Commercial-property owners are strategically walking away from their underwater properties handing the keys to lenders. However, such commercial property owners should be wary of several important factors before implementing such strategy.
Many Commercial property owners face the dilemma of paying for a property worth less than its debt or strategically walking away from it. Many commercial property owners are opting to walk away despite the fact they have the money to pay for their obligations. The question arises if such practice despite its moral problems in the business world poses serious and longstanding threats to such property owners.
1. ENSURE THE COMMERCIAL LOAN IS NON-RECOURSE: Although most commercial loans are non-recourse, this assumption for all such loans is not logical and warranted. Non-recourse loans are loans the personal assets of the property owner are not usually subject to forfeiture. In non-recourse loans, the property owner could only forfeit the property and its cash flow. Accordingly, it is prudent to ensure such loans are, in fact, non-recourse.
2. ENSURE YOUR REPUTATION IN THE INDUSTRY IS NOT ADVERSELY AFFECTED: The bedrock of a successful and long-lasting business relationship is trust and credibility. If a commercial property owner with cash in hand forgets those fundamentals, how does such property owner expect to be trusted again by the same people and entities? In fact, such property owners do not own only one commercial property or one type of loan, other loans or future loans might be affected as well.