Tishman Speyer Properties walks away from 11,232 Manhattan apartments because it can't pay its mortgage. That's good business.
Rick Gilson, a college custodial supervisor in South Dakota, wants to walk away from the mortgage on his mobile home. If he does, he'll be a deadbeat.
Those two borrowers face the same financial dilemma: Their mortgages far exceed the values of their properties. Yet one gets to walk away without guilt, while the other can't.
Gilson is too scared to dump the mortgage on his mobile home. He owes $31,973, but the home is only worth about $14,000.
"I have 12 years of money put into this property that I will never get out," said the 50-year-old Gilson, from Rapid City, S.D. "But I am still paying because this is what I have been told to do. That's what I think is right."
Until now, the focus of the real estate crisis has been on individuals. One in four U.S. homeowners, or nearly 11 million Americans, are underwater on their mortgages. In some parts of the country — Florida, Nevada, Michigan, California and Arizona — the share tops 40 percent.
Some experts say it makes sense for some people to walk away if they're deeply underwater, even if doing so could wreck their credit score for seven years. It may not be worth it to keep paying a mortgage when they can find comparable rental housing for considerably less money.
The argument against walkaways is that they will wreak economic havoc if a lot of people do it. Banks will have more bad loans on their books. They'll make fewer loans. Home prices will plunge more.
The rules are different, though, for the walkaway of all walkaways.
That title is reserved for what happened to one of New York's trophy properties, the 56-building Stuyvesant Town and Peter Cooper Village complex. Spanning 80 acres on Manhattan's east side, it's the largest single-owned residential area in the city. Its red brick buildings, built by Metropolitan Life in the 1940s for World War II veterans, are still a haven for the city's middle class.
Commercial real-estate firm Tishman and its partner, investment firm BlackRock, paid $5.4 billion to buy the property from MetLife in late 2006 — right at the market's peak. They hoped to make money by converting rent-regulated apartments into luxury condos and raising rents.
Then the housing crash hit. The value now: $1.8 billion.
And you thought you overpaid for your house.
"They made assumptions that things would grow to the moon, and things certainly did not," said Len Blum, a managing partner at investment bank Westwood Capital.
Tishman said last week that it was turning the property back over to creditors to avoid filing for bankruptcy protection. In recent weeks, Tishman failed to restructure $4.4 billion in debt, and couldn't find another buyer, according to a statement from the company.
Tishman exits the deal with a ding to its reputation, but it will be fine. It still has Rockefeller Center and the Chrysler Center in New York, and dozens of properties in cities worldwide. The company has about $33 billion in assets.
Residential homeowners wouldn't get off so easy.
For most underwater homeowners, the thought of walking away from their commitment is impossible to fathom. After all, it's part of the culture. Pay your bills. Uphold contracts.
University of Arizona law professor Brent White, who has written about mortgage walkaways, says societal pressures often trump what's actually legal. He thinks individual borrowers believe they are obliged to repay their loans even when it isn't in their financial interest.
"The problem is that we have a structure whereby corporations can walk away with impunity but individuals can't," White said.
Gilson reads what's happening 1,700 miles away in Manhattan and gets angry.
His mobile home started depreciating the minute he moved in 12 years ago, much as a car loses value as soon as you drive it out of the dealer's lot.
Three years ago, he bought a new home that he lives in with his wife. Since he can't sell the mobile home for anything near what he paid for it, he rents it out in order to make the $300.36 mortgage payment every month.
"I get so stressed over this," Gilson said. "It's like the elephant in the room and there is nothing you can do about it."
Gilson is frustrated that real-estate tycoons can default on a $4.4 billion mortgage, but he's not supposed to do the same on his $31,000 loan.
How can you blame him?