Strategic default! I haven't even thought of the term in a decade.
Does this ever bring back memories. The great and the good at all the better business schools were weighing in on the morality of, at that time it was homeowners, of folks who could actually make the payments deciding no, I'll just send the mortgage servicer the keys.
You'd see Thomas Aquinas juxtaposed with jingle-mail, sometimes multiple times in one paper.
And here we are again. From ZeroHedge, April 18:
With recent stress in the regional banking sector, sentiment in US commercial real estate (CRE) - and especially the office sector - has turned negative as investors prepare for potential spillover effects (with JPM, Morgan Stanley, and Goldman Sachs all joining the gloom parade), especially as high-profile defaults continue to make headlines as borrowers face higher debt service costs and refinancing becomes much harder ahead of a $400 billion CRE debt maturities this year alone.
The latest headline fueling concerns about a potential CRE crisis involves a Brookfield Corp. fund defaulting on a $161.4 million mortgage for twelve office buildings in Washington, DC.
According to Bloomberg, the loan was transferred to a special servicer working with "the borrower to execute a pre-negotiation agreement and to determine the path forward."
Real estate data firm Green Street said DC office space values had slid 36% through March compared with a year ago due to rising vacancies amid the rise of remote and hybrid work post-Covid.
The gold-standard measure of office occupancy trends is still the card-swipe data provided by Kastle Systems.....
....MUCH MORE
Bringing to mind a 2016 post on Brookfield's possibly shady practices:
How Fair Are Brookfield’s Fair-Value Estimates?
The asset manager’s profits depend on its own property valuations. Barron’s checks some estimates.
To date, Brookfield has not invoked Aquinas's comments on interest in the Summa Theologica i.e. Question 78:
Article I.—Is it a sin to take usury for the lending of money?
R. To take usury for the lending of money is in itself unjust, because it is a case of selling what is non-existent; and that is manifestly the setting up of an inequality contrary to justice. In evidence of this we must observe that there are certain things, the use of which is the consumption of the thing; as we consume wine by using it to drink, and we consume wheat by using it for food. Hence in such things the use of the thing ought not to be reckoned apart from the thing itself; but whosoever has the use granted to him, has thereby granted to him the thing; and therefore in such things lending means the transference of ownership. If therefore any vendor wanted to make two separate sales, one of the wine and the other of the use of the wine, he would be selling the same thing twice over, or selling the non-existent: hence clearly he would be committing the sin of injustice....
Source: Aquinas Ethicus: or, the Moral Teaching of St. Thomas. A Translation of the Principal Portions of the Second part of the Summa Theologica, with Notes by Joseph Rickaby, S.J. (London: Burns and Oates, 1892). Vol. 2.
Though the Saint's view is contradicted by Jesus' apparent endorsement of the comment of the nobleman to the servant in the parable he told the pub owner (and tax collector):
"Wherefore then gavest not thou my money into the bank, that at my coming I might have required mine own with usury?"
So we find ourselves in a bit of a quandary (granted the scales are weighted toward J.C. just on seniority if nothing else)
However, Brookfield's operations would seem to raise another issue, the same query that must be faced when evaluating Big Four auditors:
"Sir, sir, it's time to wake up, you have a meeting in fifteen minutes. You were talking in your sleep again. What did you say? Well, it didn't really make any sense, somebody named Tom and his friend, J.C."
