You might have heard the term “receivership” when it comes to a commercial real estate asset that is in financial trouble. But what is a “receiver?” How does that work?
A receivership is a possible alternative to a CRE foreclosure or default. The receiver is a court-appointed agent who becomes the ad-hoc property manager while the property in question is in a legal dispute.
The receiver might do many property-related tasks, including things like:
- Manage rent collection
- Complete unfinished capital improvements
- Make repairs and maintain the property
- Take the building to market
Why would a receiver be appointed? Often, creditors request that the property be put into receivership. That is because a receiver can help maintain property value as they work towards selling the asset while avoiding losing time and money in foreclosure or bankruptcy. Depending on the state, either party in a legal dispute may seek to have the court appoint a receiver.
A receiver is a neutral agent who works in the best interest of the borrower and lender. As a result, the borrower in default is motivated to work together with the receiver to secure favorable terms of the default.
For the lender, a receiver in charge of property finances and decision-making assures that the property isn’t neglected by a defaulting owner. The lender can also be sure all property revenues are stewarded wisely by the neutral receiver.
Who can act as a receiver?
While the qualifications for a receiver are broad, property management and sales demand specific skills. Tapping a commercial real estate professional to serve as a receiver can bring needed expertise to the table to expedite a sale. That is especially true if there are complex property valuation concerns, tenant issues, and capital development projects to be completed before a sale can occur.
Notably, the court determines if a receiver will be appointed – and who that receiver will be. Neither party can unilaterally select and install a receiver without a court order.
This is a very basic overview of receiverships. We’ll cover more on receiverships in a blog post coming soon.
For more information on receiverships, contact Ryan Springer, CCIM.