Brookfield to run General Growth spinoff

By Dow Jones Newswires
Posted Aug. 24, 2010 at 12:45 p.m.

General Growth Properties Inc. has struck a deal for Brookfield Advisors LP to manage the new real-estate company it plans to spin off when it exits Chapter 11 protection.

The mall owner is tapping Brookfield Advisors to prepare the  company to separate from the nation’s second-largest mall owner and become publicly traded, according to papers filed Monday with the U.S. Bankruptcy Court in Manhattan.
Brookfield Advisors is an affiliate of Brookfield Asset Management Inc., one of the investors that has pledged to pump $8.55 billion into General Growth to help it emerge from bankruptcy.

Upon completion of the bankruptcy case, Brookfield would own up to 16 percent of the new company’s stock and be among the investors holding a 70 percent stake in the reorganized General Growth.

“Brookfield is an ideal candidate as interim manager of  Spinco because its interests in Spinco’s immediate and long-term success are directly aligned with those of General Growth and its current shareholders,” General Growth said in court papers.

Under the interim-management agreement, which requires court approval, Brookfield would be paid  $500,000 per month for an assignment of up to six months. The engagement can be extended.

The directors of the new company, appointed as part of its emergence from bankruptcy, will be charged with finding permanent management.

As part of the management agreement, Brookfield will appoint the new company’s first set of executives. It has tapped David Arthur,  president and chief executive of the Brookfield Real Estate Opportunity Fund, as the new company’s CEO.

General Growth said Arthur and his team have extensive experience in the types of properties the new company will hold, including master-planned communities and commercial real estate.

“Brookfield’s master-planned community experience is of key importance, as they will comprise a significant portion of Spinco’s assets and project to be a main driver of Spinco’s business,” General Growth said.

Brookfield affiliates manage planned residential communities in Arizona, California and suburban Washington, D.C.

Existing General Growth shareholders will own 86 percent of the spinoff, before the execution of any warrants issued as part of General Growth’s Chapter 11 plan.

In addition to Brookfield, Fairholme Capital Management, Pershing Square Capital Management LP and Blackstone Group LP  will all buy stock in the new company, making a collective investment of $250 million.

Under General Growth’s Chapter 11 plan, those same investors are pumping $6.3 billion into the reorganized mall owner in exchange for the potential 70 percent stake and have agreed to backstop a $2 billion debt and equity rights offering.

General Growth was cleared to send its bankruptcy-exit plan to creditors for a vote last week. The Chicago company filed for Chapter 11 in April 2009.

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