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The Fed at The Crossroads

crossroads.jpg

You're looking at a picture of Crossroads Mall, located in Oklahoma City at what was once considered to be a prime retail location, the intersection of I-35 and I-244 on the city's southeast side. When the mall was completed in 1975 it was the 9th largest shopping mall in the United States, and the largest in Oklahoma. It boasted four anchor retailers, J. C. Penny, Montgomery-Ward, Dillard's, and Macy's, as well as dozens of smaller stores, all housed in 1.3 million square feet of enclosed, climate-controlled space.

But time and the ravages of urban decay were not kind to Crossroads Mall. During the 1980's, the inner south-side neighborhoods of Oklahoma City (south of I-40 downtown, and north of I-244) suffered a severe plague of "white flight" as brand-new, clean, and quiet middle class suburbs sprang up south of I-244 and in neighboring Midwest City and Moore. Local retail businesses closed. Prostitution, drugs, and gang activity, mostly involving Latino gangs, flourished. Crossroads Mall became a haven for groups of poor south-side teenagers and gangbangers. In May 2006, a gang-related shooting in the Crossroads Mall parking lot left one person dead and another wounded.

For retail businesses, homicide is the kiss of death. After Montgomery-Ward closed in 2001, its former retail space remained empty. J. C. Penney left in 2007, and Macy's and Dillard's both pulled out in 2008. The loss of those four major retailers has left Crossroads Mall over 50% unoccupied. Most of the remaining stores are either discount retail outlets, fast food, or mom and pop retail shops. Midwest Mall Properties LLC acquired Crossroads Mall in 2006 as part of an ill-fated commercial property investment portfolio. The mall went into foreclosure last year, and now sits in receivership, awaiting a new owner. A bargain at a mere $24 million, considering that Midwest paid nearly three times that amount for it just a few years ago.

Oh, and did I mention that the current landlord of Crossroads Mall is Ben Bernanke, chairman of the US Federal Reserve?

Price Edwards is listing the mall for mall owner Maiden Lane LLC, an entity of Maiden Lane Commercial Mortgage Backed Securities Trust. It wound up with the mall after Arkansas-based Midwest Mall Properties LLC lost it to foreclosure late last year.

Maiden Lane is a "special purpose vehicle" created in April 2008 by the Federal Reserve Bank of New York to facilitate the merger of Bear Stearns Cos. Inc. and JPMorgan Chase & Co.

Maiden Lane owns Crossroads Mall because former owner Macerich Co. refinanced $61.2 million with Bear Stearns in 2006. But since Maiden Lane is a creature of the Federal Reserve, it was the Fed that took title when Maiden Lane paid $11.24 million for the property at a sheriff's sale April 30.

Price Edwards, citing a confidentiality agreement, declined to comment.

Reuters columnist Matthew Goldstein reported Oct. 7 that the Fed is in court in New York trying to recoup its losses on Crossroads from former owners, arguing that they signed a personal loan guarantee with Bear Stearns.

Goldstein called Bernanke "a reluctant landlord."

"This is not what the Fed bargained for when it assumed some of Bear's worst assets to induce JPMorgan Chase to buy the teetering Wall Street bank," he wrote. "But it's the inevitable outcome of taking on a distressed portfolio that includes $8.5 billion in commercial mortgages, hotel chains and office complexes."

Crossroads Mall is a good example of how the Fed can (and will) be left holding the bag for hundreds of commercial property investments that it acquired via last year's massive bank bailouts. You can bet that a significant percentage of these properties are either blighted, redundant (as will be the case in areas like Phoenix and Vegas and Miami, where commercial property growth far outpaced the local economy, even during the boom years) or poor cash flow producers. To put it another way, the Fed ultimately wound up with them because private investors took a look and said "no thanks."

Just another way our children will be paying with their future tax dollars for our present-day mistakes.
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Linked by Instapundit. Thanks, Glenn!


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Comments (12)

The administration wants to... (Below threshold)
jim m:

The administration wants to get properties like his. It wants to be able to control the market place. By owning malls and other property it is now in the position of landlord and can therefore demand businesses act in conformity to administration policies. Want to do business? Lease a storefront and, oh by the way, allow the pay czar to regulate your salaries and the government will meddle in your union contracts etc, etc.

I think the standard ought ... (Below threshold)

I think the standard ought not be whether the Fed acquired bad assets (defined as eventual proceeds in excess of amount loaned, assumed, etc.) but rather whether we (collectively) would have lost more had the Fed not taken those actions.

If my 'share' of the Fed loss (including my share of the stimulus, deadbeat homeowner relief, etc.) is $X, but that saved me from losing $3X in my 401(k), brokerage accounts, home value, job prospects, etc., then that was a good deal.

I don't think it is a good deal, as I think all of the bailout dollars did very little for people like me, but that's the formula we ought to use.

"I think the standard ought... (Below threshold)
JLawson:

"I think the standard ought not be whether the Fed acquired bad assets (defined as eventual proceeds in excess of amount loaned, assumed, etc.) but rather whether we (collectively) would have lost more had the Fed not taken those actions."

The problem lies in figuring that out - it being just a slightly difficult thing to prove a negative result.

As it is, we've got $X spent, and we're told that if we had not then the cost would have been $X times two or three - but in many, many cases that cost would have been born by the financial companies themselves, through either bankrupcies or a 'fire sale' of the assets for whatever the market would have actually paid.

Is it really worth 'saving' $2X or $3x, if the value of the dollar is shortly thereafter cut by two thirds or more?

Time will tell, but I've got my doubts.

Jlawson: agreed that it is ... (Below threshold)

Jlawson: agreed that it is a tough calculation and one that can never by definitively proven, but it isn't different in theory from what people do everyday: 'are we better off with Obama than we would have been with McCain?', would I be happier if I went to see 'Couples Weekend' instead of playing golf? and 'am I better off having married my wife instead of holding out for an even more perfect mate?'

Thus, I think the verdict on Obama's bailouts is going to be based largely on whether things get better. If they are, Obama will take - and get - the credit, if they're aren't, he'll take the blame.... no matter how much he tries to blame Bush.

Interesting discussion. Ste... (Below threshold)

Interesting discussion. Steve, you're right. We always base our decisions on incomplete information and are unable to know what the outcome would be had we chosen an alternative path.

I'm looking at the overhead... (Below threshold)

I'm looking at the overhead of that property in Oklahoma and it occurs to me that some creative entrepreneur could find something quite exciting to do with the property! I suspect that frequently the fact that properties like this go begging is a lack of imagination on the part of the owners.

That property has lots of p... (Below threshold)
Matt:

That property has lots of potential for something other than a shopping mall. It would make an incredible indoor shooting range, or paint ball range etc that you could train survival groups/militia at. It could also be a giant homeless shelter and soup kitchen. A little work on the parking areas and gardens could be planted.

The Government might want to use it as an urban internment camp for displaced persons, GITMO inmates, refugees etc.

7:Better idea, urb... (Below threshold)
JustRuss:

7:

Better idea, urban internment camp for those on welfare. If you don't want to work for a living then you are welcome to move to this facility where you are only required to help grow food or make clothes etc. We could even provide free cable.

Communism alive and well, I think most of those people would be thrilled to be new age hippies!

/only slightly sarcastic

Don't worry SS, faith in go... (Below threshold)
gary gulrud:

Don't worry SS, faith in government isn't flagging, it's going extinct. Just wait 12.5 months and spin us a postive yarn.

I was a teen when Crossroad... (Below threshold)

I was a teen when Crossroads Mall first opened - and it was THE mall to go to for a long, long time. Two (count' em, TWO) excellent hobby stores, two bookstores, a huge food court - we were there 'most every weekend. It has been sad to watch this icon of my youth slide into decay. No other mall in OKC today has the appeal that Crossroads did in its prime.

If you like public housing ... (Below threshold)
Paul:

If you like public housing projects, if you like what HUD, and local scum politicians and their contractors have done to Detroit, Cleveland, Oakland, Newark and hundreds of cites, and now to entire states....you're going to love what socialist central planning has in for America!

Give. It. Up. Suckas!

At least this place had a p... (Below threshold)
epobirs:

At least this place had a period of prosperity long ago. A few miles down the road from my house, there is a quite large and nicely appointed strip mall that effectively has no tenants. There is a Subway sandwich shop open but that could just as easily have been one of the numerous such fast food outlets within walking distance. It doesn't need to rest of the mall to justify the location. (This runs alongside the I-5 a few miles south of the Grapevine.)

There was a motorcycle shop but it has already died. And a furniture store in what has to be the worst imaginable location for a furniture store. That is it, out of 40 or so shop spaces built just a year ago.




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