When a lender determines that a property is not being managed in an efficient or profitable manner, it may decide to remove control from the borrower and seek the appointment of a court-appointed third party, or “Receiver” to avoid bankruptcy proceedings and liquidation of assets. Additionally, an owner/borrower not currently in charge of a property may seek receivership for the same reason. The main goal of real estate receivership is to secure and stabilize the property by making management and other necessary changes to enhance the asset’s profitability and value. The receiver is not an agent for the lender; it is an intermediate third party hired to protect the property. In the case of most receivership projects, receivers are property management companies.
The main purpose of a receivership is to remove control from the borrower, implement management and other necessary changes, and help determine how to remedy property distress. Consequently, receivership is a good option when the distress is mostly a result of the property’s current management issues. A receiver often replaces old management staff with new, more competent management to enhance profitability and value.
There are many hazards from choosing an inexperienced or unqualified management company to act as a Receiver. For instance, distressed properties often need extensive renovations or have other deferred maintenance issues. Additionally, often times a property will have non-paying tenants, incomplete rent-rolls and poorly written leases. The most effective property receiver will display a thorough knowledge of the real estate industry and the understanding that each property is a unique, operating business requiring its own distinct receivership strategy.