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LOS ANGELES-Agents of the court—not of the parties involved in a dispute—receivers play a unique role in commercial real estate. The appointment of the receiver is an ancillary proceeding concerned with the preservation of a property whose owner has been either temporarily or permanently removed from taking care of that property (as in a delinquent borrower or foreclosure situation), in which case the preservation falls under the aegis of the lender and the court. The receiver is thus entrusted by both to protect and preserve the asset, and in some cases to manage or dispose of it in the best manner possible and for the best interest of all parties concerned.

In recent economic times, when foreclosure instances were plentiful, receivers have been in high demand. As GlobeSt.com previously reported, with about 65% of the $1.7 trillion or so worth of commercial mortgage-backed loans maturing in the next four to five years considered unsuitable for refinancing, receivers will be assuming an ever-increasing role in the mounting saga of distressed properties. Also, receivers are needed for different and more specialized services than they performed in the past, say industry experts.

“The receiver may be needed to do anything from collecting rents and maintaining the property to actually running a business until a dispute between a lender and borrower can be resolved,” Richard Ormond with the law firm Buchalter Nemer in Los Angeles, tells GlobeSt.com. “Many times, the borrower disappears, and the receiver is not just collecting rent and cutting grass, but they’re needed to do repairs, construction, or even sell the property out of receivership.”

Ormond says in the case of distressed property, where borrowers have hundreds of thousands of dollars of debt, if not more, a receiver could be called in to manage everything from maintenance to leasing to disposition of the property. “There are also receivers who specialize in all different kinds of properties: gas stations, hotels, car washes. Some very special receivers have been developed to manage specialized assets. And sometimes these receivers are put in place over the business that owns the real properties.”

Firms like Buchalter Nemer help lenders or servicers find the right receiver for a particular job, but there has been some controversy over a receiver’s right to act as broker for a property that it has cared for in receivership. “Some people believe the receiver shouldn’t sell property, but should just wait for the lender to close the deal,” says Ormond. “Others say receivers should have the right to sell as an owner would.”

The potential for abuse exists when a receiver tries to wear the hat of receiver and broker, either making a commission on the sale in addition to collecting receivership fees or giving their receivership services at no cost in hopes of getting a commission from the sale. “Courts frown upon this because they’re not acting in the best interests of the property,” says Ormond. He adds that receivers who act in this manner may be judged liable and can be sued.

One area of need that has emerged in recent times is receivers who specialize in healthcare facilities, Harvey Rochman, co-chair of law firm Manatt, Phelps & Phillips LLP’s real estate litigation practice group in Los Angeles, tells GlobeSt.com. “Bringing a receiver in like this allows the receiver to be able to navigate often very complex sets of regulations governing those types of healthcare facilities that are not necessarily in sync with the laws that govern real property secured loans. There’s a need for receivers who can both understand and implement that because healthcare is a growing area of lending for banks and other lenders focused on growth areas for the economy.”

Rochman points out that nursing homes, for example, are governed by state and federal laws that dictate how residents can be treated, and receivers who specialize in nursing-home receivership estates need to understand these laws.

As banks have become owners of foreclosed properties and the receiver relationship governed by the court is no longer needed, many lenders are hiring the former receivers to become property managers or construction managers of these assets until they can be sold. “Banks don’t frequently have in-house real estate management, particularly for more complex construction projects,” Rochman tells GlobeSt.com.

Moving forward, Rochman says he feels there will be less need for receivers as foreclosure activity diminishes and projects are able to continue on their own. “I think time will tell in terms of what will be needed. I personally think we’re moving up slowly and will keep going, so there will be a need for receivers in circumstances of bad loans and ongoing projects of one kind or another. This may lessen to a degree over time.”

Ormond adds that the market is actually getting smarter about receivers. “Receivers are being chosen much more intelligently based on the type of asset they’re being asked to take over. Some are getting more work, others are getting less. There are cost compressions, too, as they come up with creative ways to price their services. The price has probably leveled off, but the market has found what the cost is.”

For more information on distressed asset investment, click here.

Instant Insights /

Receivership Roles Becoming More Specialized

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