Simon tried to buy General Growth malls, chief says

Simon Property Group Inc., the largest U.S. shopping-mall owner by stock-market value, tried to buy real estate from General Growth Properties Inc. before it filed for bankruptcy, Chief Executive David E. Simon said.

"They didn't realize they were a distressed seller," Simon said in a panel discussion at the Milken Institute Global Conference today in Beverly Hills, California. Few commercial real estate sales are being completed because sellers aren't willing to take losses on their investments, Simon said.

General Growth, based in Chicago, this month filed the biggest real estate bankruptcy in U.S. history after amassing $27 billion in debt during an acquisition spree that turned it into the second-largest shopping mall owner. Stephen E. Sterrett, chief financial officer of Indianapolis-based Simon Property, said after the filing that General Growth malls "would probably fit very well in our portfolio."

General Growth and other real estate investors used too much debt to buy commercial properties during the boom in the market, leaving "very few" properties that have less debt than they're worth, Equity Group Investments LLC Chairman Sam Zell said during today's panel discussion.

"You have a scenario today where you have very few '03 to '07 financings that are above water," Zell said. "You have more debt than you have value."

Commercial property values in the U.S. have dropped as much as 25 percent from their 2007 peak and will fall another 20 percent as owners sell buildings for less than they paid, Zell said.

Investors will buy distressed debt for "the next two to three years" as those properties are foreclosed upon, he said.

"Equity players have every reason to keep playing for time," Scott Minerd, chief executive officer of Guggenheim Partners Asset Management Inc., which has about $30 billion under management, said during the panel discussion.