I’m sure we’re going to see all kinds of politicians on the teevee and the op-ed pages soon attacking their “character”:
If you’re in Princeton, New Jersey, anytime soon, swing by theHyatt Regency Princeton. With the Hyatt Hotels (H)quarterly report filed yesterday, it has become a symbol of the financial crisis — and of a some stark contrasts between business and personal debt in the U.S.
Like households across the country, one of Hyatt’s subsidiaries “did not have sufficient cash flow to meet interest payment requirements under its mortgage loan” on the property, in this case a 347-room hotel with a restaurant, bar and comedy club, just a mile from the famous university. The scenario sounds familiar after years of news about the still-struggling housing market.
At the same time, the Hyatt subsidiary was under-water on its mortgage, or, in the formal language of the 10-Q, “the appraised value of the hotel was less than the outstanding mortgage loan.”
Now, Hyatt, the parent company, has felt the sting of the recession like other hospitality companies, but it’s not like it lacks resources. As of June 30, Hyatt had $1.17 billion in cash and cash-equivalents on its balance-sheet. It reported revenues of $889 million for the quarter, and net income of $25 million, or 14 cents a share.
Just like plenty of American families, Hyatt has to decide where to put those resources. And it has decided it’s not worth throwing good money after bad at this particular property, presumably because it doesn’t expect the hotel to recover in value any time soon.
“When hotel cash flow became insufficient to service the loan,” the company said in the filing, “HHC notified the lender that it would not provide assistance.” In other words, Hyatt decided to walk away — the equivalent of “jingle mail,” when homeowners pack up, move out, and mail their keys to their mortgage servicer, abandoning both the house and the loan with which they bought it.
Anyone who’s underwater should be doing the same thing.
Gluugg, Gluugg. I’ve been underwater on credit card debt since 2002. Turn off the ringer and let the answering machine pick up the phone. The lawyers call on Saturday morning at 8:15.
When a homeowner “walks away” to prevent bankruptcy and is then foreclosed on, which is the process specified within the mortgage agreement, you hear people accusing them of being immoral or stupid or greedy. When a Corporation “walks away”, even when it has plenty of resources available to fund the mortgage they agreed to, they call it a “strategic default” and that’s the end of it.