Real Estate Plunge Spreads To Malls

(CBS)  The recession has already taken its toll on retailers across the country. Now shopping malls themselves are in big trouble. One of the largest mall owners in this country filed for Chapter 11 bankruptcy Thursday.

General Growth Properties, which owns more than 200 malls, is more than $27 billion in debt - another sign that the meltdown in residential real estate is now spreading to the commercial sector as well, as CBS News correspondent Kelly Cobiella reports.

From New York's South Street Seaport, to the 100-store Fanieul Hall in Boston, to the Lincolnshire Mall in Chicago, shoppers are apparently just not spending like they used to. The bankruptcy filing by the Chicago-based GGP is the largest bankruptcy filing in the history of the American real estate business.

"Today there isn't enough capacity in the credit markets to refinance the debt for companies such as ourselves," said Tom Nolan, GGP's chief operating officer.

And GGP is not alone. Commercial real estate is on the verge of collapse --just like the housing market before it. Stores are closing at a pace not seen since 2001: 148,000 last year, with nearly that many predicted again this year.

Behind every empty storefront is a property owner like Yves Barroukh in Miami. He says his vacancy rate has shot up to 20 percent this year from 5 percent last year.

He's scrapping big projects, living off his savings, and dropping rents by more than half. One empty storefront started at $12,000 a month.

Now, says Barroukh, "We are negotiating $5,000 and we are not getting it."

Office space is in trouble too. The vacancy rate in San Francisco is up over 50 percent from last year. In Phoenix, it's up 45 percent, and in Palm Beach Florida, office vacancy is flirting with the one quarter mark and rising.

Barbara Burgis closed her South Florida yoga studio this month and is working out of her home. The landlord couldn't drop the rent low enough.

"They've got to pay their bills; they've got to make their payments and I think they were as low as they could possibly go and I was making as much as I could possibly make," she said.

Landlords with higher vacancy rates and lower rental incomes are only part of the problem. Landlords are struggling to refinance loans in a credit market that still hasn't thawed.

By one estimate, $400 billion in commercial mortgages are at risk of default or foreclosure this year.

As unemployment rises and spending drops the need for office and retail space continues to plunge.

"You're just spiraling downward," said Barroukh. "Just hang on."

Both Barroukh and Burgis are hoping to hang on, stretching their savings to survive the fall.

[ianlou]

It took a few years for the effects of the Middle Class Sccrewing during the Bush years to
be seen in our economy.

If and When the Middle Class Sccrewing ends, it will take a few years for the economy to recover.

[jackp32]

Here comes the second wave of the financial plunge of the U.S. Commercial real estate is moving to the forefront and bankruptcies will soon explode and cause banks and bond holders enormous financial problems.

[mrs_entity]

My wife still likes the mall atmosphere so we went there to do taxes at H&R block.Luckily she didn't have all her info so we had to go back another day.We inquired on the price and it would have been $190.00.Out of curiosity we called a local small branch of H&R block in a tiny little building,guess what $50.00.I think both of you make good points.Sorry about the malls luck!
Posted by jeffpzzzzzz
========================
H&R Block has a standard price for taxes for each branch so the price difference must have to do with what form needed to be filled out which had to do with how you answered the questions they asked you.

[rational_1]

It was their business-model death choice.
Posted by cattlekate1 at 6:03 PM : Apr 16, 2009

Looks like it's time for Bailout Barry to work his magic once again. After all, using our money to prop up failing companies with futile outdated business models is his forte. What's another few hundred billion when our kids are already going to be on the hook for trillions in obligations?

[patriot2381]

Malls, inventory, shopping, are all done on borrowed Money. Malls are failing becuase they are 90% financed and cannot make the payments. The palace is built on borrowed money for the profit of the mondy lenders. After this stimulus transfusioin the patient will rally briefly and expire. Malls will become like the ones in LA, hang outs for teen gangs.

[nolies74621]

We all know it is G.W. Bush's fault!I love blameing the Republicans for all the wrong in the world. Being black is finally paying off!! I hope to buy a few white slaves in the near future..Ha Ha (It ain't no fun when when the rabbit's got the gun!!) I loves me some blonde white womens!!!
Posted by albert571 at 10:51 PM : Apr 16, 2009

What an Idiot you are. Go drink a 40 and smoke a Newport with Berry Soetoro

[albert571]

We all know it is G.W. Bush's fault!I love blameing the Republicans for all the wrong in the world. Being black is finally paying off!! I hope to buy a few white slaves in the near future..Ha Ha (It ain't no fun when when the rabbit's got the gun!!) I loves me some blonde white womens!!!

[CnUHerMeNow]

No sympathy for the mall model. Malls are horrid. I haven't been to one in years. Strip malls aren't much better. Give me a stand alone mom and pop store any day. Adequate parking and prices that don't reflect some inflated mall rent. This should be the death knell for the mall and rightly so!

[cattlekate1]

Enclosed malls with the "casino-style" of locking people in an entrapment of two floors, rare elevators to get from one floor to the other, and lumberous pathways - are so seventies. Add to that stores stuffed-full of crappy polyester clothes, packed onto round racks - it makes a very unpleasant shopping experience. The writing was on the wall in the nineties, and yet they built the same style. It was their business-model death choice.