The Real Deal Miami

Commercial landlords defaulting on purpose

August 25, 2010 01:30PM

Some of the largest commercial property owners in the country — including Macerich, Vornado Realty Trust and Simon Property Group — have recently stopped making mortgage payments to put pressure on lenders to restructure debts, the Wall Street Journal reported. In a process known as “jingle mail,” some companies are also sending lenders the keys to properties whose values had fallen below the mortgage amounts. Though the companies can all afford to pay, they are opting to default because they believe that it’s a good business decision. This trend comes as debates continue in the residential real estate world about similar actions by homeowners known as “strategic defaults,” where borrowers have enough money to make their payments, but decide to default anyway because the house’s value falls to a level less than its debt. Banking officials and others have argued that homeowners have a moral obligation to pay their debts even when it would make sense financially to default. But in the business world there is less of a stigma, and investors are rewarding public companies for leaving profit-draining investments. [WSJ]