Commercial Real Estate Borrowers Joint the Ranks of Strategic Defaulters
I can understand why the REITs like this–free cash flow! But I can’t understand how it’s a good strategy for the borrowers. Commercial mortgages are a highly leveraged business, and if one of these guys came to me asking for more loans, after he stuck his last banker with his ailing shopping mall, I’d tell them to go . . . well, do something I probably shouldn’t say on a family blog.
Of course, not all of these are what I would call strategic defaults. Just as I think a homeowner should walk away from any mortgage that risks pushing them into insolvency, some of these “strategic defaults” may simply represent owners walking away now and salvaging their capital, instead of being foreclosed upon later after their tenantless rental or shopping mall has eaten up every last bit of cash and they have to shutter the doors. In neither the business nor the individual case does this strike me as reprehensible.