The Real Deal Miami

Citing costs, associations and lenders shun property receivers

By Alexander Britell | July 15, 2010 06:30PM

Attorney Andrew Hall

It’s a familiar scenario: a developer or owner is seriously underwater,
past the point of return, and applies to the court to appoint a
receiver to help. But as banks become more and more concerned about
their balance sheets, and troubled condo associations simply can’t
afford to pay them, receivers are beginning to look like a dying breed.
 
Receivers
have been a pressing topic in the industry in recent months. More and
more developers have chosen to enter the field of late, but the steep
costs have meant a new wave of reservation about appointing them.
 
Receivers
act as owners, temporarily, for troubled properties during the period
when borrowers, lenders and the courts figure how to resolve the case,
a process which can take years.
 
“What’s happened that’s
changed the look of things very dramatically is that people who
normally ask for receivership, like lenders, are reserved about
increasing their financial losses — because they’re the ones that have
to advance the funds [for the receiver],” said Andrew Hall, an attorney
with Hall, Lamb and Hall in Coconut Grove.
 
Hall said
judges are increasingly receptive to the idea that, in many cases,
granting the application for a receiver would simply increase losses
for those involved.
 
Hall gave the example of a property
that was purchased for $10 million and had seen its value drop to $5
million. “You’ve lost five million already,” he said. “You’re not going
to put in a receiver unless it’s really urgent.”
 
The
practical effect, Hall added, is that lenders are asking for it less
frequently. “They’re very concerned about increasing their losses, so
they usually don’t ask for a receivership where they might have
otherwise.”
 
Costs can add up quickly once a receiver is
appointed. For starters, they cost $200 to $350 per hour, said Ben
Solomon, a partner at the Association Law Group, which represents a
host of condominium associations throughout Florida. In addition, they
can hire lawyers, who often cost $250 to $350 an hour, and an
accountant, who usually charge about the same amount. “We don’t advise
clients to go into receivership unless it’s a desperate-measure
situation.”
 
Receivership is an especially expensive
proposition for troubled condominium associations, which generally
don’t budget for the potential cost of a receiver. This means that if
one is appointed, funds have to be taken from other areas, like general
operating expenses.
 
“It is an extremely expensive
process,” said Solomon. “The associations that we have had go into
receivership have found themselves saddled with even more costs than
even expected.”
 
The industry hasn’t been helped by several
high-profile cases in which South Florida receivers were alleged to
have embezzled funds or committed other serious financial misconduct.
 
Solomon
said the process was helpful mostly in particularly dire situations —
where a property had been abandoned, or the developer was in default.
 
But
Hall used the case of the former Grand Bay Hotel in Coconut Grove a
telling example. After several years of financial trouble, the lenders
declared default and a receiver was appointed.
 
“The hotel
is now empty, completely gutted, and there is a chain-link fence around
the property,” Hall said. “You see maintenance people coming by to do
just enough so it doesn’t decay further. “
 
Solomon said
he’d seen cases where, at a certain point, “it’s like nobody is left
standing. It really drains funds. It’s a difficult predicament and I
don’t’ see a lot of it going on — we definitely don’t recommend it.”