On the Receiving End

By McGrew, J. Benjamin | Journal of Property Management, September/October 2010 | Go to article overview

On the Receiving End


McGrew, J. Benjamin, Journal of Property Management


BANKRUPTCY CASES AND RECEIVERSHIP OFFER UNIQUE CAREER OPPORTUNITIES FOR PROPERTY MANAGERS

The Jimmy Buffer lyrics,"Lookin'backat my background/Trying to figure out how I ever got here" might be the best description for my career, which is actually probably no different from most other IREM Members.

For 27 years I have been a court-appointed receiver, taking over the management of properties primarily in default under the court's direction; as well as a federal bankruptcy trustee, a court-appointed official who administers a debtor's bankruptcy estate.

It has been an alternative path compared to most other real estate management careers, but an interesting one that has provided stability in down cycles. I've been a receiver for nearly 500 cases nationwide, and business is currently steady considering the increase in foreclosures and troubled assets.

Still, the technical and litigious nature of receiverships and bankruptcy cases isn't for everyone. Knowing the details about breaking into the business and staying within these lines might help you determine your interest in these areas.

WITH EVERY BLOW, COMES AN OPPORTUNITY

Early in my property management career, I managed an office property where the owner had defaulted on the loan. One day, while on the property, I saw the legal notice announcing its pending foreclosure and immediately wondered about my contract to manage the property and my related income. I learned I could apply to become a receiver, while still retaining my management duties and continue receiving income from this property.

I quickly learned a receivership is the by-product of a civil lawsuit. Most times the core issue is a mortgage payment default. The common remedy in this type action is to appoint an independent third party to hold the property and collect the rents and profits. Receivers are also expected to "protect and preserve" the assets they hold.

But before I could even make it through the formal receivership court hearing process, the borrower filed for bankruptcy- and I was prepared to say goodbye to my largest account, as well as my budding receivership career. With every blow, however, comes a new opportunity.

I learned I could apply to become a federal bankruptcy trustee- also a fiduciary for the courts and creditors, like a receiver. Bankruptcy trustees come into play if a state court receivership moves into the federal court system because a defendant files for bankruptcy protection. Trustees are supposed to protect the property's equity and creditor's rights, as well as "protect and preserve" the property like a receiver.

While my experience breaking into the business stemmed from one failing property in my portfolio, current trends indicate now might be the time to consider receiverships and bankruptcy cases as new lines of business.

The last two market downturns I experienced lasted about four solid years each. During both periods - even with prime rates extremely high in the early 1980s- some form of financing was available to finance properties. In the current marketplace, financing is non-existent.

Also, pending commercial real estate loans maturing between 2010 and 2014 are in trouble, according to Foresight Analytics, a provider of real estate market consulting services. In Oakland, Calif., more than 36 percent of the $270 billion in commercial real estate loans maturing in 2010 are under water.

Foresight predicts almost 50 percent of all maturing commercial loans in 2011 and 63 percent in 2012 will be upside down, and $770 billion in loans will be upside down in 2014. It is hard to ignore current trends. Receiverships and bankruptcy cases are a means to capitalize on this marketplace and stabilize or increase your bottom line.

DON'T JUST ACCEPT WHAT IS HANDED TO YOU

When approached by a party to serve as a receiver, you must know how to manage the work.

Before the court even formally appoints you as the receiver, preview the property you're being directed to by either the lender or insolvency lawyer wanting you to take the case. …

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