Why Proactively Identifying a Proven Receivership Partner is So Important in 2025
April 2025
The commercial real estate (CRE) landscape is experiencing turbulence not seen since the great financial crisis of 2008, particularly within the multifamily and office sectors. Recent data from Trepp highlights a concerning rise in delinquency rates across these asset classes, underscoring the critical need for property owners, investors, and lenders to establish or renew relationships with experienced distressed CRE workout and receivership firms. Such partnerships are essential for ensuring timely intervention, effective asset management, and the preservation and creation of asset value during periods of financial distress.
Escalating Delinquency Rates in Multifamily and Office Sectors
As of February 2025, the overall Commercial Mortgage-Backed Securities (CMBS) delinquency rate climbed to 6.30%, marking a 90-basis-point increase from just three months earlier. This upward trajectory has been consistent over recent months, with notable contributions from the office and multifamily sectors.
The office delinquency rate, in particular, reached an unprecedented 11.01% in December 2024, surpassing the 11% threshold for the first time since Trepp began tracking these metrics in 2000. This surge was influenced by over $2 billion in newly delinquent office loans during that month. In December 2024, the multifamily delinquency rate rose to 4.58%, a 40-basis-point increase from the prior month. This escalation is part of a broader trend observed throughout the year, with the rate beginning at 1.91% in January 2024 and steadily climbing to 3.30% by August 2024.
Factors Contributing to Increased Delinquencies
A range of factors have converged to exacerbate delinquency rates in these sectors:
- Economic Uncertainty: Fluctuations in economic conditions have led to reduced tenant demand, impacting rental incomes and property valuations.
- Remote Work Trends: The sustained prevalence of remote and hybrid work models has decreased the demand for traditional office spaces, leading to higher vacancy rates and financial strain on office property owners.
- Interest Rate Volatility: Rising interest rates have increased borrowing costs, making refinancing more challenging for property owners and contributing to financial distress.
Benefits of Engaging an Experienced Receivership Firm to Mitigate Financial Distress
In the face of these challenges, receivership emerges as a vital mechanism for managing distressed assets.
As a court-appointed neutral party responsible for taking control of a property during legal disputes or financial distress, the primary role of the receiver is to preserve and potentially enhance the property’s value. A receiver owes a fiduciary duty to both the property and the court. So, although a lender is typically the party requesting the receivership, it is important to note that a receiver does not act only on behalf of the lender, but instead, acts in the best interests of both lender and borrower. That said, the appointment of a receiver provides a valuable service specific to a lender involved in commercial real estate by safeguarding the long-term value of the subject property and helping to pave the way for a clearer path to either resolution with a borrower or foreclosure.
A commercial real estate lender normally makes a request of the court for the appointment of a receiver so that the receiver may:
- Safeguard the value of the asset that secures the lender’s loan.
- Avoid liens against the property due to lack of payment to contractors or vendors by the borrower
- Properly maintain or make necessary repairs (life safety, deferred maintenance)
- Make certain that the borrower does not use income generated by the property to pay non-property expenses or to pay other creditors
Partnering with a seasoned receivership firm offers a distressed property’s lender and borrower several advantages. In terms of asset preservation, receivers are tasked with not only maintaining the subject property, but also preventing waste and preserving value during periods of uncertainty. As impartial, neutral parties they act in the best interest of all stakeholders, ensuring fair and unbiased management of the asset(s). From a cost and time efficiency standpoint, a well-guided receivership can serve as a more expedient and cost-effective alternative to foreclosure or bankruptcy proceedings, facilitating quicker resolutions and minimizing legal expenses for the property owner. Importantly, experienced receivership firms bring valuable expertise to these complicated situations, making it possible to effectively navigate legal complexities, implement strategies designed to stabilize and enhance asset performance, and orchestrate the disposition of assets when needed in a manner that achieves maximum return.
Suggested Proactive Measures for Stakeholders Given Current Market Conditions
Given the current landscape, it is imperative for property owners, investors, and lenders to adopt proactive measures:
- Conduct Regular Portfolio Assessments: Conducting frequent evaluations of property performance and financial health can help identify potential issues early, allowing for timely intervention.
- Stay Informed on Market Trends: Keeping abreast of economic indicators, market dynamics, and sector-specific developments enables stakeholders to make informed decisions and anticipate challenges.
- Develop Contingency Plans: Having a well-defined strategy in place for potential financial distress scenarios can facilitate swift action and mitigate adverse outcomes.
- Establish Relationships with Receivership Experts: Building connections with reputable receivership firms ensures that stakeholders have immediate access to expertise and services when financial distress arises.
- Importantly, because a lender can select or nominate a court-appointed receiver for the court’s consideration and approval, identifying a proven and trusted party proactively holds significant benefit in terms of acting in a timely manner to preserve value.
In an environment marked by economic volatility and sector-specific challenges, proactive collaboration with a receivership expert is not merely beneficial but essential for safeguarding investments and sustaining long-term success.
About Receivership Services from Hilco Real Estate
Hilco Real Estate offers a full suite of advisory, transaction and investment services for both healthy and distressed businesses. Our receivership experts advise diverse stakeholders looking to preserve and increase asset value across a variety of asset types and businesses. We create a custom solution for each assignment, providing the most cost-effective approach without sacrificing execution. Leveraging our vast national and local networks, we work exclusively with best-in-market industry experts, third-party managers and service providers.
Our robust receivership and fiduciary services platform offers specialized receivership services for all stakeholders of commercial real estate. Working in conjunction with the Hilco Real Estate Asset Management, Leasing and Disposition Verticals, we provide a full suite of services for clients across the U.S. Our team’s lasting relationships within the commercial real estate industry span the globe, providing clients with the comfort of proven, flawless execution and maximized value. Our customizable consultancy and asset management programs, accurate property valuation knowledge and creative marketing techniques ensure the best results possible.
With more than 100 office, multifamily, retail and mixed use receivership assets currently under assignment across the country – including an office portfolio in excess of 6.5MM SF and a multifamily portfolio of more than 6,350 units – our team has the expertise you require. With this in mind, we encourage you to reach out to us to discuss current or upcoming receivership needs.
