I've written several times in the recent past on the participation of life insurance companies in the shopping center financing. Whereas has a lot of attention in the press on the difficulties of the automobile companies are paid, have been the banks, and AIG, not much has been about the exposure of many life insurers, the adverse conditions of the loan and commercial real estate, said markets. This may be the case, because in the eyes of the audience and the issue of financialReporter, the connection between life insurance and real estate industry is not immediately obvious. Nevertheless, the connection is real, it is direct, and it is very large.
In the old city centers across the country, as a rule, each building was individually owned, usually by the operator of the company is - and often, the family lived upstairs. It is generally assumed that Don Casto, Columbus, Ohio, is the first real "mall" built in 1928 - several shops,"Strip" mode, in single ownership, with its own parking lot. In those days, the funding largely through local banks, based mainly been carried out on the personal signature of the borrower.
Later, when shopping centers grew, and began with a traditional department stores as key tenants, a couple of life began to see the potential of lending to this source of stable income function. The area grew as department stores, which, historically,aggressive competitors agreed to give the same shopping center. Now we have the culmination of the genre, exemplified by the mega-mall, the Mall of America near Minneapolis, which features several department stores and hundreds of smaller shops and an entertainment complex for many acres of ground.
Many life insurers and pension funds have aggressively invested in the mortgage shopping for many decades. Some of these loans were and are, themselves amortization over the term ofLoans, but some have maturities of, say, ten years, so that a substantial "balloon" amount is still outstanding. The expectation is that the outstanding amount refinanced ( "rolled") would be into a new loan at this time.
The plan works equally well when credit is-loose. It's not that work well when credit is tight.
That is what happened to General Growth Properties, which recently filed for bankruptcy. We understand that the Basic Law, the problem was particularly acute, because it was difficult to leaveshort-term financing, probably more so than most of the shopping center development company when it bought Rouse Company, and thus, large portions of undeveloped land. GG was in a quandary, because short-term loans, which they had historically without much problem at all rolled unavailable.
This is not to cast a shadow on the properties themselves. To a large extent they are "tent" shopping centers that are well maintained and enjoy first-class locations andCompetitiveness in their communities. The problem is not the features, we read that they have enough cash to generate a sustainable way. The problem is that GG's incapacity, the amount of loans that are due to refinance, too.
So, the insurance companies and other lenders who were unwilling or unable to roll over loans GG's say now that "there may be a further delay," as it is or not. Undoubtedly, the centers will continue to be operated. The investment company that owns 25% of GGhas agreed to provide substantial funds for GG as "debtor in possession" in the bankruptcy proceedings.
One concern is that "further delay" a negative impact on some of the life insurers who have now made their appearance as a petitioner on the bailout line can have. This is not quite the same situation as a bank, which has a financial relationship with depositors or borrowers, and that's all. A life insurance policy is in the nature of a fiduciary relationship.There is hardly a trusting relationship than that between a policyholder and his life, when the result is safe, and he trusts that, without fail, will the policy pay off to his death and his wife and children must be protected by it.
Life insurers are regulated by individual states, not by the federal government. However, informed by the news that some life insurers included (most important in the delivery) in Washington, that they may be, haveIn need of emergency help, there is not likely that the Federal Government is available from the solution. Many of the states themselves are not helping the situation, and finally there is only one entity that has taken to create the power of money out of thin air.
It is inconceivable that a life insurance policy would be allowed to the extent that they will not rise to pay for life insurance policies after the death of the insured. Nevertheless, the specter has arrived: the bankruptcy of GeneralGrowth is the biggest real estate bankruptcy filing, ever, and many life insurers and pension funds really significant amounts of money on the table.
I have generally good feelings about the possible emergence of General Growth in the bankruptcy proceedings. The properties are good. This is not a case of abandoned skeletons of half-built skyscrapers. It had too much short-term loans and a lack of self-amortization loan was. GG has not caught in a credit crunchactual fault occurs.
Quite apart from the question of repatriation of capital, there may be "haircuts" and even "shave administered" the lenders in the coming days. It is necessary to ascertain to what extent the observed significantly affect certain life insurance and pension funds. It bears observing.
William Kurtz 17th April 2009
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