A Trip To The Chopping Maul

I keep telling you guys that the worst is yet to come as the commercial real estate market continues to collapse. General Growth Properties owns dozens of malls across the country, including the local mall where I live here in northern Kentucky. They're basically on the verge of complete bankruptcy now.

Standard's & Poor's Ratings Services lowered its credit ratings on General Growth Properties Inc. on default, a day after the debt-laden mall owner let a due date for $395 million in bonds pass without payment.

The nation's second-largest mall owner by number of properties, which is trying to coax its bondholders into a nine-month extension, is hoping holders of the past-due bonds will forgo filing an involuntary bankruptcy petition against it and instead allow it to restructure its $27 billion debt load out of court.

Some investors, however, consider a bankruptcy filing likely. A bankruptcy filing by General Growth would be one of the largest for a real-estate company.

S&P, meanwhile, lowered its corporate credit line to D from CC and its rating on the company's unsecured debt to D from C, affecting about $5 billion of rated debt.

"While the company has not filed for bankruptcy protection, Standard & Poor's rating criteria indicates a 'D' rating when an interest or principal payment is due and is not paid," said S&P analyst Linda Phelps.

Moody's followed suit as well, reducing it to one step above default. GGP is done for, folks. Bankruptcy for these guys will only be the beginning of the collapse of the commercial real estate market, potentially closing thousands of stores, offices, hotels, and malls and putting millions out of work. The American consumption economy is over, folks. Americans are scaling back massively on spending, credit card companies are warning of record default rates, and this means the retail sector is going to be crushed over the next year. Even if the residential real estate market stabilizes, the commercial one will cause another massive wave of problems for everyone.

Bankruptcy for GGP is imminent. If they can't work out a deal, that's literally a hundred or so malls at risk of closing. You figure 1,000 employees a piece, that's a million folks out of work right there.

Keep an eye on GGP. It's only the start.