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, a “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.
Some common duties of the receiving organization:
- Take possession of the property and all related bank accounts, keys, codes, records, etc.
- Oversee management to ensure the property is operating soundly.
- Create new operational and accounting protocols.
- Determine if the property requires major maintenance, renovations or capital improvements.
- Notify all creditors and suppliers of the appointment as the receiver.
- Review and determine if franchise agreements, insurance policies, vendor contracts and leases need to be continued, terminated or re-negotiated.
- Make all necessary court reports.
- Report progress to stakeholders.
When is Receivership a Good Option?
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.
What are the Hazards of Choosing the Wrong Receiver?
There are many hazards from choosing an inexperienced or unqualified management company to act as a Receiver. For example, distressed properties often have non-paying tenants, incomplete rent-rolls and poorly written leases and need extensive renovations or have other deferred maintenance issues. Hiring an effective property receiver like Northeast Property Group will ensure a thorough knowledge of the financial and facility needs that make up an effective receivership strategy, helping reposition the asset and maximizing cash flow for the lending institution or asset manager.
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