New manager for market?

Faneuil Hall landlord considers bankruptcy; city may buy back lease

General Growth Properties, a Chicago-based real estate investment trust, began leasing Faneuil Hall Marketplace from the city in 2004. (John Tlumacki/Globe Staff)

Merchants at Faneuil Hall Marketplace are asking the City of Boston to run the outdoor shopping center if their current landlord, General Growth Properties Inc., files for bankruptcy protection.

General Growth, the second-largest US mall operator, warned this week it may file for bankruptcy and plans to sell off malls as it struggles to refinance debt. Local retailers and city officials have feuded for years with General Growth over the direction of Faneuil Hall with national chains replacing many local merchants.

"In the event of a bankruptcy, we hope the city would step in and take the lease back," said Carol Troxell of the Faneuil Hall Merchants Association. "We do not want to be a mall. This could provide an opportunity for Faneuil Hall to be the beacon it once was."

Troxell said some merchants are also interested in buying properties from the city if it sells off the marketplace piece by piece.

Faneuil Hall Marketplace, one of the city's top tourist attractions, consists of four buildings owned by the city, including Quincy, North, and South markets. The city owns and runs the fourth building, nearby Faneuil Hall, a historical venue for some of the country's most prominent orators. General Growth began leasing the property from the city in 2004 after buying the previous manager.

Mayor Thomas M. Menino yesterday said the city is monitoring General Growth's situation and would explore all legal options. If General Growth files for bankruptcy protection, the lease would likely be sold with other assets and the city's control could be limited. Nonetheless, Menino, after a press conference at Faneuil Hall unveiling holiday promotions for shopping in Boston, said the city would use whatever leverage it had to ensure a secure future for the marketplace.

"This is one of the economic engines of the city," Menino said.

Potential buyers of the Faneuil Hall lease, including rival Simon Property Group Inc. and WinnCompanies, have already approached General Growth about taking over the lease, according to several local merchants and a local official briefed on the talks. A Simon spokesman yesterday declined comment. WinnCompanies, which has its headquarters at Faneuil Hall, could not be reached for comment.

General Growth would not identify which shopping centers it plans to sell, except for properties along the Las Vegas strip. The Chicago real estate investment trust also owns Providence Place in Rhode Island and the Natick Collection in Natick.

Other potential buyers for General Growth's area shopping centers could include real estate investment trusts Cousins Properties and Federal Realty Investment Trusts, said James Koury of Jones Lang LaSalle in Boston. Foreign investors may also be interested, such as Anglo Irish Bank, which owns the retail portion of 200 State St. located at the edge of Faneuil Hall Marketplace. But no matter how attractive these properties are, Koury said, it will be difficult for General Growth to make fast deals in this economic environment.

General Growth declined comment beyond a statement released yesterday, saying: "We continue working with our advisers to develop a comprehensive, strategic plan to generate capital from a variety of sources including, but not limited to, core and noncore asset sales, joint venture interests, a corporate level capital infusion, and/or strategic business combinations. Regardless of our situation, our properties and company will continue to operate, remain vibrant, and look forward to a prosperous holiday season."

Mall operators, which rapidly expanded properties in recent years often by borrowing huge sums of money, have confronted a confluence of problems, including consolidation by department stores, a rash of retail bankruptcies, a credit crunch, and a slowdown in consumer spending. Market research firm ShopperTrak yesterday said customers at retail stores for the month of October fell 12.4 percent.

Shopping centers across the country are struggling, said Mike Tesler of Retail Concepts in Norwell, and the situation will likely deteriorate after the holiday season when more bankruptcies are expected. In the past few weeks, Circuit City, Tweeter, and Linens 'n Things have filed for bankruptcy protection, shuttering many if not all of their stores.

Tesler said he anticipates the current economy will hurt the $1.5 billion Westwood Station development, which has been stalled for months because of state approvals over a liquor license and infrastructure demands by neighboring towns. The longer this drags out against a weakening economy, Tesler said, "the more scared retailers and investors will get and they will start to pull out."

Since debuting a multimillion-dollar expansion last fall, Natick Collection's new wing of luxury retailers has struggled to attract a steady flow of shoppers. A 215-unit luxury condo project attached to the mall, known as Nouvelle at Natick, has also foundered and a recent regulatory filing by General Growth stated it would take a $40 million loss on the property.

At the Natick Collection yesterday, mall traffic noticeably thinned out walking from the budget end by Sears and Macy's toward the high-end Neiman Marcus.

Diane Schwerdt, who visits Natick Collection every few weeks, said she has changed her shopping habits in response to the wobbly economy, downgrading to less expensive stores and spending less on her Christmas shopping.

"Nordstrom is one of my favorite stores, but I'm staying out of there more," she said. "It's almost like being on a diet - that sense of consciousness. If I don't buy something, it makes me feel good."

At Faneuil Hall yesterday, Kristine Adams, who recently lost her job, left the marketplace empty-handed.

"I am just cutting back everywhere I can," Adams said. "I haven't bought anything new for months."

Jenn Abelson can be reached at abelson@globe.com. Lisa Kocian of the Globe staff contributed to this story.