Bankrupt GGP raises stakes in commercial mortgages

By Al Yoon - Analysis

NEW YORK (Reuters) - The bankruptcy of one of the highest-profile U.S. commercial real estate owners is raising the stakes in negotiations over billions of dollars in office, retail, and apartment property debt that must be refinanced in coming months and years.

General Growth Properties Inc's Chapter 11 filing has focused a spotlight on the plight of the commercial mortgage market, where a persistent lack of credit has put a huge chunk of the $3.4 trillion market at risk of default. The move into bankruptcy by such a major borrower may be the impetus for resolutions in debt negotiations, which have been methodical but slow, analysts said.

"Where lenders have some flexibility they are certainly going to be amenable to working with the borrower rather than see a disorderly result, like bankruptcy," said Sam Chandan, president and chief economist at research firm Real Estate Economics LLC in New York.

However, investors in commercial mortgage-backed securities (CMBS) took the GGP bankruptcy in stride. Risk premiums on CMBS indexes fell slightly, reversing moves earlier this week.

There is some $300 billion in commercial mortgage debt maturing this year, and few analysts expect a revival in the supply of credit big enough to spur new lending. Refinancing commercial debt has been complicated further as the U.S. recession is resulting in falling property revenue and real estate prices that may drop more than 40 percent.

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The industry got a clarion call for intensified efforts to restart lending as GGP Chief Operating Officer Tom Nolan decried an unprecedented lack of credit in commercial real estate markets, said Jan Sternin, senior vice president of the Mortgage Bankers Association's commercial group in Washington.

Nolan, speaking on Reuters Financial Television, also said frustrations of dealing with mortgage servicers and bondholders over maturing loans in CMBS pushed the Chicago-based company toward bankruptcy, where "the restructuring of that debt was probably going to be more efficient."