Morgan Stanley’s Commercial Jingle Mail

Here is a fascinating twist on the underwater homeowner walking away fromt heir bad purchases: This time, its Morgan Stanley.

They spent over $8 billion on commercial property in 2007 — the peak of commercial real estate in the US.  Now, they are going to preemptively “Walk Away” from five San Francisco office buildings, letting them go back to the lenders.

The buildings Morgan Stanley is giving up are :

One Post
201 California St.
Foundry Square I
60 Spear St.
188 Embarcadero

So this is now a new category of real estate financing: Preemptive “Walks Away” from bad CRE purchases.

Here’s Bloomberg:

Morgan Stanley plans to relinquish five San Francisco office buildings to its lender two years after purchasing them from Blackstone Group LP near the top of the market.

The bank has been negotiating an “orderly transfer” of the towers since earlier this year, Alyson Barnes, a Morgan Stanley spokeswoman, said yesterday in a telephone interview. AREA Property Partners will take over the buildings. Barnes declined to say when the transfer will occur.

“This isn’t a default or foreclosure situation,” Barnes said. “We are going to give them the properties to get out of the loan obligation.”

The San Francisco transfer would mark the second real estate deal to unravel this year for Morgan Stanley, which bet big on the property markets as prices were rising. The firm last month agreed to surrender 17 million square feet of office buildings to Barclays Capital after acquiring them for $6.5 billion in 2007 from Crescent Real Estate Equities. U.S. commercial real estate prices have dropped 43 percent from October 2007’s peak, Moody’s Investors Service said last month.

Morgan Stanley spokeswoman is correct when she says it is technically not a default. Instead, it is a case of Commercial Jingle Mail. Rather than make payments, they are turning the keys over to the lender — just like underwater homeowners do!

Good luck making moral arguments against homeowners doing just that in the future . .  .


Morgan Stanley to Give Up 5 San Francisco Towers Bought at Peak
Dan Levy
Bloomberg, Dec. 17 2009

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