The News: Receivership May Spell Relief for Distressed Assets

During the next few quarters, the increasing volume and value of delinquent retail loans will bring scores of lenders and retail property owners to a crossroads. In February alone, 46 retail CMBS loans valued at $277 million became newly delinquent, bringing the total value of delinquent securitized retail loans to $1.7 billion nationwide, according to Fitch Ratings. Though lenders will likely choose between foreclosure and workouts for the vast majority of distressed retail properties, a small but growing number of lenders are making a third choice: a court-appointed receiver.Specifically, the court appoints a receiver for a retail property or other commercial real estate asset to take stewardship of the asset’s leasing, finances and property management. The receiver may either self-perform those services or retain other consultants to handle them. Estimating the number of distressed commercial properties in receivership is difficult; however, Jones Lang LaSalle Inc., to name one consultant, is the court-appointed receiver for 14 retail assets around the country. Another 20 to 25 potential receiverships are in the firm’s pipeline, estimated Greg Maloney, CEO of Jones Lang LaSalle Retail, who also serves as the firm’s principal receiver. Among other retail assets, Jones Lang LaSalle serves as receiver for Bradley Square Mall, a 335,000-square-foot enclosed regional mall in Cleveland, TN; Martinsburg Mall, a 556,00-square-foot regional mall in Martinsburg, WV; and the 509,000-square-foot Shenango Valley Mall in Hermitage, PA.“Receivership is a good route to take when you don’t want to take ownership of a property,” Maloney contended. When a lender forecloses on an asset, it also assumes the property’s debts, he pointed out. By contrast, when the court places a property in receivership, responsibility for the property’s debts remains with the borrower. When a borrower and lender have reached an impasse over resolving a property’s delinquent debts, the prospect of placing a property into receivership can be enough to bring the borrower to the table. “A lot of times we’re used as a stalking horse,” Maloney explained.A veteran real estate attorney argues that the structure of most commercial real estate loans may limit the number of situations that require receivership. “Lenders don’t want to do that except as a last resort,” said Richard Chadakoff, partner & head of the global real estate practice for Latham & Watkins L.L.P. The main reason for the relative scarcity of receiverships, he reported, is that most loans are structured to give lenders control of a property’s cash flow in case the borrower defaults. Chadakoff suggested that receivers are most likely to be needed in cases of less-than-complex loan structures involving assets in secondary markets.