Real Estate Forum - May/June 2009

Flavin, vice president of Florida operations. The firm’s headquarters was also relocated from Tampa to Atlanta late last year.

Opus South operates independently of the rest of Opus Corp. and has developed more than 27 million square feet since starting operations in 1981. The firm has expertise in office, industrial, retail, multi-family, government and institutional projects.—Carl Cronan

Infrastructure Upgrades
Need Plan, Funding

Ever since the Urban Land Institute and Ernst & Young teamed up to produce an annual report on the state of the nation’s infrastructure, it seemed as though the duo’s efforts were largely focused on convincing readers of the need for the upgrade—a point reinforced by post-Hurri-cane Katrina New Orleans—and later—the collapse of the Minneapolis bridge.

Fast forward to 2009: the message has been received—albeit also influenced by economic factors—and the country is poised to embark on an unprecedented series of infrastructure upgrades. The report, called “Infrastructure 2009: Pivot Point” notes that required upgrades are estimated to be approximately $2.2 trillion. In what is hoped to be just a down payment on this endeavor, President Barack Obama has folded some $132 billion for infrastructure repairs in his economic recovery bill. These projects range from roads, transit, a smart energy grid and, more recently, a high-speed passenger rail project. This investment is expected to provide a boost to the commercial real estate industry. In a telling figure in

the report, 60% of US developers surveyed said that their projects had been constrained because of a lack of infrastructure.

Now that the necessity of upgrades has been accepted, and at least some of the funding earmarked for this purpose, ULI and E&Y are examining the next phase: how to execute a project of this magnitude. Funding is also key; while the initial projects will be financed with government largess, there is little doubt that the private sector will have to step up for the next wave of projects. For investors, the report is a heads-up that the traditional investment schemes in infrastructure—which have never reached in this country the sophistication seen in Europe and Asia—are about to be revamped as well.

As such, this report focuses on the best way to redistribute infrastructure funds and key gateway projects to the US, Michael Lucki, Global Leader of Infrastructure and Construction at E&Y, said at a press conference on April 20, when the report was released. “At the federal level there needs to be more coordination for infrastructure planning and funding.”

The report lauded the Obama Administration’s plan to establish an American Infrastructure Bank. Laid out in broad strokes earlier this month, the bank would help finance national networks, attract more private capital and advance public-private partnerships. Whether this bank makes its way through Congress remains to be seen. However, even without a national funding entity, Lucki says the way infrastructure investment is made will undoubtedly change in the coming years.

“The emphasis will shift more to user pays, instead of taxpayer pays,” he said.

Some of the proposed measures are sure to be met with stiff resistance: vehicle-miles-traveled charges, for instance, or gas taxes. Other savings could be found through technologies such as smart metering installed in homes and businesses for power, heating and water. The common thread running through these proposals is a definite link established between future federal funding to states and local governments and national goals for infrastructure policy.—Erika Morphy

Michael Lucki, global infrastructure leader for Ernst & Young, and Maureen L. McAvey, EVP of the initiatives group at the Urban Land Institute, at ULI’s press conference in Washington, DC.

GGP Files for Ch. 11,
Begins Restructuring

After trying for months to refinance its loans and pay down its debt, Chicago-based General Growth Properties has filed for Chapter 11 bankruptcy. The decision to seek government protection was decided upon unanimously during a board meeting on April 15, according to Adam Metz, GGP’s chief executive officer. The retail-focused company had $1.12 billion in overdue debt as of the beginning of that month.

The filing will impact only those properties GGP owns and does not include those that are part of joint ventures or third-party management. Initially, a total of 158 regional shopping centers fell under bankruptcy protection, while roughly 60 properties were exempt. But a week after announcing the filing the REIT added an additional eight assets to the pool.

Of the 166 regional centers included in the filing, some high-profile properties stick out, such as Ala Moana Center, in Honolulu; Faneuil Hall Marketplace, in Boston; and the Grand Canal Shoppes at the Venetian and Fashion Show Mall, both on the Las Vegas Strip. Of the about 52 properties that aren’t part of the filing, some big-name centers are Water Tower Place, in Chicago; Oakbrook Center, in Oak Brook, IL; and Glendale [CA] Galleria.

In a conference call announcing the filing, Metz denied suggestions that the acquisition of the Columbia, MD-based Rouse Co. in 2004 for $7.2 billion was the main reason for the bankruptcy filing. He said up until October 2008 the company had been able to pay off its debt, but when the credit crisis hit they ended up unable to make the repayments.

Metz was mostly silent about the ways the company would be restructured to begin to pay off its debt. “It is not our ambition to be smaller,” Metz said. “It is our ambition to have a portfolio that is valued by the market.” He refrained from speculating about the number of loca-