Walking away is becoming increasingly popular

Walking away is becoming increasingly popular. The practice has now spread to commercial real estate. Michael Dell of Dell Computers is the latest walker. He is walking away from a sweetheart call centre deal in Edmonton Canada. BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? Dell Canada is closing its Edmonton call centre after only three years, putting more than 900 people out of work. The computer giant said the move was part of company-wide efforts to 'increase the efficiency of its business, improve performance and provide better value for customers.' Dell was lured to Edmonton by a 20-year sweetheart lease deal at Edmonton Research Park, and has consistently touted the call centre as a top-performing global facility. The deal with Edmonton Economic Development Corp. included a $1-a-year lease on 15 acres of land, and a property tax rebate worth $1.1 million. It becomes void if the number of employees drops below 500. Building a stand-alone facility was part of the deal with the city, and the building displaced the Norwesters rugby club and other sports groups using the clubhouse, fields and volleyball courts. At the time, EEDC said the concessions - a first for the organization - were worth the extra $30 million a year in economic activity generated by luring the Round Rock, Texas-based company here. and their business model of providing legal advice to prospects for a fee. That is a model I understand. When it comes to making a decision involving hundreds of thousands of dollars, the upfront fee of $995 seems reasonable. . The business model of Walk Away Now is buying homes. I am not fond of this model because the only way it can possibly work is if they pay you far less than your home is worth. They also have a plan to buy your home with a leaseback. I am especially leery of the leaseback model. Should the buyer for any reason default on his mortgage, the lessee will be forced out of the house. Harry Macklowe got a little carried away last year: He bought seven midtown office buildings, including the General Motors Building, in ten days. He spent over $7 billion on the deal — but only $50 million of that was his own money. Next week, his loans are coming due, and seeing as we're smack in the middle of a worldwide credit crunch, there's no way for him to refinance. Which is why this week, The Wall Street Journal has just reported, Harry has made a tentative agreement with his lender, Deutsche Bank, to turn the buildings over to them. No more buildings for Harry. Well, not exactly. Even though Deutsche Bank would control the properties, 'Macklowe would still retain the h1s, to avoid triggering costly New York City transfer taxes, and Macklowe Properties would still manage the buildings.' So basically, dude just went from being a mogul to being a super. Macklowe put up the General Motors Building as collateral on a foolish $7.6 billion real estate shopping spree with no money down and no cash on hand to make interest payments. Depending on the actual current value of the General Motors Building and terms of the workout with Deutsche Bank, he vaporized as much as $2.4 billion of personal wealth. I am trying to understand the mentality of someone worth billions, willing to risk a huge portion of it, perhaps almost all of it, in an attempt to make more billions. What was it he thought he knew that Sam Zell didn't? The content on this site is provided as general information only and should not be taken as investment advice. All site content, including advertisements, shall not be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of sponsors or firms affiliated with the author(s). The author may or may not have a position in any company or advertiser referenced above. Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.