WSJ follow-up on the Vornado/MMPI High Point story (subs req):

"[I]f a property is deeply underwater, and the cost of modification is too high [...] then it can make sense to walk away."

Vornado, for instance, said a subsidiary would not make up any shortfalls in the debt service on loans secured by properties in High Point, N.C. At the end of 2009, the net book value of the properties was about $148 million; the debt secured by these properties is $218 million. [emphasis added]

That sheds some light on the nature of the problem -- the issue seems to be that the properties are not worth as much as the people who borrowed against them thought they were.