The Challenges Facing Commercial Real Estate
Additionally, due to market conditions and the lack o financing, defaulted loans are being resolved much slower than in the past with non traditional loan workouts becoming more common. In a major change from earlier practice, special servicers are being forced to hold some loans on certain properties for 24-36 months.
As loan defaults on commercial real estate escalate and special servicers’ workloads skyrocket, use of court appointed receivers is becoming a more viable option for special servicers when dealing with loan default resolutions on income producing property.
Appointing the Right Receiver
Court appointed receivers enable the lender to get control of the property without taking ownership while protecting and preserving its physical and financial attributes. For income producing property, preservation of the rents that are being received from tenants is the absolute key element to retaining value.
In deed of trust States, where the Lender and Trustee have input into the selection of the court appointed receiver, the following capabilities of the person or company selected need to be considered:
- Ability to move in quickly on a property, establish control of all accounts and documentation and act as a calming and confidence building presence with existing tenants.
- Perform immediate due diligence of the property and its financial status including operations, accounts receivables and payables in order to assist the Special Servicer in making an informed decision in addressing the loan default.
- Optimize property operation through effective property management and financial reporting which includes enhancing the value of the property through lease renewals, new tenancy and strategic improvements where mandated.
What Special Services Say
A poll of selected Nationwide Special Servicers agree that experienced property managers make the best receivers in commercial real estate foreclosures, while many receiver-only firms charging by the hour, will often delegate all their management responsibilities to others and leave many wondering what value they add to the process.
The poll also suggested that Special Servicers, most of which are being inundated with new foreclosures of various property types throughout the United States, prefer the following characteristics and capabilities when retaining a third party receivership-property management company:
- Banking background in commercial real estate.
- Receivership, commercial property management and brokerage experience.
- Diverse experience and capabilities with a wide range of property asset types.
- Regional real estate experience, licensing and bonding in multiple States.
- Offer a straight forward menu of flat fee charges for their services.
- Smaller Sized companies with flexibility adapt to changing situations.
Receiver Rip Offs
As commercial foreclosures escalate this year, so will the need for court appointed receivers. Unfortunately, as this demand increases, so will the number of unqualified individuals and companies claiming to be expert “receivers” of commercial real estate.
Inexperienced receivers can cause serious problems in foreclosure situations, including not properly addressing key issues immediately upon assignment, committing to payments and agreements which are detrimental to the property, charging inappropriate exorbitant hourly fees and even misrepresenting themselves and their independent role which could lead to lender liability suits.
In the final analysis, the Special Servicer must be certain that their designated court appointed receiver of the commercial property portfolio they handle adds to the asset’s overall value, not simply to the expense of protecting its physical and financial attributes.