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Why Hiring a Qualified Receiver Makes Good Economic Sense

In this current down cycle, the need for qualified receivers is on the increase, but the reality is, more and more unqualified individuals and companies are claiming to be “receivers.” In fact, as the foreclosure rate increases, we can expect many more developers, property managers and others – who may or may not have the proper expertise — to seek assignments as a receiver as a means to generate income. Like all professionals, receivers have varying degrees of knowledge, experience, skill and expertise. The bottom line? Now, more than ever, lenders should pay careful attention to breadth of experience, background and credentials when hiring a court-appointed receiver.

Will a receiver be expensive?

Yes, if the receiver does not have the right experience. In fact, the potential for financial loss from an inexperienced receiver can be catastrophic. Conversely, a top-notch receiver is adept at renegotiating contracts, controlling and evaluating costs, and ultimately can save substantial sums of money.

What exactly could happen if an inexperienced receiver is hired?

An inexperienced receiver can instigate serious problems – causing dismay and confusion amongst employees — while a skilled receiver will restore order and professionalism, implementing practices and personnel that will benefit the business.

A receiver with limited expertise may also enter into agreements for lengthy periods with terms that may not benefit an asset that will be sold or transferred quickly, while the experienced receiver will swiftly negotiate all contracts so they are short — or can be cancelled easily without penalty.

An inexperienced receiver is more likely to focus on enhancements and upgrades, not realizing that capital improvements are forbidden by the court and should not be the burden of the receivership estate. In addition, novice receivers tend to misrepresent themselves and their role in the action, often because they do not fully understand their legal rights. This misrepresentation could lead to lawsuits – or even worse, open the lender up for lender liability and other thorny legal issues.

The inexperienced receiver may also commit to payments or agreements, which are detrimental to the lender’s asset value – such as paying pre-receiver debts, or striking bad bargains with creditors and suppliers – and consequently, may fail to meet the expectations of the court.

Ultimately, the lender must be certain that the proposed receiver will add to the asset’s value overall, not simply add to the expense of protecting the property.

How is a receiver paid?

The receiver has specific duties and responsibilities defined by the “Order Appointing Receiver.” Receiver fees – which are paid through the receivership estate — should only be charged only for those specific duties or task outlined in that order.

Will the receiver need to hire an attorney?

A receiver who finds it necessary to immediately retain legal counsel can be assumed to be lacking in knowledge and experience, and may not know the various legal tools utilized in receivership. In fact, many lawyers and judges have very limited experience with receivership — the lender and its counsel should demand a receiver with proven legal credentials.

Should receivers hire management companies?

Some receivers who have handled numerous assignments may still have limited knowledge of specific assets or property types. Serving as a receiver (or bankruptcy trustee) does not automatically require a knowledge of how to manage a property, run a particular business, or deal with the many unique issues involved with that specific business, such as liquor and gaming licenses, franchise agreements and environmental issues. For this reason, many receivers will need to hire another entity to handle the day-to-day management. Separate from the work of the receiver, this management function is usually compensated through a percentage or fixed fee.

What if the receiver is affiliated with a management company?

If the proposed receiver plans to perform both the receivership and the management functions, expertise in both duties is critical. Furthermore, the court must be assured that this proposed receiver is qualified for both tasks. A lender can expect some savings when one person or company acts as both receiver and manager of the property and/or business, but should beware of a receiver who bills an hourly fee to “supervise” the work of an affiliate company. This is adding needless expense. The same may be true with a receiver who hires additional “professionals” in management, accounting or other functions. The benefit to the lender of using a receiver with his/her own management company should be a reduction in overall costs, not an increase in layers of expense. Lenders should also realize that the lowest fee is often not the most cost-effective.

Do management companies add to the expense?

In most real property receiverships, and particularly those with a related business enterprise, management fees are already part of the operating expenses, and the lender should usually expect those costs to remain constant. In fact, in many cases the receiver’s management company may have greater resources, skills and experience than the borrower, and actually produce a better operating profit. This combination of receivership and management skills should generate a savings to the estate and increase the lender’s ultimate recovery. Above all, receivers must remain independent. Involving the lender in management decisions can give rise to lender liability claims.

As in previous down cycles and economic slumps, there will be a wide variety of recovery results, and in all likelihood, a few changes in the way things will be handled. Now is not the time, however, to experiment with unproven skills or methods. When someone takes over an asset, it is more critical than ever to have complete trust and confidence in their track record and abilities.

Trigild News

Registration is now open for the Trigild Lender Conference to lenders only until August 1, 2009. The much anticipated annual conference is open to other industry professionals after that date. Visit www.trigildlenderconference.com for more info.

Trigild was appointed receiver and management company for a 78-guestroom hotel in Vancouver, WA and a 231-room hotel in Kissimmee, FL, six miles east of Disney World. In a separate action, Trigild was also appointed receiver for a six-story, 170-guestroom hotel in Pleasanton, CA.

Trigild was appointed receiver for 99 unsold units in a 161-unit condo conversion complex in Van Nuys, CA. As receiver, Trigild will help rent and sell the vacant units.

Trigild was appointed receiver for eight buildings in a 30-building office complex in Henderson, NV – a suburb of Las Vegas. Trigild hired a third party management company and will help lease the vacant space, totaling 65,000 square feet.

Trigild has added three new employees to its growing headquarters office: Toni Sanders joins Trigild as the HR Manager, Gary Aharonian as a Senior Operations Analyst and Jeremy Leahy joins the accounting department.