General Growth trying to settle Hughes heirs claims

General Growth Properties Inc., the second-largest U.S. mall operator, will resolve a dispute with Howard Hughes's heirs through an appraisal of property in Nevada, a judge ruled.

U.S. Bankruptcy Judge Allan Gropper said today that the heirs can pursue a full appraisal process without delaying confirmation of General Growth's bankruptcy plan in October. The company and a shareholder committee had asked the court to make an estimate, saying an appraisal by the heirs might delay General Growth's exit from bankruptcy.

"We'll have a number one way or another by October," Gropper said in U.S. Bankruptcy Court in Manhattan. "Maybe we'll just have a cap, maybe we'll have a simmering dispute."

The Hughes heirs are owed about half of the value of unsold property at the Summerlin master-planned community near Las Vegas, which was estimated at $430 million for tax purposes and given a $1.1 billion book value by Chicago-based General Growth.

Steven Hoort, a lawyer for the heirs, said the range of valuations make an appraisal necessary.

"The number the debtors use for development costs -- the number is huge," Hoort said. "We would like to probe that number in discovery."

The roots of the dispute with the Hughes heirs date to 1976, when the billionaire aviator, industrialist and filmmaker died at 70, childless and without a will. Rouse Co., a mall owner based in Columbia, Maryland, bought Hughes's remaining assets, including about 22,500 acres of Nevada land, in 1996 for $520 million in cash, stock and assumed debt. The heirs were to get a portion of profits from future land sales under the agreement.

Rouse AcquisitionGeneral Growth bought Rouse in 2004 for $11.3 billion and assumed the obligation to the Hughes heirs, who have received semi-annual payments from the sale of land developed as part of the Summerlin project. Under the deal, any land remaining by the end of 2009 was to be appraised and the heirs paid.Separately, Gropper ruled today that General Growth can replace its debtor-in-possession financing, which funds operations while the company reorganizes. The new loan will save the company $2.7 million a month in interest payments.Gropper also approved General Growth's motion to auction property in Clark County, Nevada.General Growth's initial $400 million loan, dated May 15 2009, will be repaid with the new loan with an interest rate 8 percentage points lower, the company said in court documents. Barclays Bank Plc is the agent for the new loan, which matures on May 16 or when the reorganization takes effect, whichever comes first.New CompaniesUnder General Growth's proposal to exit Chapter 11, it will fully repay debt and other claims, raise as much as $8.5 billion of new capital, and issue stock in two new companies to current shareholders.The company's exit from bankruptcy is being financed by Brookfield Asset Management Inc., Fairholme Capital Management LLC and Pershing Square Capital Management LLC. General Growth has already won court approval to restructure $15 billion of secured debt tied to 144 properties.General Growth began the largest real-estate reorganization in history by filing under Chapter 11 in April 2009. The company had amassed a $27 billion debt load while making acquisitions. It expects to remain the second-largest mall owner in the U.S., with 180 properties in 43 states.The two new General Growth companies will divide the assets, with the larger one keeping the name and most of the malls.The case is In re General Growth Properties Inc., 09-11977, U.S. Bankruptcy Court, Southern District of New York (Manhattan).