San Diego-based Trigild was named the court-appointed receiver this month for Enclave, a high-end, 1,119-unit multifamily property in Silver Spring, Md., that had seen its appraisal value drop from $284 million in February 2007 to $114 million this July, some $36 million below the outstanding loan held on the property by New York City-based Stellar Management. There is little secret about Trigild’s operations strategy from here: Complete any critical deferred maintenance, stabilize occupancy, and sell the asset, which shouldn’t be hard considering the dealmaking interest in similar Washington, D.C., submarkets.

“This is a highly desirable asset offering commuters easy access to Washington, D.C., and Bethesda, Md., and we are optimistic that we can successfully position it for a quick sale and avoid a lengthy, expensive foreclosure,” says Trigild president Bill Hoffman of the 26-acre development, which also features a 12,000-square-foot amenity center that includes fitness facilities, a cyber café, and billiards room.

Following Trigild’s sale of Irvine, Calif.-based Bethany Group’s assets out of receivership to Standard Portfolios, interest in receivership sales—which can help lenders avoid the foreclosure process—has increased significantly. Part of this is attirubted to the moneys that can be saved by avoiding default: In the sale of the Bethany Group’s Arizona portfolio, Hoffman estimates the lender realized a premium of $50 million by avoiding foreclosure..

“We have been seeing receiverships increase over the past couple of years, and we are expecting a flood over the next four to five years,” Hoffman says, adding that Trigild now manages 11,000 multifamily units within its 158-property portfolio of apartment, office, restaurant, and hotel assets under receivership. Part of the reason for the uptick in sales out of receivership have been recent court decisions (including the Bethany Group sale) regarding the legality of receiver sales, which some states specifically allow, other states specifically do not, and still other states remain silent on.

Bad Loans, Good Assets
Indeed, the opportunity to avoid foreclosure on quality assets with struggling borrowers makes receivership sales attractive. Even if lenders are looking for an exit strategy, receivership sales can result in price premiums by avoiding foreclosure legalities, costly delays, and distressed vacancies.

“Receivership sales will be present more so than they have been in the last few years just given the condition of the financial markets,” agrees Jeff Fuller, vice president of acquisitions for Irvine, Calif.-based The Bascom Group, which closed on a 360-unit Class A receivership deal in late August, bringing the Retreat at Canyon Springs Apartments in San Antonio into the firm’s Lone Star state portfolio of 9,173 units across 25 properties.

In comparison to Triglid’s Enclave deal, the Retreat at Canyon Springs Apartments is also characterized as a luxury asset in a prime market with improving fundamentals and a lack of supply. “That helped the sales process,” Fuller says. “The senior lender really wanted to stay in longer term on the asset. They liked the property, they liked the market, and they wanted to stay on board.”

Overland Park, Ks.-based Midland Loan Services PNC worked with Bascom on restructuring the debt on the property, and Houston-based GreyStone Asset Management, previously the receiver on the property, will remain in a property management role.

For the buyer, receiver sales can be logistically more difficult than a straight foreclosure sale as approval of the deal is required from the court, the lender, and in some cases the original borrower. “The purchase process was fine on our deal,” Fuller says. “With a foreclosure you are only dealing with one party and the legalities have all been hammered out, but the transactions are not difficult. It is certainly something we are open to, and any time there is an opportunity like that we are definitely going to pursue it.”