Business Decisions, Big and Small
What happens to a homeowner who strategically defaults? (that is, they walk away from their home because it's worth less than what they owe).
Their credit is damaged -- if not wrecked -- for as long as seven years.
What happens to a commercial property owner who strategically defaults?
If it's a REIT, its stock goes up, due to its improved cash flow -- and hence greater appeal to investors:
In the business world, there is less of a stigma [associated with strategic default] even though lenders, including individual investors, get stuck holding a depressed property in a down market. Indeed, investors are rewarding public companies for ditching profit-draining investments. Deutsche Bank AG's RREEF, which manages $56 billion in real-estate investments, now favors companies that jettison cash-draining properties with nonrecourse debt, loans that don't allow banks to hold landlords personally responsible if they default. The theory is that those companies fare better by diverting money to shareholders or more lucrative projects.
"To the extent that they give back assets or are able to rework the [mortgage] terms, it just accrues to the benefit" of the real-estate investment trust, says Jerry Ehlinger, RREEF's co-chief of real-estate securities.
--"Commercial Property Owners Choose to Default"; The Wall Street Journal (8/25/2010)
Good luck getting Joe and Jane Homeowner to honor their underwater, $300,000 mortgages when Corporate America is ditching their $30 million (or $3 billion) mortgages.
What's that line about "what's sauce for the goose is sauce for the gander?"
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