Coreland Lands Receiverships, Expects More

TUSTIN, CA-In a sign of things to come, Coreland Cos. Principal Patrick Galentine has been appointed court receiver for two Southern California office and industrial projects totaling 220,000 square feet. Galentine, who has extensive experience with receiverships from the downturn of the 1990s, tells GlobeSt.com that these are the first of what will be a growing number of receiverships that Coreland and others with expertise in the receivership arena will be assigned to as the commercial real estate industry comes to terms with some of the problems resulting from the credit crunch and the economic downturn.

The two properties for which Galentine is receiver are a newly built 200,000-square-foot development of 50 industrial and office condominiums called Cornerstone Commerce Centre on Hall Road in Downey that is a project of Newport Beach, CA-based Shaw Properties. The other is a 20,000-square-foot executive office suites development on Gillette Avenue in Irvine that is a project of Executive Offices of Orange County LLC.

Coreland Cos., whose principals managed hundreds of receiverships in the 1990s, is serving as property manager for both of the properties during the receiverships. Galentine is already in line to be named receiver for a number of other office, industrial and retail properties, part of what he describes as a coming wave of receiverships across the country. “Whether this will be a tidal wave like it was in the 1990s remains to be seen, but we are definitely just at the beginning of the receivership business in this cycle,” he says. “I don’t think anybody really knows what is going to happen or for how long, but I would guess 12 to 24 months.”

Coreland principals and co-founders Galentine and Chris Hite, and others at the Tustin-based company, worked with the Resolution Trust Corp. as well as a host of banks, savings and loans and investment funds to manage the receiverships in the 1990s downturn. “There was a period in the ‘90s when we would handle 10 to 15 per month,” notes Galentine, who himself managed more than 200 receiverships in those days.

The Coreland co-founder points out that a receivership is a short-term process, typically lasting three to six months, “just to keep the property going so that whoever ends up owning it can take it from there and do whatever they deem necessary.” If it turns out that it is going to be a lengthy process, then the receiver can look at more long-term solutions for the asset, but in the short term the assignment is really to serve as a trustee for the court, acting on behalf of all of the parties—the borrower, the lender and the court.

Receivers need to have experience with distressed assets as well as an understanding of the services and strategies required to tailor a solution for each specific property, Galentine explains. Coreland, for example, provides services that include property management, construction management, project management, leasing, repositioning, marketing for sale, accounting and legal/court interface.

One of the reasons for the coming wave of receiverships, Galentine explains, is the large number of commercial real estate loans that will be maturing in the next year or two. Many if not most of those loans, which were made from two to five years ago, “were made on pro-formas of 100% occupancy that assumed rising rents, and now we are in a market with declining rents, declining occupancy and a financing market that is just short of nonexistent,” the Coreland principal points out. The result will be “a lot of people struggling to refinance,” he says.

One of the challenges presented by those maturing loans is that they are conduit loans. The loans are complicated because they are in pools, they have been securitized, and “just figuring out who ultimately will be responsible for the disposition of the asset is a challenge,” Galentine says.