CHAPTER THREE
004
THE RETAIL REAL ESTATE
Mixed cart of goodies as new shopping center, mall outlook turns sour; Sweeter future at start of next decade
 
 
The sudden onslaught of the credit crisis after the collapse of the subprime residential market in 2007 claimed a couple of early victims. The most prominent, of course, was Bear Stearns & Co. Inc. But even before the big Wall Street firm was forced to sell itself to JPMorgan Chase & Co., the earliest casualty was a major real estate company—Centro Properties Group of Melbourne, Australia.
Although not well known in the United States, the Australian company was one of the largest owners of shopping centers in this country, with 700 U.S. shopping malls sitting in its portfolio. It attained such prominence in the usual manner: It bought big. Early in 2007, Centro acquired New Plan Excel Realty Trust for $3.4 billion.1
The problem for Centro wasn’t the real estate, it was the manner in which the New Plan Excel acquisition was done: Centro borrowed most of the capital using shorter-term debt to finance long-term investments. With cheap money still available, Centro did what most real estate investors were doing. They took advantage of the availability of short-term capital with the certainty that it could find long-term financing to take out the always expensive short-term debt. When the credit crisis ensued, liquidity dried up and Centro’s ...

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