Commercial Real Estate Finance

Maybe the Mortgage Bankers Association (MBA) needs to get an M.B.A. in real estate. As a recent Wall Street Journal article detailed, the company charged with helping borrowers source financing, drank their own financing Kool-Aid and succumbed to a tanking economy and real estate market.  Its one thing for an unknowing and unsuspecting homeowner to get a variable rate mortgage.  Its another for an organization of professionals taught to understand the pitfalls of such financing in an economy with unsustainable low interest rates.  The MBA sold their Washington D.C. headquarters, which they bough in 2007 for $79.1 million,  to commercial real estate data provider CoStar Group for just $43 million.

Rather than writing a blog post, I figured I would simply make the following comments, and let you, the reader respond with your own:

- When the MBA announced the purchase of the building in early 2007, the trade group’s president at the time, Jonathan Kempner, said: “We have come to the inescapable conclusion that owning our own building was the smartest long-term investment for the association.”

- In October 2009, when the MBA informed its members that it had put the building up for sale, it said that continued ownership of the building, which was financed with $75 million of variable-rate debt, would be “economically imprudent.”

- Wondering what happened to the $36 million gap between purchase and sale prices for the MBA?  Us too. John Courson, chief executive officer of the trade group, declined in an interview Saturday to say whether the MBA would pay off the full loan amount. “We’re not going to discuss the financing,” he said. Way to set an example for your clients, John!

- Shockingly, this isn’t the only poor investment decision they made regarding this deal. The MBA remains embroiled in a legal dispute over a $1 million payment due to its former Washington landlord, Tishman Speyer Properties. That payment is a penalty for the MBA’s decision to end a lease early so it could move into the new building.

- The elephant in the room is of course the perceived deal CoStar got on its purchase.  It is easy, if you are unfamiliar with the quality of CoStar’s data, to make the mistake of thinking they shrewdly analyzed their own historical data to come to the realization that this was a good deal.  More likely, they fell into this opportunity ass first. CoStar’s data is very often unreliable, as evidenced by them having incorrect data on properties I had sold (in my days as a broker) after I had given them correct data the first time, AND  EVEN STILL after I called to correct the mistakes.

- Is it surprising that an organization like the MBA has had its membership drop from 3,000 to 2,400 in just a couple short years? Was the broader economy to blame for this, or did its members start to see a general fraying of its management and mission?

- Would you classify the details of this story and MBA’s decisions as morally reprehensible, fiscally irresponsible, a shortsighted mistake many people made, hilariously ironic given the nature of what the MBA does, or just plain dumb?

We are eager for you to share your thoughts!  Comment Below.

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