Hoffman: Yes. Last year Trigild sold 58 properties out of receivership with a gross sales value of $319.8 million. The sales included three hotels, nine retail centers, five office buildings, five apartment buildings and 35 convenience stores and gas stations. Receivership sales in 2012—for Trigild and industry wide—will likely match and possibly exceed 2011 figures, primarily because of the anticipated increase in commercial real estate loan defaults, which lead to more receivership appointments and, consequently, more receivership sales. For example, an estimated $22.5 billion of commercial mortgage-backed securities debt matured in 2011. By way of comparison, an estimated $50 billion of CMBS debt will come due in 2012. On a broader scale, it is estimated that 65% of the $1.7-trillion of commercial mortgage-backed securities between 2012 and 2016 will not qualify for refinancing at maturity.

GlobeSt.com: Why are receivership sales on the increase? What industry trends/issues have led to their increased use, and in what instance would you avoid them?

Hoffman: Historically when workout solutions failed, lenders would the simply foreclose on the security for the loan and then sell the assets. However, during the foreclosure process the borrower may allow the property to significantly deteriorate, diminishing the value of the asset, or alternatively divert cash from property operations. For this reason, there has been a trend in the industry towards the use of receivers, particularly to sell properties, because it can expedite and maximize creditor recovery. The enormous volume of distressed commercial real estate assets has further fueled receivership sales.

In instances where a borrower will vehemently contest the sale, a receiver may wish to reconsider selling the property, because it can complicate the sale and add transactions costs. However, we have been successful at persuading borrowers to consent to sales or, alternatively, selling properties over borrower objections.

GlobeSt.com: Receivership sales allow the opportunity to avoid foreclosure—even if lenders are looking for an exit strategy—and can result in price premiums by avoiding foreclosure legalities, costly delays and distressed vacancies. What are other compelling reasons for receiver sales?

Hoffman: There are a number of reasons a lender would prefer to have the assets sold by the receiver prior to foreclosure. In many cases, the earlier sale will usually deliver a higher price and enhanced recovery for the lender, especially when the security includes not only real and personal property, but an operating business as well. Foreclosure can have a negative effect on buyers' perceptions of value and business stability, often exacerbated by concerns of vendors, employees, customers and others. Therefore the earlier the property is sold, the less time those concerns have to build.

Additionally, a receiver sale ensures the lender never enters the chain of title, which may be invaluable under certain circumstances—for example if a property is contaminated with hazardous materials. Similarly, in a receivership sale, the lender never has to actually own and actually operate the property. Also, and depending on the quality of a property’s lease files, a foreclosure may eliminate certain leases, so a receivership sale can preserve leases and, therefore, preserve property value. Another reason for lenders to avoid ownership is the perceived "deep pocket" which unpaid vendors suppliers, utilities, critical suppliers, and especially franchisors, may attempt to get the lender to pay. The receiver has no obligation to pay any pre-receiver debts and can assume the role of the “bad cop” in order to affect a clean break between borrower and prospective buyers.

GlobeSt.com: Any pitfalls/issues to be wary of when negotiating a receivership sale?

Hoffman: Receivership sales require an extensive understanding of the court system, in addition to real property and contract law issues. Inexperienced receivers, lenders and prospective buyers could find themselves in a challenging position if they fail to properly understand the statutory requirements involved in selling a property through receivership. As previously mentioned, another major obstacle is if one or more parties, particularly the owner/mortgagor, object to the receiver’s sale.

GlobeSt.com: Have there been recent changes in state laws regarding sales by receivers? Has changed legislation helped lead to the surge in receiver sales?

Hoffman: No. The Federal Code and most state laws permit, and have long permitted, the sales of property through receivership, albeit the legal landscape varies from state to state. However, a California trial court recently concluded that a receiver could not sell real property. Although the decision is a non-binding trial court decision, the court’s ruling sent waves through the industry, and in particular the title insurance industry. Many commentators and, more importantly many other courts, disagree with that decision, and we have successfully sold many properties through receivership (and obtained title insurance commitments for those sales) subsequent to the decision. Ultimately, the industry is realizing that the decision at issue was based on a very peculiar factual situation that will unlikely impede or impact other receivership sales.

GlobeSt.com: Are there any recent/noteworthy receiver sales you would like to discuss?

Hoffman: Trigild has recently orchestrated some significant receivership sales, including the nearly $15-million sale of a portfolio of Albuquerque area Ever-Ready Oil Inc. gas stations and convenience stores to two separate regional operators, and the $76.1-million sale of the Towers at Bella Terra, a 428,806-square-foot office and retail complex in Huntington Beach, CA, sold to Lincoln Property Co. in partnership with GEM Realty Capital Inc.