Receivership—often a precursor to foreclosure—is a dirty word for owners of real estate, but companies hired by the courts to manage properties in financial distress are benefiting as the number of such properties grows.
“It’s a great way to pick up management fees and a great way to meet lenders,” said Jerry Collins, a principal in locally based apartment manager and developer Flaherty & Collins Properties. Properties in receivership account for more than 15 percent of the roughly 12,000 apartment units F&C manages, Collins said.
In the last 20 years, F&C’s principals or F&C itself have become court-appointed receiver for more than 50 apartment properties, a number that’s growing as more owners fall behind in making payments to lenders.
The company was appointed receiver for two properties in 2008. The number grew to seven last year. Less than three months into this year the firm has picked up three properties and is expecting three or four more in short order, putting the company on course this year to add a record number of units to its management portfolio via receivership.
The firm just added Meridian Shoreland apartments, a 195-unit high-rise near 38th and Meridian streets. It’s been managing the 366-unit Brookstone Apartments at 38th and High School Road since 2008 as the lender and owner try to work out their differences. It’s also managing the 220-unit Aspen Village, at 34th and Lafayette Road, a property taken back by its lender and now listed for sale.
In the last several years, as the number of properties in foreclosure has risen, more companies have gotten into the game. Buckingham Cos. is one of the most active in terms of apartment communities and also manages an Evansville office building in receivership.
Between 20 and 25 percent of the 18,000 apartment units the company manages are receivership units, said Alexandra Jackiw, president of Buckingham Management. Earlier this year it picked up The Cedars, a 248-unit complex at 34th and Lafayette Road. Its largest local property right now is Wildwood Village, a 324-unit property at 38th and Guion Road that is now owned by the lender.
Judges used to appoint as receivers individuals who would then hire property managers to oversee real estate in foreclosure. In the last 10 years, there’s a trend toward making the property manager the receiver, said Marion County Superior Court Judge Cynthia Ayers, who said appointing a company instead of a person makes more sense for larger income-producing properties.
Receivers are typically paid for their work from of the operating income a property generates. Collins of F&C said the amount varies from property to property. For a property with high occupancy, his company would charge a flat fee of four or five percent of gross income. Where there are large vacancies, F&C is more likely to establish a flat fee, say $4,000 a month, and charge the greater of that fee or a percentage of gross income.
Collins said F&C rarely buys a property that it has managed for a lender. “We see all the skeletons in the closet,” Collins said.