The keynote address at the 2010 Kellogg Real Estate Conference was delivered by Adam Metz ’90, interim CEO of General Growth Properties (GGP). Less than a week before GGP was expected to emerge from the largest bankruptcy in United States history, Metz provided the audience with a candid look inside GGP, addressed some misconceptions about the Chapter 11 process and shared his thoughts on the future of the retail shopping experience.
|Adam Metz '90 delivers the keynote address at the 2010 Kellogg Real Estate Conference|
Metz began by reminding that audience that GGP’s April 2009 bankruptcy filing was the result of its inability to refinance $15 billion of property-level debt, the majority of which was structured as commercial mortgage backed securities (CMBS). Metz described GGP’s earlier efforts to restructure this debt with various life companies, commercial banks and special servicers. The lack of precedent in dealing with special servicers was illustrated in an anecdote in which a team of GGP professionals traveled to New York to meet with a special servicer, only to arrive at an empty conference room with no one to talk to.
Metz talked about the importance of communicating daily with GGP’s key stakeholders including employees, creditors and mall vendors at each of its 185 shopping malls. His primary challenge was to maintain employee morale during a period when any operational disruption could make the bankruptcy process more onerous. One such disruption occurred when GGP’s corporate credit card vendor abruptly cancelled GGP’s accounts.
Metz told the audience that it was never GGP’s intent to challenge the “bankruptcy-remote” status of the 166 special purpose entities that were included in the filing. In contrast to GGP’s struggles in dealing simultaneously with numerous CMBS trusts pre-bankruptcy, Metz described how a different story unfolded once inside the courtroom. Early in the process, amid the throng of lawyers representing the CMBS trusts, the presiding judge ordered that the creditors informally elect one lawyer to speak on behalf of the numerous trusts. Metz indicated that this early development was critical and helped establish a sense of order that carried throughout the process.
On the eve of GGP’s emergence from bankruptcy (GGP emerged on November 9), Metz reflected on the process that consumed 19 months of his tenure as CEO. He said that to some, “there is a stigma associated with filing Chapter 11; however, the bankruptcy was the best thing that could have happened to GGP.” While GGP’s current stock price of $15 represents a fraction of its March 2007 high of $67, Metz indicated that this performance outpaces some of GGP’s peer REITs and he attributed some of the value recovery to the efficiencies gained through the bankruptcy process.
Going forward, Metz predicted that the competition in the retail segment will continue to be defined by the fragmentation of the shopping experience. The success of regional shopping malls, lifestyle centers, and strip centers will depend on the ability of these assets to deliver a quality shopping experience that can evolve in the long-term as consumer preferences change. Metz believes that further growth of the online shopping experience will challenge the traditional brick and mortar retail outlets.