Premier Direct Insurance

I have written several times in the recent past on the participation life insurance companies in financing the mall. As it has been great attention by the press about the difficulties of automotive companies, banks, and AIG, not much has been said about the exposure of many life insurance companies in adverse conditions credit and commercial real estate markets. This may be the case because in the public mind, and what financial journalists, the relationship between life insurance companies and real estate industry is not immediately obvious. However, the connection is real, it is direct, and it is very important.

In the old city centers across the country, generally, each building was individually owned, usually by the operator of the company are - and often, the family lived upstairs. It is generally understood that Don Casto of Columbus, Ohio, built the first real mall "in 1928 - several shops," band "fashion, in single ownership, with their own parking. In those days, the funding has been achieved largely by local banks, which relied primarily on the borrower's signature.

Later, as shopping centers have grown in size and began to have a traditional store as the anchor tenant, a few insurance life began to see the potential to provide this stable source of income. The field increases when the department stores, which historically has been aggressive competitors agreed to enter into the same shopping center. Now we have the pinnacle of the genre, the mega-mall, illustrated by the Mall of America near Minneapolis, including several department stores, hundreds of small shops and a leisure complex covering several acres of land.

Many life insurance companies and pension funds have invested heavily in mortgage shopping center for many decades. Some of these loans were, and are self-depreciation over the term of the loan, but some of the dates of, say, ten years, leaving a substantial "balloon" amount. The expectation was that the outstanding amount will be refinanced ("toggled") into a new loan at this time.

The plan works well when credit is loose. It does not work so well when credit is tight.

This happened at General Growth Properties, which has just made bankrupt. We understand that the GG problem was particularly acute because it relied heavily on financing short term, probably more than most companies shopping center development, when it bought Rouse Company and thereby large tracts of undeveloped land. GG is in a bind because the short-term loans which he had rolled onto the past without much problem became available to all.

This is not to cast a shadow on the goods themselves. To a large extent, they are "Marquee malls" which are well maintained and enjoy prime locations and competitiveness in their communities. The problem is not the properties, we read that they generate enough cash to sustain themselves. The problem is the inability to refinance the GE Capital loans coming due.

Thus, insurance companies and other lenders who were unwilling or unable to roll over loans GG note today that "there may be some additional time," like it or not. Undoubtedly, the centers will continue to operate. The investment company which holds 25% stake in GE has agreed to provide substantial funds for GG as "debtor in possession" in the bankruptcy proceedings.

Some worrying is that the delay "later" could affect some of the same life insurance companies which have emerged as suppliants on the lifeline. This is not all t.