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In some areas of the country where overbuilding still hangs over the market — places like Florida, Arizona and Nevada, to name a few — the situation should be watched carefully. As the pressure mounts on banks to clean up their books, receivers likely will play an increasingly significant role in the market, particularly in the space between default and foreclosure.
Regardless of the property assigned to a receiver — be it a hotel, retail center, apartment building, casino, gas station, convenience store or other going concerns — the issues are similar and involve complicated legal issues that only commercial mortgage brokers who have specialized knowledge can help sort out.
Generally, the receivership is sought in the state court where the property is located, although in certain circumstances the case is filed in federal courts that often are more efficient and cost-effective.
Receiverships come in many forms, and each one plays a different role in the life of the property. The three most common receiverships are: the general-assets receiver, the rents-and-profits receiver and the limited receivership.
A general-assets receiver takes over an entire business, but the rents-and-profits receiver only assumes possession of assets that specifically secure the loan and any income the property generates. A limited receivership is most often called on in the case of a partially completed project to keep construction moving forward. It gives the lender — that provides funds to the receiver instead of the developer — some reassurance that a third party is in control and paying attention to details like staying on budget and on schedule. It also keeps the contractors moving forward without interruption.
The court order naming the receiver spells out the scope and authority given to the appointed party, including whether the receiver can lease or sell the property. Among the other main points that should be covered in the order:
The receiver’s rights to borrow money as protective advances to cover operating losses or make improvements;
Permission for the receiver to borrow money through the issuance of a receiver certificate;
Permission for the receiver to borrow money, which can be repaid when funds become available; and
Protections from liability for property conditions, construction defects, title issues, outstanding debts of the borrower and other matters.
When the receiver’s appointment is confirmed, the receiver takes on all aspects of the operations — from accounting and financial records to evaluating the property and its potential for future profits. In some cases, ceasing operation may be the best route, but the preferred option often is selling the property. The receivers’ expertise becomes critical as they aim to slow further losses and prevent physical and financial damage to the property that is pending a sale. Securing the necessary approvals, permits and licenses also is part of the receiver’s role.
Although the market continues to sort itself out in today’s relatively uncertain environment, the commercial real estate industry can be certain of a few things: The market is not out of the woods yet, especially in light of the coming tide of CMBS maturities. Opportunities do exist, however, and they can help soften the landing for many property owners.
Commercial mortgage brokers must be knowledgeable about the role of receiverships in today’s distressed-property markets. They should understand the available options and know where to turn for solutions, so they can offer valuable guidance to their clients.
Bill Hoffman is president, CEO and founder of Trigild, a national property management company headquartered in San Diego. With more than 35 years of experience, Trigild has operated more than 2,000 assets that include hotels, office buildings, retail centers and multifamily projects. With particular expertise in distressed assets,
clients include owners and investors, in addition to lenders and servicers. Reach Hoffman at (858) 720-6700 or firstname.lastname@example.org.
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