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Bracing for Distress

How Receivership Benefits Lenders, Borrowers – and even Tenants

by Tom Dwyer and Bonnie Boden


Tightening market conditions, loan maturities and expiring cap rates are causing difficult conversations between lenders and borrowers. The Mortgage Bankers Association estimates that a staggering $250 billion in outstanding commercial and multifamily mortgages held by non-bank lenders and investors will mature in 2023.

Many borrowers in default are unable to refinance or restructure their loans amid rising interest rates and falling property valuations. As a result, lenders are determining the optimal strategy to achieve the greatest recovery. When loan modifications with a delinquent borrower are not viable, lenders typically initiate foreclosure proceedings and/or opt for the appointment of a receiver.

Increasingly, lenders are choosing receivership over foreclosure because it allows them to protect a property and stabilize it faster. Receivers are court-appointed fiduciaries with the fiscal and operational responsibility to reduce risks to a property. Charged with making prudent decisions to preserve asset value, receivers may also provide recommendations for whether to hold or sell to achieve the most profitable outcome.

Why Lenders Prefer Receivership Over Foreclosure

Receivership is a legal remedy for lenders to pursue when a borrower defaults on a loan, which differs from foreclosure in meaningful ways.

Under a foreclosure, the lender seeks to repossess a property in an effort to recover the outstanding debt. The foreclosure route can be a lengthy process as litigation can extend for months or years, potentially diminishing a property’s value. Timing can depend on a state’s laws, the case’s complexity, and the borrower’s willingness to cooperate. And, if the borrower contests the foreclosure, litigation could be delayed further.

Receivers gain control of operational cash and implement actions to stabilize the property and preserve value.

Additionally, during foreclosure proceedings, the borrower retains control of the property’s management and cash flow, creating additional risk for a lender as a borrower may shirk financial obligations and mismanage the property.

Under a receivership, a lender requests that the court appoint a receiver, which is an independent, unbiased third party, to serve as custodian for the property until an agreement between the borrower and lender is reached, the property is sold, the note is sold, or the lender forecloses.

As an officer of the court, a receiver is bound by a court order that specifies the actions that can be undertaken on a property and is obligated to act in the best interest of all parties, including the borrower, lender, and any other creditors. A key advantage of this strategy is that it allows the receiver to gain control of operational cash and implement actions to stabilize the property and preserve value through professional oversight.

Receivers are also required to inform parties about the property’s operations through timely reporting. This transparency ensures that all parties are aware of the property’s performance throughout the receivership and instills trust that the receiver is acting in good faith.

Acting for Today, Planning for Tomorrow

Protecting and preserving a property is a receiver’s central role. However, an effective receivership can provide a path toward maintaining and potentially increasing value through leasing and operational optimization and disposition, which can benefit both lender and borrower. The lender is positioned to recover capital, and the borrower’s liability to the lender may decrease.

Addressing issues contributing to a property’s financial distress may elevate its standing in the market.

Once a receiver takes control of a property, they are in a position to protect it against further economic and physical deterioration by implementing strict controls on operations and how funds are allocated. Receivers identify issues contributing to a property’s financial distress – such as needed repairs, operational inefficiencies and inadequate leasing efforts.

Addressing these issues may elevate a property’s standing in the market, making it more attractive to potential tenants and purchasers. By improving operations and tenant relations, the receiver can assuage concerns among tenants and the brokerage community about the receivership and the property’s stability, which helps drive leasing activity.

Qualities of Effective Receivership

Losing control of a property can be a risky endeavor for lenders and borrowers, and a receivership’s outcome is not always predictable. A skillful receiver is an effective mediator who understands both borrower and lender perspectives. Even more important, this individual possesses the functional and situational expertise to execute on the court’s behalf to ensure that a property is properly maintained, income is maximized, expenses are controlled, and a robust leasing program is implemented. These are big shoes to fill.

Professional receivers understand the intricacies of local court systems, the real estate market, and the asset type.

Professional receivers are responsible for implementing new policies and procedures for a property and bring deep insight into the intricacies of local court systems, the real estate market, and the asset type. They apply expertise and wisdom to assemble a qualified team of property management, leasing, operations, and capital markets specialists based on a property’s fundamentals, including sector, geography and tenant base.  

Successful receivers are honest and trustworthy, demonstrating integrity in their work. They possess the acuity to handle unexpected complications, such as disputes between parties or unforeseen problems with the property, and respect the fair, methodical nature of the process.

Advocating for Tenants

Taking on the role of the landlord allows a receiver to manage leasing activities and provide services to tenants.  Implementing a robust leasing program to retain and attract tenants helps the property reach stabilized operations by maximizing performance through increased occupancy and cash flow. 

Ensuring a property’s tenancy is provided with excellent service is critical to this effort and starts with installing responsive property management teams and protocols. Communicating with tenants promptly and transparently generally mitigates organizational and management disruptions caused by a change to receivership status. At mismanaged properties, tenants welcome the change in management and tenant satisfaction tends to increase with an improvement in service delivery.

Transparent communication with tenants generally mitigates management disruptions through the receivership process.

At Civic Opera Building, a 915,000-square-foot office tower in downtown Chicago in receivership with Transwestern, the on-site asset services team strives to elevate the tenant experience through best practices in place at other properties, including regular programming for building occupants, and process improvements that align with the receivership legal agreement.

Additionally, cross-functional collaboration with agency leasing allows the Transwestern team to curate tailored strategies to address workplace planning and lease negotiations, ensuring tenants’ best interests are represented. Over the course of 2022, several new leases and five renewals at the Opera Building underscored the fact that you can confidently do deals with a property in receivership. Market concessions and tenant improvement dollars are on par with other sound buildings, and brokers, contractors and other parties recognize they will be paid in a timely manner.

Advantages of a Full-Service Approach

A receiver’s job is fraught with challenges and complexities. They are under intense scrutiny because every decision affects the outcome. When backed by the power of a full-service commercial real estate platform, receivers are best positioned to provide a professional and seamless experience. Having leasing, management, capital markets, and operational support under the same umbrella eliminates barriers, and drives close collaboration, clear communication, and prompt decision-making.

Selling a property is often the goal of receivership and challenged assets may benefit from unique marketing strategies.

An integrated, holistic perspective bolsters the receiver’s ability to introduce creative options grounded in sound market intelligence and expertise. At Transwestern, for example, leasing professionals involved in receiverships use market intelligence to create leasing frameworks, including setting rental rates, terms, escalations, concessions, and tenant improvement allowances that support the receiver’s operational strategy.

Selling a property is often the goal of receivership. Real estate companies with dedicated experience with challenged assets have a specific understanding of how to market those that involve receiverships, special-serviced REO and non-performing loans. Investment sales specialists can uncover potential opportunities by synthesizing market data and financial analytics, and capture value by leveraging deep capital markets relationships.

Road to Recovery

Until the commercial real estate markets recalibrate and stabilize, the industry will continue navigating challenging conditions. In addition to rising interest rates and falling asset values, the pace at which employees return to the workplace will play a pivotal role in how borrowers and lenders of office properties, in particular, approach loan maturities and financial commitments.

Interest rates are unlikely to fall before the end of 2023, placing an unreachable premium on debt for many borrowers. And creditors may be reticent to enforce foreclosure, except as a last resort. Receivership, then, has the potential to provide lenders with an alternative to resolving a challenged loan by gaining control of the property, without taking possession.


Thomas Dwyer

Vice President,
Receivership Services

Bonnie Boden

Executive Vice President – Midwest Asset Services Operations

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