By Adam Broderick
Jones Lang LaSalle
Currently in Indianapolis, there are several quality office buildings that have been taken over by a lender due to a default on the part of the deeded owner.
When this happens, there are four primary remedies available to the lender:
- Deed in lieu,
- Workout, and
In many cases, lenders choose to have the property handled by a court appointed receiver.
The role of a receiver is to act as a neutral party to preserve and protect the property and asset while the default is cured or the property is foreclosed.
When a receiver is appointed by the court, the receiver has legal possession of the property but does not hold the title to the property. They take the place of the owner and handle the day-to-day operations including property management and making leasing decisions. They continue in this role until the lender takes title to the property through the foreclosure process or a settlement between the borrower and lender is agreed upon.
As a tenant in a property that is being run by a receiver, there are common scenarios to be prepared for:
- Tenants may notice no change at all.
- The property management company and leasing companies could change.
- Capital for improving the property may be frozen. This would halt any significant projects to improve and maintain the property. This is typical as none of the parties involved want to spend significant dollars until the final outcome of the default is known.
- Leasing transactions, both renewal and new deals, will be slowed. These transactions typically require court approval which can take months. Transactions requiring a large capital spend (tenant improvement dollars) will likely not be considered.
Unfortunately, there is no definitive answer as to how a tenant will be affected or what they can do to protect themselves. Negotiating language in your lease that specifies that the landlord will maintain the property in similar fashion to building of similar class and location can provide some wiggle room, should the maintenance significantly deteriorate.
Typically real opportunity presents itself when the property has been foreclosed on and sold to a new third party. The new owner will likely have a cost basis much lower than the past owner which at times can allow tenants to negotiate aggressive terms that would not have been achievable under the prior ownership.