Real estate is in hedge fund manager William Ackman’s DNA. His grandfather and great-uncle started a real estate investment firm in Manhattan in 1926. Today known as Ackman-Ziff Real Estate Group, it is chaired by Ackman’s father, Lawrence. As founder and CEO of $5.8 billion Pershing Square Capital Management (also based in Manhattan), Ackman, 44, often engages in real estate arbitrage: taking a position in a company whose stock price does not fully reflect the value of the underlying property.

This technique may turn out to be the source of the most lucrative trade in the history of Pershing Square — or that of any other firm. At the nub of it is General Growth Properties, the Chicago real estate concern that owns or manages some 200 shopping malls. Begun in 1954, General Growth filed for Chapter 11 in April of last year. After the ’08 market meltdown froze the commercial-mortgage-backed loan market, the company couldn’t refinance its debt.

Pershing Square had already begun amassing an equity stake in General Growth by late 2008, when obvious signs of distress had driven the company’s stock down to the 35- to 50-cent range from a high of more than $65 in mid-2007. At the time of bankruptcy, Ackman owned or controlled (through derivatives) 19.9 percent of General Growth’s equity.

Ordinarily, of course, equity holders dread Chapter 11, because shares are the first to be written off. Ackman, however, contended that General Growth’s property holdings — the shopping malls — were worth much more than the stock. He calculated the true value of the shares at $10 to $30. In fact, he argued, the real estate would not only make creditors whole but also make the equity holders rich.

So convinced was Ackman that the company’s plight represented a huge bargain that Pershing eagerly led a group willing to put up interim debtor-in-possession financing when General Growth filed for bankruptcy. They stipulated, however, that the loan carry warrants that could be converted into shares when General Growth emerged from bankruptcy. And although the bankruptcy court approved the Pershing group’s $375 million DIP proposal, it was later rejected in favor of a $400 million DIP deal put forward by a rival consortium spearheaded by San Francisco–based hedge fund Farallon Capital Management. The Farallon loan’s main draw: No warrants.