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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