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Receiverships as a Growth Industry? Outsourcing Operating and Management Needs May be Key to Successful Business Expansion By Insul, Marc* [Editor’s note: This article is a first of its kind in the RN. Receivers were, until fairly recently, primarily sole individuals or persons with very small staffs, handling only one or a very few receivership appointments at a time. But when the Feds made money nearly free to lenders about nine years ago, it generated a tidal wave of virtually un-repayable loans (made for short- term profits) predestining today’s multiple lender collapses and the vast numbers of residential and commercial properties in foreclosure. New companies are springing up in response to handle multiple and massive pre-foreclosure residential and commercial property receiverships – as Mr. Insul describes it, a burgeoning new industry. How to grow such a company in a highly-competitive environment is the subject of this piece. The views he expresses are, of course, his own and not necessarily the views of the RN or the California Receivers Forum.] It will come as no surprise to the readers of this publication that receivership is a growing business field. As the economic downturn lingers and property owners continue to default on loans, receivership remains one of the hottest growth businesses in the United States. While thousands of dedicated and part-time receivers existed prior to the economic recession, new receivership companies are sprouting up each day, arriving from affiliated business fields, such as attorneys, property managers, and real estate brokers, while others are entering the market with no direct lineage to the receivership business. As with any line of business, when the marketplace becomes more crowded, each proprietor needs to find his or her own way of differentiating himself/herself from the competition. Historically, receivers have built their competitive advantage through the prior existence or the development of new relationships with the institutions that request and direct the receivership assignment. These institutions include banks, mortgage servicing companies, specialized lenders, attorneys, and justices. While relationships and prior performance unquestionably help receivers acquire many of their assignments, new differentiating factors must be implemented if growth in a receivership business is sought. For receivers, organic growth can occur in one of three ways: 1) Growth or acquisition by the institution directing the receivership assignment; 2) The establishment of relationships with additional institutions that have (or will soon have) possession of properties in the geographic area covered by the receiver; or 3) The determination to expand the geographic territory that the receiver covers. Growth through the establishment of relationships with additional institutions requires dedicating significant time to sales and marketing in order to facilitate these new business associations. Finding the time to dedicate to sales and marketing is especially challenging in the current environment where receivers find themselves consumed by their current workload. Perseverance by receivers is required as the target institutions are also overloaded with challenging assignments combined with numerous potential receivers soliciting these target institutions for new business. In order to grow by the third means, a question that each receiver might want to ask himself/herself is: “Do I want to remain a local provider of receivership services or is my goal to broaden my horizons and expand the territory which I can cover?” This is a fundamental question that business owners ask themselves in all fields of business beyond receivership. There are many skeletons left along the road to expansion, so deciding to geographically grow a business does not come without risk. I am sure each of us can think of smaller businesses in our own town that “grew too big for their britches” and ended up scaling back or closing their doors entirely. While growth does not come without trepidation, the economic rewards of successful business expansion can not only be tempting, but also highly achievable through hard work and the establishment of strong outsourcing partners. Outsourcing services is not new to the receivership business in many states. In fact, the majority of services required by a receiver are presently outsourced, including: legal services, property management, property maintenance, leasing brokerage, investment sales brokerage, insurance brokerage, real estate tax appeal consulting, engineers, environmental consulting, security consulting, and title insurance services. “Asset class helps determine the type of outsource vendors needed,” states Michael Guggenheim, President of Guggenheim, Inc., a Cleveland, Ohio, based regional receiver. Outsourcing enables receivers to grow their businesses without adding to personnel, managing the new personnel, increasing office space, incurring overhead costs, and conducting training. As a result, growth can be accomplished much less expensively and more efficiently through the outsourcing of services. Developing the most appropriate team of outsource partners enables the receiver promptly to commence new assignments by bringing together all of the resources necessary to address virtually any property issue. Each day that goes by without a trusted property manager, leasing broker, or security system in place increases both real and lost-opportunity costs. On the other hand, addressing these issues quickly helps mitigate the risk of losing existing tenants, incurring continued physical property damage, and losing prospective new occupants. In order to truly help the receiver, the outsource partners need to be flexible enough to provide coverage wherever and whenever the receivership assignment occurs. John Cohen, Senior Vice President of The Hayman Company, states, "We are a relationship-oriented firm, so when one of our clients asked us to serve as a receiver for a commercial property in a market where we did not have a presence, we quickly reached out to our network of service providers. Within days, we had scheduled interviews with reputable service providers, conducted in-person interviews within the week, and engaged the following service providers: law firm to handle lease negotiations and to guide us through the state and county receivership statutes and procedures, a property management firm, and a leasing broker to market the vacant space for lease. In addition, we reviewed the insurance policy in place with our insurance consultant and insurance broker, evaluated the real estate and personal property assessments with a tax consultant, inspected the property with the engineering firm retained by the lender, and reviewed the most recent environmental reports." The Hayman Company has been appointed receiver for more than 90 assets over the past two years. In another example, outsourcing enabled a receiver to take on a property in an area in which it did not have a presence rather than turning away this assignment. This receiver was awarded a large office building which had less than 40% occupancy and limited immediate prospects for new tenancy. The receiver needed to keep its bank client happy by taking on this assignment quickly and triaging the building maintenance issues. By engaging a property maintenance service provider, this receiver was able to immediately establish oversight for the building and keep the occupants satisfied. During the six months that services were provided, not a single tenant terminated its lease. The property maintenance provider was able to provide its client access to resources in this urban area without the receiver needing to immediately hire dedicated personnel in the region. Any maintenance issues that occurred at the property became the responsibility of the property maintenance company. The receiver/client trusted its outsource provider and was able to sell the property faster than it had ever imagined. After the sale, the client commented to its outsource partner, “We couldn't have done it without you.” Trust is a critical factor in selecting the right outsource partners. Trust is most often built by personal knowledge of the outsource provider, but should be complemented by ensuring that you are working with an outsource partner who is well capitalized, possesses strong references from respected clientele, has proper licensing and qualifications to perform the required services, and carries sufficient levels of insurance. Outsource partners should have both the personnel and the technology well beyond what is currently available within your own office. If the outsource provider cannot supply personnel to respond to your needs immediately upon the placement of a phone call or submission of an email, then this outsource relationship is simply no better than adding more personnel within your own office. Additionally, the technology offered by the outsourcer should serve as a database for information about the property which is complementary to the information that you retain on your own system, if not interfaced with your system altogether. Furthermore, the service provider’s technology should be user friendly such that minimal time needs to be spent locating data on this system. By providing strong technology and capable employees, the outsource service provider will save you both time and costly expenditures on technology and personnel. Growth and expansion may not be for everyone. But
for those receivers who want a bigger slice of the pie, outsourcing of
services is the fastest way to achieve that goal. |