Thank you for sharing!

Your article was successfully shared with the contacts you provided.

We are witnessing an historic period in which the challenges of the day are creating great, new fortunes for some, but tremendous loss for others. In periods of economic strife such as this, those who can adapt to the changing climate will find opportunities among the obstacles.

Having been in the real estate business for 42 years, I’ve lived through several of these cycles. One area in particular in which we have found an extremely stable and successful niche is the workout sector. Today, we are witnessing a dramatic increase in the number of foreclosures and receiverships we’re being asked to handle.

While many firms will seize the opportunity offered by a down market to capitalize on the foreclosure/workout field, they will find it is incredibly time consuming and tedious, and that it requires a great deal of expertise and finesse. Without the understanding of how these proceedings work, a financial institution can be in real jeopardy if receiverships land in the wrong hands.

Navigating through a complex workout situation takes several rounds of subtle negotiations, thorough due diligence and old-fashioned hard work and perseverance. We often hear of situations in which property owners and their lenders get into adversarial positions, which ultimately means that both sides lose.

To be clear, a foreclosure occurs after a lender has begun proceedings to take back an asset. A receiver is appointed by the courts to manage the process until the asset changes hands. This process can take a few months or a few years, depending upon the cooperation of the parties involved and the complexity of the situation. However long it takes, following some golden rules ensures a successful foreclosure process:

1. Work with the present owner of the property in the most diplomatic manner possible. More often than not, the current owners of the property are in a position they never saw coming and are desperate to keep their property. It has obviously been a trying experience for them, which often results in tension and high stress levels. The lender, however, needs the cooperation of the property owner to get all of the necessary data to make a fair assessment of the property and determine the best course of action. Therefore, it is best in these situations to handle the property owner with diplomacy and begin a dialogue that is constructive and fruitful, not adversarial.

2. Know your business. It is critical that lenders understand the cost structure of owning and operating a commercial real estate asset. Recognizing the true cost of a light fixture, understanding how much landscaping costs and knowing current local market rents and the condition of the property are all important in understanding how to best assess the value of the property.

3. Work closely with your existing tenants. If a foreclosed building has tenants, it’s important that the receiver, as the representative of the lender, communicates with them often and clearly. It is the duty of the lender to demonstrate credibility with the occupants of the asset. After all, the best advantage a lender has is the tenants in the building. Treating tenants well–and thus retaining them–is paramount to the performance of the asset.

4. Know how to make enhancements to a property in the right way. Many of the buildings that we take over for lenders–as receivers, property managers and leasing agents–are in sheer disarray. Typically, they have been neglected by the owners and are in need of some TLC. But lenders need not spend considerable amounts of money on fixing up these assets. Simple things like new landscaping, lighting, painting and a good cleanup do not cost a fortune and can go a long way.

5. Those selected to manage the asset during foreclosure must be well acquainted with the local courts. This is the most critical part of the equation. The receiver must know what motions need to be filed and what the law requires with regard to reporting.

No one takes pleasure in seeing someone lose a property, whether it’s from the mismanagement, over-leveraging or just bad luck–all of which are exacerbated by bad economic conditions such as those we are currently experiencing. Having the right knowledge can make the process more efficient and less stressful for all parties involved.

Sheldon Gross is president and CEO of Sheldon Gross Realty in West Orange. He can be reached at [email protected] The views expressed in this article are the author’s own.

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM digital member, you’ll receive:

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 3 free articles* across the ALM subscription network every 30 days
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?


Join GlobeSt

Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now
Join GlobeSt

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.