Restructuring, Diversifying, and Leasing are Keys to GGP's Resurgence, Mathrani Says
March 18, 2011
General Growth Properties (GGP), the huge Chicago-based real estate investment trust, is well on its way to recovering from the largest real estate bankruptcy in the nation's history, Sandeep Mathrani told a large audience of MIT/CRE students and faculty at the Media Lab on March 11. Mathrani, who became CEO of the 57-year-old company early this year, spoke at one of the Center's popular Leaders in Real Estate luncheons.
The collapse of America's second-largest owner of malls was a result of the excessive debt the company took on when it bought the competing Rouse Company in 2005, Mathrani said, setting the stage for his description of the company's current optimism by explaining what precipitated its thunderous downfall. Bloated by the Rouse acquisition, the company was an empire of more than 200 malls valued at almost $30 billion at the end of 2008. But it was also lumbering under a ponderous $27 billion+ in debt. And when the financial crisis and collapse of the commercial mortgage-backed securities market left it unable to pay down that debt as it matured two years ago, its lenders pulled the plug and bankruptcy protection became its only sanctuary.
Mathrani spent an hour candidly talking to the MIT/CRE audience about the plan for revitalizing GGP. That plan, which he described as his "100 day agenda," calls for the diversification of the company's risk by shedding some underachieving properties and restructuring leases. He's also streamlining the company's divisional responsibilities and management reporting structure and making organizational changes designed to increase human contact with tenants.
The company emerged from bankruptcy last November. But Mathrani is intent on learning from that difficult experience while simultaneously putting its shadow behind him. Toward that end the company aims to increase occupancy and raise rents in some of its highest-quality malls. It has a wealth of them, in fact; fully a quarter of the nation's top 100 retail destinations, including Honolulu's Ala Moana Center, Chicago's Water Tower Place, the Glendale Galleria in Los Angeles and Tysons Galleria in the nation's capital, are all best-of-breed destinations. GGP's 200 million-square-foot portfolio includes more than 24,000 stores.
Today the company is down from its 2008 form to a lean fighting weight of 180 malls, as well as a spattering of office complexes and community shopping centers. But Mathrani aims to do further pruning.
"Ninety percent of the company's income is from the best malls in the country," he said, and, indeed, more than half of the company's malls serve America's most populous markets. But Mathrani is not content with excellent location. He is taking steps to bolster the long-term health of those malls, as well as GGP, by carefully managing the tenant mix and restructuring tenant leases.
"Diversification of risk is essential to the company's security," he said. "We make sure that we have no single concentration in any tenant category that can put us at risk. And we make sure all the leases don't come due in the same year."
He's also aiming for increases in GGP's permanent occupancy rates. While an enviable 86 percent of the malls' tenants currently fit that description, he'd like to raise that percentage. To underscore the importance of that effort he noted that each percentage point of increase generates a whopping $25 million of operating income.
Mathrani, who is just 48, came to GGP from New York-based Vornado Realty Trust, where he had served as president–retail real estate since 2002. He has enjoyed a meteoric ride to the top of the real estate industry. After earning his Bachelor of Engineering, Master of Engineering and Master of Management Science degrees from Stevens Institute of Technology, in Hoboken, New Jersey, he began his career as an engineer. But construction of retail space did not captivate his imagination the way filling that space has.
Leasing served as Mathrani's entrée into the real estate profession and he has proven himself to be masterful at it. After teaching himself the ins and outs of the profession on the job, and building a reputation with small projects, he earned a vice presidency at Forest City Ratner, an affiliate of Forest City Enterprises, in 1994. Over the next eight years he led that company's retail development and retail leasing efforts in the metro New York area.
At both Forest City and Vornado Mathrani built highly valued portfolios. Leasing, he told the Center audience, is his passion and it is certainly his mantra at GGP where, he said, flatly, "Our job is to lease, lease, lease."