From a small northwestern observatory…

Argus, on their blog, have a well-written report on the General Growth Properties Chapter 11 filing. I have more than a passing bit of interest in GGP — my Ph.D. dissertation was on REITs, and GGP was one of the companies I analyzed. More importantly, what implications does GGP’s filing have for retail real estate in general?

Is this a passing phenomenon, emblematic of the trough of a recession, or are we facing a structural shift in the American economy away from retail consumption? The former has some implications for GGP’s management (why did you leverage-up so much when you know that consumer recessions are cyclical realities?) as well as for their lenders and bondholders (why did you loan them so much?). The latter potentiality has much deeper, longer-term implications for both GGP as well as their competitors.

Only time will tell, but there is a lot of sentiment among both economists and other public policy types that a return to pre-2008 consumption patterns isn’t necessarily the best thing for America. Naturally, our global trading partners are apoplectic over such an idea — for example, if we quit “consuming” all of China’s stuff, many of their workers are either going to have to go back to farming or their economy is going to have to be more internally self sufficient. In either of those scenarios, China starts looking a lot like the next Japan, only much bigger.