Given A Choice, Commercial Property Owners Choose to Default

Posted By on August 25, 2010

The big players always knew that real estate loans were non-recourse loans.

They walk-away voluntarily.  Remember  the commercial market is more professional than housing.

As  more of the big boys bite the dust,  the huge bounce will  crest,  and down she comes.

Pension funds, insurance companies, small banks, retirement accounts etc. get hammered.

Commercial Property Owners Choose to Default
By KRIS HUDSON And A.D. PRUITT

Like homeowners walking away from mortgaged houses that plummeted in value, some of the largest commercial-property owners are defaulting on debts and surrendering buildings worth less than their loans.

Companies such as Macerich Co., Vornado Realty Trust and Simon Property Group Inc. have recently stopped making mortgage payments to put pressure on lenders to restructure debts. In many cases they have walked away, sending keys to properties whose values had fallen far below the mortgage amounts, a process known as “jingle mail.” These companies all have piles of cash to make the payments. They are simply opting to default because they believe it makes good business sense.

“We don’t do this lightly,” said Robert Taubman, chief executive of Taubman Centers Inc. The luxury-mall owner, with upscale properties such as the Beverly Center in Los Angeles, decided earlier this year to stop covering interest payments on its $135 million mortgage on the Pier Shops at Caesars in Atlantic City, N.J.

Taubman, which estimates the mall is now worth only $52 million, gave it back to its mortgage holder.

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