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Strategic defaults aren't just for homeowners, as some large commercial property owners are...

Strategic defaults aren't just for homeowners, as some large commercial property owners are defaulting on debts and surrendering to lenders buildings worth less than their loans. Macerich (MAC), Vornado Realty Trust (VNO), Simon Property (SPG) and others have plenty of cash to make payments; they choose to default because they think it makes good business sense.
Comments (10)
  • Bill L.
    , contributor
    Comments (682) | Send Message
     
    Remember when paying back debts was a matter of honor and personal responsibilty? Now a days people just take other people money and tell them to take a walk. Isn't that called stealing???
    24 Aug 2010, 05:30 PM Reply Like
  • enigmaman
    , contributor
    Comments (2686) | Send Message
     
    Simon walked away from a mall they owned in PBC Fl, located on a prime piece of land that backed up to I-95 in the heart of the county they had the cash but decided it was better to walk away while looking at other properties to purchase, so yes strategic defaults are alive and well in CRE but without the stigma associated with residential defaults.
    24 Aug 2010, 05:33 PM Reply Like
  • Jeff Nielson
    , contributor
    Comments (2464) | Send Message
     
    Well, that should certainly eliminate any stigma for U.S. homeowners who ALSO make these "good business decisions".

     

    The new "Tea Party"? "Just walk away."
    24 Aug 2010, 05:36 PM Reply Like
  • Credible Clarity
    , contributor
    Comments (160) | Send Message
     
    Been hearing people say that if you're credit worthy you should borrow to the hilt, buy the stuff you want (investments, groovy cars, vacation homes - preferably in a foreign country) and just wait as the great debt forgiveness, repudiations, work out loans are still coming. I do not subscribe to this unethical strategy, but there are some (and more and more) that do.

     

    To think we judge the Greeks for evading taxes and wanting to retire at 50 with pensions. Are "we" any better?

     

    It is embarrassing and quite sad. I miss the country I remember and a more moral society.
    24 Aug 2010, 05:40 PM Reply Like
  • Poor Texan
    , contributor
    Comments (3529) | Send Message
     
    "It is embarrassing and quite sad. I miss the country I remember and a more moral society."

     

    I think the word out of Washington is that we are a 'post-Christian' society. So look for more post-Christian moral decisions a.k.a. $$$$$.
    24 Aug 2010, 06:18 PM Reply Like
  • davidbdc
    , contributor
    Comments (3141) | Send Message
     
    It also shows the stupidity of the banks for agreeing to these non-recourse (ie "walkaway") loans in the first place.

     

    What is amazing to me is that CEO's stand up and act like they are leaders making tough decisions when they fire people or do things like this - aren't they really admitting that they have failed miserably? We are reducing headcount by 4% really means "My brilliant strategy of xyz has turned out to be a really dumb idea and because of management's stupidity we are going to fire 2000 people rather than fire the idiots that came up with this nonsense in the first place". Lots of risk for the low folks on the totem pole - none for those at the top.........

     

    Regarding these mortgages its basically bad business for the most part - yes, hypothetically the companies have paid more for these mortgages than if they were recourse mortgages....... but it should be a last gasp type of move. Like they say "there is no honor among thieves".
    24 Aug 2010, 06:57 PM Reply Like
  • farmer448
    , contributor
    Comments (229) | Send Message
     
    So the banks loaned on 80% of a phony value. I thought this is what caused the S&L crisis of the 1980's.

     

    Just keep thinking like Alfred E Newman, "What me Worry?"
    24 Aug 2010, 07:32 PM Reply Like
  • Tom Au, CFA
    , contributor
    Comments (6775) | Send Message
     
    The ultimate guarantee against massive defaults is not to do stupid deals in the first place.

     

    "Sanctity of contract" is a poor second safeguard against default.
    24 Aug 2010, 07:51 PM Reply Like
  • Hendershott
    , contributor
    Comments (1498) | Send Message
     
    It's just good business. Like firing a few thousand people here then spending a bunch of money to build a new plant in China. And corporate America can't figure out why the public doesn't trust them. After all they're just watching out for shareholder value.
    25 Aug 2010, 08:02 PM Reply Like
  • Hendershott
    , contributor
    Comments (1498) | Send Message
     
    By the way, you'll notice that neither Macerich, Vornado or Simon got their credit ratings downgraded. Apparently an out and out default isn't a credit event if it is done for "strategic" reasons. Wall Street managements can't figure out why the public doesn't trust them either.
    25 Aug 2010, 08:12 PM Reply Like
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