltimore and Water Tower Place in Chicago.

Its plan to emerge from bankruptcy calls for Canada's Brookfield Asset Management Inc BAMa.TO, Fairholme Funds Inc and Pershing Square Capital Management LP to provide $6.3 billion of equity and $250 million to fund a spinoff of some properties into a new publicly-traded company.

Summerlin would become part of the new company, which is now known as Spinco.

The case is In re: General Growth Properties Inc et al, U.S. Bankruptcy Court, Southern District of New York, No. 09-11977. (Reporting by Jonathan Stempel in New York and Mansi Dutta in Bangalore; Editing by Derek Caney)