Up For Sale

Nearly $3.1 billion in debt, General Growth Properties plans to sell Baltimore's Harborplace & The Gallery to avoid bankruptcy

December 19, 2008|By Andrea K. Walker | Andrea K. Walker,andrea.walker@baltsun.com

Harborplace & The Gallery, the shopping and entertainment development that was central to Baltimore's downtown renaissance, is for sale as its landlord faces pressure to raise cash to avoid bankruptcy.

The New York investment bank DTZ Rockwood posted materials on its Web site yesterday saying that it had been hired by Chicago-based General Growth Properties to sell its Festival Marketplace Portfolio, which includes the 28-year-old Baltimore development, Faneuil Hall Marketplace in Boston and South Street Seaport in New York.

General Growth, which owns more than 200 shopping malls in 44 states, said last month that it was trying to sell properties as it faced nearly $3.1 billion in maturing debt next year. General Growth's woes stem in part from its $11.3 billion purchase of the Columbia-based Rouse Co. in 2004. General Growth, which owns several other local malls, is Columbia's master developer.

This marks the first time since General Growth's debt announcement last month that an area mall has been shopped publicly for sale. A General Growth spokesman confirmed that the company is looking for investment opportunities for Harborplace but did not provide specifics.

"Harborplace is among a group of properties for which General Growth is seeking partners, investors or buyers," spokesman David Keating said in an e-mail yesterday. "This is a part of our company's effort to reduce debt and improve our balance sheet."

But retail brokers and analysts said the difficult retail and credit environment could make it a challenge to sell the properties, despite its prime downtown waterfront location. The properties generated nearly $114 million in retail sales for the 12 months that ended Sept. 30, according to DTZ Rockwood marketing materials. DTZ listed more that $102 million each in sales for South Street Seaport and Faneuil Hall.

A DTZ spokesman declined to comment yesterday. It is unclear whether the properties would be sold individually or as a group.

"In this climate, I think everything is hard," said Geoffrey Mackler, a principal with H&R Retail. "The fact is that most banks are closed for business. You can't get a loan [or] any loan you can get now is going to be short-term. And the bank requirements are very, very strict. I do believe it's a great piece of property if there are people out there with either huge funds ... or who can get financing."

The twin glass Harborplace pavilions opened in 1980 and became a symbol internationally of how to revive depressed downtowns and waterfronts. It became a major tourist attraction, brought people back to live and shop in the city, and spurred further development in the area. The Gallery opened across Pratt Street in 1987.

"Harborplace & The Gallery put downtown Baltimore on the map," said Kirby Fowler, president of the Downtown Partnership. "It signaled to the world that Baltimore was coming back after decades of disinvestment. It will always remain a critical asset of downtown Baltimore."

But the mix of stores, which started as mainly local, has changed over the years and some experts say the properties have suffered an identity problem as downtown development offered consumers more choices.

Like Harborplace & The Gallery, Faneuil Hall and South Street Seaport are urban waterfront developments meant to offer shopping, dining and cultural attractions. DTZ said Faneuil Hall is the most popular tourist destination in Boston, and South StreetSeaport ranks as the fifth-most visited spot in New York.

But the properties are difficult assets to sell in this retail environment because they have high turnover among tenants and are continually in transition, said David Fick, an analyst with Stifel Nicolaus. He called the tenant mix "bland" and "generic."

He said Harborplace will remain a tourist draw, but that The Gallery suffers from weaker business during evenings and weekends.

"These are very expensive properties to operate, so it is hard for an owner to generate a return on investment above the common area costs, insurance and taxes," Fick said. "That is especially true in high-traffic, low sales volume venues like these two properties.

"The current commercial real estate lending environment makes any asset sale difficult to complete," Fick said. "Mediocre retail projects like Harborplace & The Gallery are especially challenged because any new owner or lender will have to assume reduced sales and increased vacancy from current levels for at least the next two years."

But Fowler said General Growth has changed the direction of the properties, including adding national retailers such as Urban Outfitters to boost consumer traffic. He said the company is also trying to diversify the mix of tenants.

"We agreed and supported General Growth's strategy to start moving the pavilions toward a more mixed-use venue that caters to not just tourists but to residents as well," Fowler said. "We would encourage new owners to continue that momentum."

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