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February 4th, 2011

Mortgage Banker’s old building flipped for $59.7 million profit

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Underwater homeAnton Troianovski of the Wall Street Journal calls it “supreme irony.” I couldn’t agree more. Last year the Mortgage Bankers Association, a trade group that represents mortgage lenders, walked away from their new, 10-story, glass-walled office building located in the same neighborhood as the White House.

Within a year, that same building was not only bought, it was flipped for a $59.7 million profit. Starting to see the irony?

A German real-estate fund is buying the former Mortgage Bankers’ headquarters from real-estate data firm CoStar Group Inc. for $101 million, CoStar said Thursday. In February last year, CoStar paid $41.3 million for the building, which is located just blocks from the White House.

At the time, the trade group for mortgage lenders, like many of its members’ customers, was “under water”—owing more than the property was worth— on its $75 million mortgage for the 10-story, glass-walled building. The MBA purchased the building when it was under development in 2007 for $79 million.

The MBA found themselves in the same boat as millions of the clients their members represent: owing more on their mortgage than their property was worth. However, from what I can recall in terms of the MBA walking away, I don’t remember hearing all that much buzz surrounding the ethics of such a decision much as we did and still do when we read or hear stories of consumers walking away from their mortgages. Why is that? Perhaps it’s because we commonly hear walking away referred to as a “business decision.” Furthermore, as we’ve seen in this case, the property was resold rather quickly (and surprisingly for a steep profit), dampening the negative societal impact.

So does this monumental “flip” mean that commercial real estate is back? Not exactly:

The transaction shows how quickly the market for well-occupied and well-located office buildings has rebounded in some U.S. cities thanks to yield-chasing investors pouring cash into commercial property.

To be sure, the deal doesn’t mean commercial real estate is back to normal. The delinquency rate for securities backed by commercial mortgages recently hit an all-time high of 9.34%, and the national vacancy rate for office buildings is at its highest in nearly 20 years. Property owners throughout most of the country are fighting with lenders over defaults and foreclosures.

But values of high-quality commercial property—known in the industry as “core”—have been driven up in Washington, New York and other big cities because the few such properties on the market are attracting interest from big investors seeking a steady return.

I think it really says it all about the state of the housing market — residential and commercial — when even the Mortgage Bankers Association is underwater and subsequently walks away. “Supreme irony” indeed.

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One Response to “Mortgage Banker’s old building flipped for $59.7 million profit”

  1. Liz Says: February 4th, 2011 at 7:30 pm

    Irony indeed!
    Very interesting story, the good news is that not all markets are loosing money. Hopefully this is a sign that a full on rebound is near.

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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