Jingle mail – the practice of handing back the keys to a property you have borrowed money to buy when your equity is wiped out by falling prices – is not confined to home owners in California.
Defaulting on mortgages was frowned upon by some when done by homeowners in California – as Felix Salmon once pointed out – but is spreading to commercial real estate funds.
The FT this week reported two cases of international property funds run by big investment banks – Morgan Stanley and Goldman Sachs – getting into trouble. Henny Sender has details of a Goldman-managed fund that has lost almost all of its $1.8bn in equity.
The problem for the Goldman fund and others is the same as many homeowners in the mortgage crisis – it borrowed money to go long on a cyclical asset and wiped out most of its equity.
The response has also been similar. As Daniel Thomas wrote earlier this week:
Morgan Stanley has warned investors that an $8.8bn property fund could face the worst losses in real estate private equity history owing to the fall in value of investments made at the peak of the market.
Msref (Morgan Stanley Real Estate Fund) VI International could lose as much as $5.4bn, having been forced to take writedowns or hand back the keys on a range of investments round the world.
Among the properties is a portfolio in Germany that Royal Bank of Scotland, which lent money to the Morgan Stanley fund, has taken over.
It is hard to condemn homeowners in distress from abandoning non-recourse mortgages when banks and investment funds do the same in the same circumstances.
