Receivership Management

Real estate managers are well qualified to serve as a court-appointed receiver or to provide management services for a receiver. The receiver’s primary responsibility is to ensure that the funds collected from the property are used to maintain the value of the property and, to the extent possible, set aside to pay the mortgage. The property is likely to have high vacancy and deferred maintenance. Seldom will there be adequate funds to plan for and implement a major property turnaround.

A receivership assignment may be for only a few months while the borrower arranges to restructure the loan with the lender or obtains new financing. A receivership can also last for well over a year while the lender and borrower are working out their differences, which may include a lawsuit filed by one of the parties. Receivership typically lasts for approximately one year, after which the lender usually acquires ownership of the property through foreclosure. After the receivership ends, the lender almost always hires the company that managed the property during receivership to manage the property until it is sold. The lender may very well list the property for sale with the same company.

When the lender petitions the court to appoint a receiver, the lender usually recommends a specific person or firm to be the receiver. The receiver can be anyone who is qualified to act in that capacity. The borrower has the right to object to the person recommended but must show good cause why that entity should not be appointed. The reason may be a conflict of interest or that the person is not qualified to oversee the property. If the court agrees with the borrower, the lender is entitled to make alternative recommendations until the borrower or the court has no legitimate objections. Typically the first person recommended by the lender is appointed as the receiver.

There are two receivership opportunities for real estate management firms. When the receiver is not a property manager, that person will hire another firm to manage and (possibly) lease the property. The receiver is paid an hourly fee negotiated by the parties, and the management firm is paid a market fee to manage the troubled property. Often the lender requests that a real estate manager be appointed receiver. In this situation, the manager contracts with his of her company to provide property management (and possibly leasing) services. When the lender asks for a real estate manager to be the receiver, it usually is in anticipation that the manager’s firm will be hired to manage the property. The real estate manager charges an hourly fee for non-property management services, and the company is paid a market property management fee—and, if it is a commercial property, a market leasing commission. Because of the distressed nature of the property, a start-up fee is often requested and granted.

Receivership management services would be marketed to lenders and attorneys. The management company executive can contact the persons at banks and other lenders in their state who handle loan defaults to discuss the firm’s receivership capabilities. Contacting real estate attorneys for the same purpose will provide additional opportunities because out-of-state lenders often ask local attorneys to recommend potential receivers. A one-page, four-color flyer can be developed describing the firm’s receivership management services, listing the types of properties managed and leased, and naming lenders who have previously requested the firm’s appointment as a receiver.

Though most receivership opportunities occur during a depressed real estate market, there are opportunities even in a good market because borrowers may default if they have difficulties with occupancy or if the property’s funds have been diverted to other uses.

Source: Business Strategies for Real Estate Management Companies, 2nd Edition, by the Institute of Real Estate Management