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General Growth Properties Inc, the second-largest U.S. mall owner, declared bankruptcy on today in what is the biggest real estate failure in U.S. history. The bankruptcy ended months of speculation that General Growth would be unable to refinance billions in debt as the credit crunch continues in the US.

General Growth, along with 158 of its 200-plus U.S. malls, filed Chapter 11 so that it can have court protection as it tries to refinance its massive debts.

The bankruptcy is bad news for the firms creditors as well as for the US commercial real estate market. Even though Chicago-based General Growth, which owns such valuable properties as South Street Seaport in New York, Fashion Show in Las Vegas and Faneuil Hall Marketplace in Boston, listed total assets of $29.56 billion and total debts of $27.29 billion, leaving a net worth of $2.27 billion, it was unable to refinance debt as it became due. And in a bankruptcy net worth can melt away fast as the attorney’s fees and difficulties of operating under court supervision take their toll.

The General Growth bankruptcy should be a wake up call to those who think that the banking crises in the US is over. Most large mall operators are in about the same financial condition as General Growth as they have billions of dollars of loans to refinance in a terrible market for refinancings of large amounts of debt.

Commercial real estate, which until recently had held up relatively well, now looks like the next hammer to fall upon the banks earnings and the economy as unemployment continues to increase. Here is a note to those who think that the worse is over. People who are out of work do very little shopping in big malls. Probably a whole string of mall failures will seriously hit bank earnings.

Then don’t forget about the insurance companies. Their loan portfolios are stuffed with commercial real state loans that will likely become non performing as 2009, the year from hell, continues to deteriorate.

General Growth Properties Filing the largest US real estate bankruptcy in history is not a good sign for an early end to the financial crisis.

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